ADC Therapeutics SA (NYSE:ADCT) Q1 2024 Earnings Call Transcript May 6, 2024
ADC Therapeutics SA reports earnings inline with expectations. Reported EPS is $-0.56 EPS, expectations were $-0.56. ADCT isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the ADC Therapeutics First Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Nicole Riley, Head of Communications. Please go ahead.
Nicole Preiss-Riley: Thank you, operator. This morning, we issued a press release announcing our first quarter 2024 financial results and business updates. This release is available on the ADCT website at ir.adctherapeutics.com under the Press Releases section. The event is being recorded, and the slides accompanying this call are available on the ADCT website at ir.adctherapeutics.com under the Latest Events and Presentations section. On today’s call, Ameet Mallik, Chief Executive Officer; and Pepe Carmona, Chief Financial Officer, will discuss recent business highlights and review our first quarter 2024 financial results. We will then open the call to questions when we will be joined by Kristen Harrington-Smith, Chief Commercial Officer; and Mohamed Zaki, Chief Medical Officer.
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 slide presentation on Slide 3 and in the company’s filings with the SEC, including Form 10-K, 10-Q, and 8-K. ADCT is providing this information as of the date of today’s conference call 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 after the date hereof, except as required by law or otherwise.
The company cautions investors not to place undue reliance on these forward-looking statements. Today’s presentation also includes non-GAAP financial measures. These non-GAAP 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 GAAP. You should refer to the information contained in the company’s fourth quarter earnings release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures. It is now my pleasure to pass the call over to our CEO, Ameet Mallik. Ameet?
Ameet Mallik: Thanks, Nicole and thank you all for joining us today. As you will have seen, we have shared some very exciting news items earlier this morning. But to begin with, I’d like to focus on key business updates for the quarter. Starting with our commercial performance, ZYNLONTA continued its return to sequential growth with revenues of $17.8 million in Q1. This represents a 7% increase over the fourth quarter of 2023. Importantly, we saw continued growth both in the community and in our academic centers despite the intensified competitive landscape. Turning next to our pipeline, we have made significant progress. Last month, we announced that our LOTIS-7 study of ZYNLONTA, in combination with bispecifics, successfully cleared the final dosing cohort in both arms with no dose-limiting toxicities, no high cans, and either no or low grade levels of CRS.
We are now dose expanding at 120 and 150 micrograms per kilogram in the ZYNLONTA plus glofitamab combination arm in second line plus DLBCL. Today, we are delighted to share, for the first time, encouraging initial data recently presented from the University of Miami’s Phase 2 investigator-initiated trial of ZYNLONTA in relapsed/refractory marginal zone lymphoma. Based on initial results from the first 15 evaluable patients, 13 achieved a complete response and one achieved a partial response with all patients maintaining response at the time of data cutoff. Moving to ADCT-601, our novel axle targeting ADC. We began enrolling pancreatic cancer patients and continue to enroll sarcoma patients, and we are in the process of optimizing the dose and schedule.
Lastly, we shared a comprehensive update on our novel exatecan-based solid tumor platform, including early preclinical data on our four preclinical ADC candidates for the first time at our recent research investor event. Finally, in terms of our corporate update, we maintained our disciplined capital allocation strategy and decreased operating expenses in Q1 by 16% year-over-year on a non-GAAP basis. This, in turn, enabled us to manage our cash burn, so that we ended the first quarter with cash of $234.3 million. On top of this, we have just announced today that we have priced an underwritten offering to raise $105 million in gross proceeds. The offering at the closing price per share on Friday included common shares and prefunded warrants and is expected to close on May 8th.
We expect this will extend our cash runway into mid-2026, and provide the company with enhanced financial flexibility to execute our strategy. Given our strength and balance sheet, I would like to remind everyone of the strategy we are pursuing, which we believe will unlock the tremendous value we see in the company. Our first pillar and primary focus remains hematology. Within this, we have a derisked asset in ZYNLONTA, the key product in our prioritized portfolio, which we expect to carry the company through to profitability. We are deploying the majority of our capital to the ZYNLONTA franchise to commercialize our existing third-line cost DLBCL indication and to pursue the substantially larger potential opportunity in earlier lines of DLBCL therapy and indolent lymphomas, such as marginals on lymphoma.
We believe these potential opportunities will help expand the ZYNLONTA franchise and have the potential to generate annual peak sales in excess of $0.5 billion. The second pillar of our strategy is grounded in our emerging solid tumor pipeline. ADCT-601 is our most advanced asset. Behind this, we see the potential to advance a broad portfolio of differentiated ADCs against solid tumor targets of interest driven by our novel exatecan-based platform. I’d like to expand now on the substantially larger potential opportunity for ZYNLONTA in earlier lines of DLBCL therapy and indolent lymphomas. Pending the results of the LOTIS-5 and LOTIS-7 studies, our goal is to expand usage of ZYNLONTA into second-line plus DLBCL. As a reminder, LOTIS-5 is our confirmatory Phase 3 study of ZYNLONTA in combination with rituximab.
Here, we remain on track and expect 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 ZYNLONTA and expand our indication into second line plus DLBCL in combination with rituximab, potentially as early as the end of 2026. LOTIS-7 is our Phase 1b trial of ZYNLONTA in combination with bispecifics. We are encouraged by the initial safety and tolerability profile as well as the observed antitumor activity amongst the majority of patients in Part 1 of the dose escalation. We are now enrolling in Part 2 dose expansion with ZYNLONTA plus glofitamab in second line plus DLBCL and expect to complete enrollment and plan to share additional efficacy and safety data before year-end.
We also see the potential to expand the use of ZYNLONTA into the second-line plus setting of follicular lymphoma and marginal zone lymphoma based on initial data from investigator-initiated trials at the University of Miami. Today, I want to focus on the marginal zone lymphoma data that we shared this past weekend at the Lymphoma Research Foundation’s 2024 Marginal Zone Lymphoma Scientific Workshop by the trial’s lead investigator, Dr. Izdor Vosos at the University of Miami. The last refractory MZL represents an unmet need, based on publicly available incidence data, there are an estimated 3,000 to 4,000 second-line plus MZL patients who are drug treated in the U.S. Unmet medical need remains in relapsed/refractory MZL, less than 30% CR for second-line plus approved or NCCN preferred treatments.
At present, there are 2 FDA approved regimens and several other preferred regimens for the treatment of MZL in second-line plus included in NCCN guidelines. Complete response rates are modest and sample sizes in the study supporting this data are relatively small. As complete response rates are a strong predictor of time-related outcomes in MZL, clinicians continue to seek novel agents with higher and durable CR rates, a manageable safety profile and a fixed duration of treatment. The University of Miami is leading a multicenter Phase 2 IIT study in ZYNLONTA as a single agent fixed duration regimen to treat 50 relapsed/refractory MZL patients. Initial data from the first 15 evaluable patients showed 13 achieved a complete response and one achieved a partial response.
According to the lead investigator, ZYNLONTA was generally well tolerated and safety was consistent with the known profile. There are two sites currently enrolling University of Miami and City of Hope, and the lead investigator is currently expanding to five sites to accelerate trial enrollment. As soon as we have sufficient data, assuming it remains positive, we plan to potentially pursue our regulatory pathway and compendia strategy in parallel. In terms of the opportunity based on our analysis, we believe the total addressable second-line plus NPL patient population has a potential peak market opportunity of approximately $500 million valued at ZYNLONTA price and an expected average number of cycles. If successful, it means every 10% of market share captured represents $50 million in incremental annual peak sales opportunity.
While still early in the Phase 2 IIT, if this trial continues to yield similar results, the potential opportunity to expand into MZL could contribute to the overall ZYNLONTA growth strategy in NHL. The current standard of care in MZL includes CD20-based regimens across all lines in addition to BTK inhibitors in second-line MZL. The data used for FDA approvals and inclusion in NCCN guidelines were based on either single-arm studies or a subset of larger indolent NHL studies and offer modest CR rates, which are below 30%. Per the study protocol, all patients included must have failed one or more lines of systemic therapy, including at least one anti-CD20 antibody. Under the protocol, patients receive a fixed duration of treatment of six cycles of ZYNLONTA across 18 weeks.
The primary endpoint is CR rate at 6 and 12 months as patients will be followed for up to three years with progression-free survival and overall survival measured at 24 months. The predetermined futility threshold for efficacy was set at 31% CR rate. Looking at the baseline characteristics of the patients enrolled so far in the study, there are a few things I want to point out. We believe this initial group of patients is representative of the overall MZL population, including MZL subtypes. In addition of the patients treated with ZYNLONTA so far, 10 of the 15 were Stage IV MZL patients with 8 of the 15 designated as POD 24, meaning they progressed within 24 months of initial treatment, a group that is typically harder to treat. The median prior lines of therapy is two ranging from one to four and as you can see on the right side of the slide, included multiple currently available systemic treatments.
As shared by Dr. Losses at the Lymphoma Research Foundation’s 2024 Marginal Zone Lymphoma Scientific Workshop on May 4th, these initial results showed 13 out of 15 patients achieved a CR with one additional patient achieving a PR. Of the 13 CRs, nine were achieved after two cycles. In addition, all patients achieving responses and maintain them as of the data cutoff with the longest responder reaching approximately 20 months. And from an initial safety perspective, per the lead investigator in this study, ZYNLONTA was generally well tolerated and consistent with a known safety profile. One patient discontinued after cycle two, a second patient discontinued after cycle four due to a toxicity which fully resolved upon discontinuation of treatment.
Both of these patients remain in CR at 10 and 6 months, respectively. Based on this initial data from University of Miami’s Phase 2 trial evaluating ZYNLONTA in relapsed/refractory MZL, we are encouraged by the potential opportunity in the second line post setting for patients with this rare disease. Moving on to LOTIS-7, we are sharing here additional safety data from the Part 1 dose escalation portion of the study. The important takeaways are that the majority of CRS events were Grade 1 and that no CRS greater than Grade 2 is observed. Those patients who have experienced a Grade 2 CRS were managed with no requirement for ICU management or pressers. On the left-hand side, you will see that the overall CRS rate with glofitamab was 33%, which is the combination of focus for Part 2 of the study.
Important to note that current glofitamab label in third-line post-DLBCL includes a 70% CRS rate, including some higher grade events. We believe that dosing with ZYNLONTA one week prior to glofitamab may be debaulking the tumor. Turning to our research platform, we hosted a virtual investor research event on April 9, which provided a comprehensive overview of our solid tumor research strategy, our novel exatecan-based platform, and our four lead ADC candidates. Our focus is on advancing differentiated ADC candidates against prostate, non-small cell lung cancer, colorectal, endometrial, and ovarian cancers. For each tumor type, the combination of incidents and five-year survival offers large potential opportunities and indicates that better treatment options are needed.
Furthermore, in each case, chemotherapy remains a key part of the treatment armamentarium. Our four lead ADC targets are NaPi2b, Claudin-6, PSMA, and ASCT2. We believe each offers the potential to improve the standard of care for cancer patients and each utilizes our novel exatecan-based platform. Preclinical work suggests that our four lead candidates each have a high therapeutic index, reflecting the proprietary design of the ADC. In terms of stage, our NaPi2b and Claudin-6 ADCs are in IND-enabling studies, and we are pleased to share exciting early data on these at AACR last month. Our PSMA and ASCT2 ADCs are in the drug candidate selection stage, which we expect to complete this year. Looking ahead, we plan to move forward with one candidate to IND and to seek research collaborations to advance a broad portfolio.
Given the unmet medical need, coupled with the market opportunity, a successful outcome for one or more of 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.
Jose Carmona: Thank you, Ameet. Before I discuss today’s financing, I will take you through a brief summary of our first quarter results. As a reminder, we’re now reporting our results under U.S. GAAP, we became a U.S. domestic filer as of January 1, 2024. Starting with our balance sheet, at March 31st, we had cash and cash equivalents of approximately $234.3 million. Moving to the P&L, as you have already heard, ZYNLONTA net sales were $17.8 million in the quarter, a decrease of 6% versus prior year, primarily driven by higher gross net deductions and lower volume, partially offset by higher gross price. On a sequential basis, ZYNLONTA net sales grew 7% versus the fourth quarter of 2023. Our total operating expenses on a non-GAAP basis which excludes stock-based compensation, were down 16% compared to the first quarter of last year.
This mainly reflected our focus on driving operating efficiencies, together with reduced R&D expenditures due to focused investment in our clinical studies and lower selling and marketing expenses. For 2024, we will continue to take a very disciplined approach to our capital. To confine the reconciliation of GAAP measures to non-GAAP measures in the compounding financial tables of the press release issued earlier today and in the appendix of this presentation. Moving to the bottom of the P&L, GAAP basis we reported a net loss of $46.6 million for the quarter or $0.56 per basic undiluted share. On a non-GAAP basis, adjusted net loss was $31.1 million, adjusted net loss of $0.38 per basic and diluted share. The decrease in both reported and adjusted net loss for the first quarter of 2023 was primarily due to lower operating expenses.
Today, we have announced the pricing of a registered direct offering which included prefunded warrants. We expect to close by May 8th, and the offering is expected to raise approximately $105 million of gross proceeds. We have been delighted by the response from rate to high-quality institutional investors, and we expect to proceed to extend our cash runway into the middle of 2026. By strengthening our balance sheet, we believe we are now better financed 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 ZYNLONTA beyond the current indication. We expect to achieve this by fully supporting our commercialization effort in the U.S. directly and through our partnerships ex U.S. and by investing behind potential expansion into earlier lines of DLBCL and indolent lymphomas.
In solid tumors, our aim is to pursue multiple ADC candidates in parallel and increase our short-term goal, mainly through our novel exatecan-based research platform. We will determine on a case-by-case basis, whether we wish to progress candidates internally or seek partner in order to share the development of financial costs. As Ameet mentioned earlier, we intend to take at least one candidate forward to IND and the new funds raised give us a strategic freedom to do so. My final slide highlights the multiple potential value-driving milestones which we expect in the coming year. Importantly, we have delivered on our promises to date in 2024 with positive updates for ZYNLONTA in the LOTIS-7 study and MZL IIT trading. With the initiation of dosing of ADCT-601 in pancreatic cancer and with the disclosure of our existing new research platform at our virtual investor research event.
In the second half of this year, we have multiple potential value generating catalysts, including expected completion of enrollment in LOTIS-5, initial efficacy and safety data from LOTIS-7 Part 2 expansion, and initial read of ADCT-601 in AXL in both sarcoma and pancreatic cancer. With that, I will turn the call back to Ameet.
Ameet Mallik: Thanks, Pepe. To conclude my team and I are very proud of our performance in the first quarter of 2024. We achieved another quarter of sequential growth with ZYNLONTA. We delivered against each of the planned key research and development milestones and we maintained our disciplined approach to capital allocation. Looking ahead with the strengthened balance sheet and enhanced financial flexibility to execute our strategy, I am confident that ADC Therapeutics is well positioned to drive value creation for all of our stakeholders. With that, operator, could you please begin the Q&A session.
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