ADC Therapeutics Q2 2024 Earnings Call Transcript

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August 6, 2024

There are 8 speakers on the call.

Operator

Welcome to the ADC Therapeutics Second Quarter 20 24 Financial Results Conference Call. My name is Didi, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. I will now turn the call over to Marci Graham, Investor Relations Officer for ADCT.

Operator

Marci, you may begin.

Speaker 1

Thank you, operator. This morning, we issued a press release announcing our Q2 results and business update. This release and the slides we will use in today's presentation are available on the Investors section of the ADC Therapeutics website. I'm joined on today's call by our Chief Executive Officer, Amit Malik and our CFO, Pepe Carmona, who will discuss recent business highlights and review our Q2 2024 financial results. We will then open the call for questions.

Speaker 1

Before we begin, I would like to remind listeners that some of the statements made during this conference call will contain forward looking statements within the meaning of the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. These forward looking statements are subject to certain known and unknown risks and uncertainties, and actual results, performance and achievements could differ materially. They are identified and described in the accompanying presentation on Slide 3 and in the company's filings with the SEC, including Form 10 ks, 10 Q and 8 ks.

Speaker 1

ABC Therapeutics is providing this information as of today's date and does not undertake any obligation to update any forward looking statements contained in this conference call as a result of new information, future events or circumstances, except as required by law. The company cautions investors not to place undue reliance on these forward looking statements. Today's presentation also includes non GAAP financial reporting. These non GAAP measures should be considered in addition to and not in isolation or in substitute for the information prepared in accordance with GAAP. You should refer to the company's Q2 earnings release for information and reconciliation of historical non GAAP measures to the comparable GAAP financial measures.

Speaker 1

I'll now turn the call over to our CEO, Anit Malik. Amit?

Speaker 2

Thanks, Marcy, and thank you all for joining us. Today, I'd like to start by reminding everyone about our strategy to unlock the tremendous value we see in the company. Our first pillar and primary focus is hematology. Within this, we have a de risked asset in ZENLANTA, the key product in our prioritized portfolio. We continue to lay the foundation through our commercialization efforts in our existing third line plus DLBCL indication, while we pursue the substantially larger potential opportunities in earlier lines of DLBCL therapy and indolent lymphomas.

Speaker 2

The second pillar of our strategy is grounded in our emerging solid tumor pipeline. ADCT-six zero one targeting XL is our most advanced asset. Beyond this, we are advancing a broad portfolio of differentiated ADCs against solid tumor targets of interest, driven by our novel exotecan based platform. In the Q2 of 2024, we continued our focus on execution, advancing programs on several fronts in our ZENONTA expansion plan, while working to deliver on our commercial strategy. In the first half of twenty twenty four, we achieved commercial profitability with revenues of $34,900,000 year to date.

Speaker 2

Our 2nd quarter revenues of $17,000,000 compared to revenues of $17,800,000 in the Q1 of 2024 $19,200,000 during the same period in 2023. Even in a highly competitive market, we have been able to secure our place as a treatment option for 3rd line plus patients with DLBCL. We've observed quarter to quarter variability over time and we've seen continued competition in the 3rd line plus space with bispecifics. That said, the commercial business is now self funding and is expected to be so going forward. We are confident in the roles INONTA placed today in the 3rd line plus DLBCel setting given its clinical profile as a monotherapy with rapid and durable complete responses, manageable safety and ease of administration.

Speaker 2

Within our current indication, we see the potential to further strengthen our presence in the market even as the environment grows increasingly competitive. We are excited about the potential to grow ZEMONTA beyond our current indication into earlier lines of DLBCL and in lymphomas significantly expanding the commercial opportunity. We are progressing in our second line plus expansion efforts. Last week, LOTUS-five, our Phase 3 confirmatory study at ZENMATA in combination with birtuximab, passed futility and enrollment is nearing completion with full enrollment expected by the end of 2024 and with data likely by the end of 2025. In our LOTUS-seven trial, enrollment remains on track in the Part 2 dose expansion of the ZENLYTA plus glofitamab combination arm in second line plus DLBCL and complete enrollment is expected by year end.

Speaker 2

An update on safety and efficacy in evaluable patients is expected by the end of 2024 with data on all patients anticipated in the first half of twenty twenty five. We are also progressing our solid tumor programs. ADCT-six zero one, our novel axial targeting ADC continues to enroll sarcoma and pancreatic cancer patients as we optimize the dose and scheduling and have begun screening non small cell lung cancer patients. We plan to share an initial update from the Phase 1 trial in the second half of twenty twenty four. And since sharing a comprehensive update in April on our novel exotecan based solid tumor platform, including early data on our 4 lead preclinical ADC candidates.

Speaker 2

We have selected one candidate to move forward, which we expect to disclose in 2025 and continue to explore potential partnership opportunities. Throughout the quarter, we maintained our disciplined capital allocation strategy and decreased operating expenses in the 2nd quarter by 23% year over year on a non GAAP basis. This in addition to our recent financing of $105,000,000 enabled us to extend our expected cash runway into mid-twenty 26, providing the company with a stronger balance sheet to execute against our strategy. As we have now reached commercial profitability for ZYNOLTA in 2024, I'd like to go deeper on the substantially larger potential opportunity for ZENLATA in earlier lines of DLBCL therapy and indolent lymphomas. Our LOTUS-five and LOTUS-seven trials are focused on expanding usage of ZEMONTA into second line plus DLBCL.

Speaker 2

Assuming positive results based on these two studies, we are confident in our strategy to become the combination agent of choice in this setting with the potential to reach more than $500,000,000 in peak sales. Our LOTUS-five trial continues to advance and we are pleased to announce a positive outcome on the interim futility analysis. The independent data monitoring committee has reviewed the unblinded efficacy and safety data and recommended to continue the trial without modification. As we have now passed futility, we remain on track to complete enrollment by the end of this year with the potential for a headline readout by the end of 2025. If positive, we believe this trial will lead to full approval for ZENLANTA potentially as early as the end of 2026 and expand our indication into 2nd line plus DLBCL in combination with rituximab, a treatment frequently used in the community setting.

Speaker 2

This could triple the potential revenue opportunity by doubling the potential patient population and increasing the treatment duration by roughly 50% compared to the current ZELONTA label. In our LOTUS-seven trial combining ZELONTA with bispecifics, we continue to be encouraged by the initial safety and tolerability profile as well as the antitumor activity observed at initial investigator assessment among the majority of patients in Part 1 of the dose escalation. Enrollment is ongoing in Part 2 dose expansion with ZENLATA plus blofitamab in second line plus DLBCL and we expect to complete enrollment and plan to share additional efficacy and safety data before year end. We are excited by the opportunity to demonstrate that this in line to combination can improve efficacy versus either agent and produce the potential need for hospitalization associated with bispecifics, thereby expanding accessibility in the community setting. Beyond DLBCL, we also see the potential to expand into the second line settings of indolent lymphomas based on initial data from investigator initiated trials at the University of Miami exploring ZENLONTA monotherapy in marginal zone lymphoma and ZENLANTA plus rituximab in follicular lymphoma.

Speaker 2

Early data from these studies demonstrate the potential for rapid, deep and durable efficacy with a fixed duration of therapy and a manageable side effect profile. Based on the high CRH seen thus far in these studies, we believe there is the potential to provide Marginal Zone and follicular lymphoma patients years of remission. As there remains significant unmet need across these indolent lymphomas with sufficient data, we plan to discuss the path forward with regulatory authorities as well as seek inclusion in compendia. We anticipate more will be shared on these two trials at future medical meetings. Within solid tumors, we continue to investigate ADCT-six zero one targeting XL in a Phase 1 study.

Speaker 2

While others have explored XL as a therapeutic target, we have a potentially differentiated profile with 601 due to its innovative design incorporating a PVD toxin as well as our patient selection approach with our validated biomarker assay. ACTL is expressed in multiple tumor types and it has been shown that the high expression of ACTL is correlated to lower overall survival across many cancer types, including sarcoma, pancreatic cancer and non small cell lung cancer. In this trial, we continue to enroll sarcoma and pancreatic cancer patients as we optimize the dose and schedule and have begun screening in non small cell lung cancer patients. With respect to our preclinical pipeline, our focus is on advancing differentiated ADC candidates against prostate, non small cell lung, colorectal, endometrial and ovarian cancers. For each tumor type, the combination of incidence and 5 year survival offers large potential opportunities and indicates that better treatment options are needed.

Speaker 2

Furthermore, in each case chemotherapy remains a key part of the treatment armamentarium. From our 4 lead ADC candidates, NaPi2b, Claudine VI, PSMA and ASCT2, we have now selected 1 to move forward to IND, which we expect to disclose in 2025. In terms of stage, our NaZvi IIb, Claudine VI and PSMA ADCs are in IND enabling studies and our ASCT II ADC is in the drug candidate selection stage, which we expect to complete this year. And we continue to seek research collaborations to advance a broad portfolio as we believe each offers the potential to improve the standard of care for cancer patients and each utilizes our novel exotecan based platform. Preclinical work suggests that our 4 lead candidates each have a high therapeutic index, reflecting the proprietary design of the ADC.

Speaker 2

Given the unmet medical need coupled with the market opportunity, a successful outcome for our early research programs has the potential to transform the lives of patients and create significant value in the future. With that, I would like to turn the call over to Pepe.

Speaker 3

Thank you, Amit. I will now take you through a brief summary of our Q2 results. Starting with our balance sheet, as of June 30, we had cash and cash equivalents of approximately $300,000,000 Moving to the P and L, as you already heard, ZYNOLTA net product revenues were $17,000,000 for the 2nd quarter $34,900,000 for the 1st 6 months of 2024 as compared to $19,200,000 $38,200,000 for the same period in 2023. The quarter over quarter decrease is primarily due to lower sales volume partially offset by a higher price. The year to date decrease is primarily due to lower sales volumes as well as higher gross to net deductions, primarily due to the discarded drug rebate accrual, partially offset by a higher price.

Speaker 3

Our total operating expenses on an on GAAP basis, which excludes stock based compensation, were down 23% compared to the Q2 of last year. This mainly reflected our focus on driving operating efficiencies together with reduced R and D expenditures due to focused investment on our clinical studies and efficiencies in selling and marketing expenses. For the remainder of 2024, we will continue to take a very disciplined approach to our capital allocation. You can find the reconciliation of GAAP measures to non GAAP measures in the accompanying financial tables of the press release issued earlier today and in the appendix of this presentation. Moving to the bottom of the P and L, on a GAAP basis, we reported a net loss of $36,500,000 for the quarter

Speaker 2

or $0.38

Speaker 3

per basic and diluted share. On a non GAAP basis, adjusted net loss was $24,400,000 or an adjusted net loss of $0.25 per basic and diluted share. The decrease in both reported and adjusted net loss compared with the Q2 of 2023 was primarily due to lower operating expenses. With our strong balance sheet, we believe we are well financed to continue to pursue our corporate strategy. As a reminder, hematology continues to be the primary focus of our capital allocation and within this, our key objective is to create value by expanding the use of ZINLONTA beyond our current indication.

Speaker 3

We expect to achieve this by fully supporting our commercialization efforts in the U. S. Directly and through our partnership ex U. S. And by investing behind potential expansion into early lives of TLBCL and indolent lymphomas.

Speaker 3

In solid tumors, our aim is to pursue multiple ADC candidates in parallel and increase our shots on goal, mainly through our novel exotecan based research platform. In addition to the candidate we are taking forward to IND, we will determine on a case by case basis whether we wish to progress additional candidates internally or seek to partner in order to share the development and financial risk. Finally, I would like to highlight that we have multiple potential value driving milestones, which we expect in the second half of this year. This catalyst include expected completion of enrollment in LOTUS-five, initial efficacy and safety data from LOTUS-seven 7 Part II expansion and an initial read of ADCD-six zero one in XL in both sarcoma and pancreatic cancer. In the first half of twenty twenty five, we expect mature data for our LOTTO-seven and AXEL trials and anticipate indolent lymphoma data will be shared at medical meetings in 2024 or 2025.

Speaker 3

With that, I will turn the call back to Amit.

Speaker 2

Thanks, Pepe. As we've illustrated today, we made significant progress in the Q2 and are excited about what's ahead in the second half of twenty twenty four. We have achieved commercial profitability with ZEMATA by driving operating efficiencies, while maintaining our customer facing coverage and medical support. We continue to be on track for each of our planned key research and development milestones and we maintained our disciplined approach to capital allocation. Looking ahead, with a strong balance sheet to execute our strategy, I am confident that ADC Therapeutics is well positioned to drive value creation for all our stakeholders.

Speaker 2

With that, operator, could you please begin the Q and A session?

Operator

Thank you. We will now begin the question and answer session. Eric Schmidt from Cantor Fitzgerald is online with a question.

Speaker 4

Thank you for taking my question and congrats on the progress. Maybe first for Amit on the Lotus 5 interim look. Was there any other statistical consideration given other than a potential futility analysis? Could there have been, say, a trial besides same or any other outcome other than helping the study?

Speaker 2

Yes. Thanks, Eric. That was a great question. So, the independent data monitoring committee reviewed the unblinded efficacy and safety data and recommended to continue the trial without any modifications. So in terms of what they looked at, this was an interim analysis for futility with pre specified efficacy boundaries based on PFS, which as you know is the primary efficacy endpoint And that passed per IDMC review.

Speaker 2

The IDMC obviously also was looking at unblinded safety data and directly noted that the treatment emergent AEs were as expected, in this very, as you can imagine, vulnerable and pretreated population. So their recommendation was to continue the study without any modifications. And certainly, for us, just increases our confidence around the study.

Speaker 4

And you haven't disclosed what those PFS boundaries are, I assume?

Speaker 2

Yes, we haven't disclosed. Okay. And then

Speaker 4

in terms of some of the upcoming milestones for the second half of the year, you've got server lined up. Can you be a little bit more specific about what forum it might take place, which might be at medical meetings, which might be at corporate events or press releases?

Speaker 2

Yes. So most of them will be at the end of the year. Well, it will be a combination, but I'd say specifically, you look at LOTUS-seven, which is probably one of the big ones, this would be likely through a corporate disclosure simply because as we've disclosed in the past, we want to enroll 40 patients in our trial by the end of the year. The data we're going to have available and we'll make available are for any patients that have cleaned at least 12 week scans so that any responses have been confirmed. So basically, once you get to late August, it kind of gets to the cutoff of what's going to be shown.

Speaker 2

We want to make sure that we can show as much data as possible. We expect to have the full data from that trial in the first half of next year. Similar with ACTFL, where we're currently doing dosing a number of patients in pancreatic cancer as well as in sarcoma and have just begun screening patients in noncrosolone cancer. We want to make sure that we can share the data that we have. And so as you can imagine, cutoffs for Congresses like ASH and others happen already have already happened actually in August.

Speaker 2

So that will be again a company disclosure. So those are probably 2 of the biggest disclosures. What I would say is in terms of indolent lymphomas, whether it's this year or next year, the next set of updates will be at medical meetings. Great. Thank you very much.

Speaker 2

Yes. Thank you.

Operator

Thank you. Kelly Hsieh from Jefferies is online with a question.

Speaker 5

Thank you for taking my questions and congrats on the progress. Maybe in terms of the variability in ordering pattern for Geraint, you commented in prior release. Could you provide more color on this front? Is this a variability in terms of like the academic and community split in prescription? And also maybe comments on distribution inventory channel and also growth to net?

Speaker 5

Thank you.

Speaker 2

Okay. So I'll comment on the order the variability that we see by quarter and then I'll turn it to Pepe to talk about gross to net in the quarter and how that's evolved. So if you look at quarter by quarter variability, a lot, I would say, is just month by month. I'll just give you some examples. We may have a large academic institution.

Speaker 2

I'll give you a real example that ordered, for example, in January, but they order significant amount of quantity because as you can imagine, we're a relatively rare disease and our the number of cycles on average is about 4. So you don't need a lot of vials per patient. So they may order for 5, 10 patients and for the next 5 to 10 patients and then not need to order for 3 or 4 months. And so that happens a lot also at some smaller accounts where you just see order patterns. So we see certain months which are much higher and certain months which are much lower.

Speaker 2

And depending on how the quarters get cut off, that can affect performance. And we've seen this in the past too since the launch where you see some up and down fluctuation. What I would say is that despite an increasingly competitive environment, we're still seeing a strong place for ZENLONTA in the academic settings. We're seeing a lot of use either where bispecifics can't be used or post bispecifics. And I think really, especially in the academic setting, there's a clear understanding of how and when to use.

Speaker 2

With ZYNOLTA, you see much more stability in that setting. In the community, there's variability because you've seen some adoption of bispecifics in very large community accounts, but of course, the majority of accounts are not have not yet adopted bispecifics. And the variability comes with just when they see patients or not see patients. An average community physician mainly see a patient every couple of months. So in any quarter, if you look at accounts, depending on what patients they show up and if they're suitable for ZALONTA, you can get more or less.

Speaker 2

That's why we do see typically month to month and even quarter to quarter variability.

Speaker 1

On the gross to

Speaker 3

net side, Kelly, we saw

Speaker 2

a favorable prior period adjustment this quarter.

Speaker 3

I would expect that to be just a one off. In general, if you just look at the year to date or even the Q1, that's what you should expect as we go for the balance of the year.

Speaker 5

Thank you very much. And also I have a follow-up regarding the solid tumor program 601 targeting XL. So what is the relative proportion of a sarcoma versus pancreatic cancer patients will be enrolled and to be sure like data by the end of the year and also like any particular subtypes you're going to focus for sarcoma enrollment? Thank you.

Speaker 2

Yes. So for sarcoma, we're focused on soft tissue sarcoma. And in terms of enrollment, actually both are enrolling at a pretty good pace, to be honest. I mean, as you know, there's very high access expression. So we don't even need to select patients for sarcoma.

Speaker 2

So although it's rare, that nonunion select, obviously, and helps to drive up the numbers. And given the early signals that we saw, there's a lot of awareness within the community. When you get to that late line setting, there's not a lot of options for these patients. So we see continued good enrollment. And similarly with pancreatic, again, these tend to be very late line patients, right, that have already failed multiple prior therapies.

Speaker 2

And the prognosis for these patients isn't great. So there, we're doing an enriched strategy. We're looking at different levels of expression to understand where the cutoffs can be. And again, we'll have a number of patients now. I can't tell you exactly the proportion of those who have expression of XL versus those that don't.

Speaker 2

That's the work that's ongoing. But I think we'll have a meaningful number in both of those tumors. In non small cell lung cancer, given that we've just started screening and the proportion of AXA expression is lower, I don't expect to be able to share an update on non small cell lung cancer. As we've said previously, we expect that to come more in the first half of next year.

Operator

Michael Schmidt from Guggenheim is online with a question.

Speaker 6

So Roche recently reported positive data from their STARGLOW study evaluating their C20 bispecific antibody and second line DLBCL. How do you expect that to affect market dynamics in that setting and perhaps the opportunity from ZULRANTA? Obviously, you're evaluating both LOTUS-five and LOTUS-seven studies in that same setting.

Speaker 2

Yes. Look, I think the STARGLOW data was impressive from an efficacy standpoint. I think it validated that combinations of toxins with bispecifics is really a good approach. So maybe just to talk about the implications of what Stargro is going to mean for both LOTUS-five and for LOTUS-seven. On the LOTUS-five front, I think as you're aware, the primary endpoint is median PFS.

Speaker 2

And in our trial, we're doing ZILMATA plus rituximab versus argemox. And there hasn't been a lot of modern data, especially large scale clinical data with argemox in recent years, especially in the current treatment landscape. So seeing the data where and if you look at the STARGLOW data, the our GemOx arm had roughly 3.6 months of PFS. I think that provides us a clear opportunity to do better. I mean, so it gave us even more confidence, I would say, in LOTUS-five because the study is powered with even a 2 month difference to be a positive study.

Speaker 2

Obviously, we want to we would hope to do much better than that because we want to make sure it's clinically relevant as well. But to us, that kind of clearly showed that we believe ZYNOLTA can be better than the GemOx. Rituximab is obviously constant across both arms in LOTUS-five, but we believe ZENLANTA has the opportunity to prove to be better than, GemOx. But also, to do this where we don't have any we've just not seen any new safety signals as we reported before, but there's also no CRS, no ICANS. And this makes it a very accessible option in the community, either in the second line setting or even in the academic setting for those who progress in the 3rd line plus setting.

Speaker 2

So I think it's going to be a great combination. There's still a lot of R based chemo use that exists within the community. And so ZYNOLTA plus, we're talking about, has the opportunity to provide better efficacy with a better tolerability profile than what exists today. Now if you look at LOTUS-seven, Starglow obviously showed over 13 months of PFS with GLOFIT plus GemOx. So the efficacy bar and with about a 58% CR rate.

Speaker 2

So the efficacy bar, I think, is high. I think it's pretty clear that we're going to need to be comparable or better from an efficacy standpoint. That's what matters most when you talk about more potent therapies like bispecific combinations. And so I think it clearly set a bar around that. But we believe this in LATAM GLOFIT, as we've seen in early data and we hope to show with the expansion data, can have a synergistic or even additive effect.

Speaker 2

And when you look at the fact that CIMALTA plus rituximab in our early safety run-in data showed already 50% CR rates, we're hopeful obviously we believe GLOFIT is significantly more potent than rituximab and combining Glowfit plus Amata has the opportunity to do even better. And we were hopeful that we can approach the 60% range. And I think if you get to that level of efficacy, that's very, very meaningful. But in addition to that, we're hoping that we can continue to show what we saw on the dose escalation, which is reduce rates and grades of CRS, which can hopefully enable a broader accessibility in the community, especially to a nonsystemic chemo free combination for patients. And I think that's the opportunity we have in our dosing regimen.

Speaker 2

When you look at not only some of the toxicities with the bispecific, which we hope to reduce in the way we're dosing, ZENONTA, but also at GemOx, where you see cumulative irreversible adverse events, including neurotoxicity and neuropathy. I think there's an opportunity to improve on both efficacy and safety profile of 7.

Speaker 6

Great. Thanks, Malik. And then just regarding the marginal cell lymphoma and the follicular lymphoma interim data that you had presented, obviously, looks super impressive. Just wondering if there may be an opportunity to include that into guidelines prior to publishing the full results sometime next year. Is that a possibility?

Speaker 6

Or would you

Speaker 3

need to wait for completion of

Speaker 6

those two studies? Thanks so much.

Speaker 2

Yes, I think it's possible before the full completion, but I think what it's going to require is a presentation at a major medical Congress and a concomitant publication. I think whenever you want to submit the guidelines, you do need a publication in a key medical journal. And of course, it's going to be data driven and driven also by the investigators of the study. But we've seen, for example, in marginal zone, that the latest the last BTK inhibitor, which is added to the guidelines in a preferred position, had 36 patients. So it is possible that the data looks good and the data gets published before the full completion, in that case, of the study of 50 patients.

Speaker 2

But I can't commit yet. I think it's going to be very data driven and driven by not only the efficacy that we see, but the durability of that efficacy. And then when there's a sufficient number of patients that it can get published in a major journal. But obviously, given the unmet need in these areas, we're working closely with the investigators to make sure that once there is a meaningful amount of data, it can be published. And of course, then we would plan to talk to both regulators and go to seek compendia inclusion.

Speaker 6

Yes. Makes sense. Thank you.

Operator

Thank you. Brian Chen from JPMorgan is online with a question.

Speaker 7

Maybe just going back to Salonsa sales, it seems that some of the variability can be explained by inventory build at some of the institution. Can you comment on the growth in your whether there is any growth in your prescriber base in academics versus community? What are you seeing currently in Asia's market? And how confident are you that you will be able to see continued growth for the rest of the year? Thanks.

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