Welcome to the ADC Therapeutics Second Quarter 2024 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 Marcy Graham, Investor Relations Officer for ADCT. Marcy, you may begin.

Thank you, operator. This morning, we issued a press release announcing our second quarter 2024 financial 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, Ameet Mallik; and our CFO, Pepe Carmona. We will discuss recent business highlights and review our second quarter 2024 financial results. We will then open the call for questions. 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-K, 10-Q, and 8-K. ADC 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 as a substitute for, the information prepared in accordance with GAAP. You should refer to the company's second quarter earnings release for information and reconciliation of historical non-GAAP measures to the comparable GAAP financial measures. I will now turn the call over to our CEO, Ameet Mallik. Ameet?

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 derisked asset in ZYNLONTA, the key product in our prioritized portfolio. We continue to lay the foundation for 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. The second pillar of our strategy is grounded in our emerging solid tumor pipeline. ADCT-601, targeting AXL, 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 exatecan-based platform. In the second quarter of 2024, we continued our focus on execution, advancing programs on several fronts in our ZYNLONTA expansion plan while working to deliver on our commercial strategy. In the first half of 2024, we achieved commercial profitability with revenues of $34.9 million year-to-date. Our second-quarter revenues of $17 million compared to revenues of $17.8 million in the first quarter of 2024 and $19.2 million 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 third-line patients with DLBCL. We've observed quarter-to-quarter variability over time, and we've seen continued competition in the third-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 role ZYNLONTA plays today in the third-line plus DLBCL given its clinical profile as a monotherapy with rapid and durable complete responses, manageable safety, and ease of administration. 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 ZYNLONTA 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, LOTIS-5, our Phase 3 confirmatory study of ZYNLONTA in combination with rituximab, 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 LOTIS-7 trial, enrollment remains on track in the part 2 dose expansion of the ZYNLONTA plus glofitamab combination arm in second-line plus DLBCL and complete enrollment is expected by year-end. 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 2025. We are also progressing our solid tumor programs. ADCT-601, our novel AXL 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 2024. Throughout the quarter, we maintained our disciplined capital allocation strategy and decreased operating expenses in the second quarter by 23% year-over-year on a non-GAAP basis. This, in addition to our recent financing of $105 million, enabled us to extend our expected cash runway into mid-2026, providing the company with a stronger balance sheet to execute against our strategy. As we have now reached commercial profitability for ZYNLONTA in 2024, I'd like to go deeper on the substantially larger potential opportunity for ZYNLONTA in earlier lines of DLBCL therapy and indolent lymphomas. Our LOTIS-5 and LOTIS-7 trials are focused on expanding the usage of ZYNLONTA into second-line plus DLBCL. 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 million in peak sales. Our LOTIS-5 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 ZYNLONTA potentially as early as the end of 2026, and expand our indication into second-line plus DLBCL in combination with rituximab, a treatment frequently used in the community setting. 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 ZYNLONTA label. In our LOTIS-7 trial combining ZYNLONTA with bispecifics, we continue to be encouraged by the initial safety and tolerability profile as well as the antitumor activity observed at the initial investigator assessment among the majority of patients in part 1 of the dose escalation. Enrollment is ongoing in part 2 dose expansion with ZYNLONTA plus glofitamab 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 ZYNLONTA combination can improve efficacy versus either agent and reduce 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 setting of indolent lymphomas based on the initial data from investigator-initiated trials at the University of Miami exploring ZYNLONTA monotherapy in marginal zone lymphoma and ZYNLONTA plus rituximab in follicular lymphoma. 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 complete response rates 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, 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.

Thank you, Ameet. I will now take you through a brief summary of our second quarter results. Starting with our balance sheet. As of June 30, we had cash and cash equivalents of approximately $300 million. Moving to the P&L. As you already heard, ZYNLONTA net product revenues were $17 million for the second quarter and $34.9 million for the first six months of 2024, as compared to $19.2 million and $38.2 million 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. Our total operating expenses on a non-GAAP basis, which excludes stock-based compensation, were down 23% compared to the second 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 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 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, on a GAAP basis, we reported a net loss of $36.5 million for the quarter or $0.38 per basic and diluted share. On a non-GAAP basis, adjusted net loss was $24.4 million 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 second quarter 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 ZYNLONTA beyond our current indication. 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 expansions into early 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. 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. These catalysts include expected completion of enrollment in LOTIS-5, initial efficacy and safety data from LOTIS-7 Part 2 expansion, and an initial read of ADCT-601 in AXL in both sarcoma and pancreatic cancer. In the first half of 2025, we expect mature data for our LOTIS-7 and AXL trials and anticipate indolent lymphoma data will be shared at medical meetings in 2024 or 2025.

Thanks, Pepe. As we've illustrated today, we made significant progress in the second quarter and are excited about what's ahead in the second half of 2024. We have achieved commercial profitability with ZYNLONTA 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. With that, operator, could you please begin the Q&A session?

Eric Schmidt from Cantor Fitzgerald is online with a question.

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

Yes. Thanks, Eric. That was a great question. So the independent data monitoring committee reviewed the unbounded efficacy and safety data and recommended to continue the trial without any modifications. In terms of what they looked at, this was an interim analysis for futility with prespecified efficacy boundaries based on PFS, which, as you know, is the primary efficacy endpoint, and that passed per IDMC review. The IDMC was also looking at unblinded safety data and directly noted that the treatment-emergent adverse events were as expected in this vulnerable and pretreated population. Their recommendation was to continue the study without any modifications, which increases our confidence around the study.

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

Yes, we haven't disclosed.

Okay. And then in terms of some of the upcoming milestones for the second half of the year, you've got several lined up. Can you be a little bit more specific about what form they can take, which might be at medical meetings, which might be corporate events or press releases?

Yes, most of them will be at the end of the year. It will be a combination, but I would say specifically, if you look at LOTIS-7, which is probably one of the big ones, this will likely be through a corporate disclosure. We want to make sure that we can show as much data as possible. The data we're going to have available will be for any patients that have completed at least 12 weeks of scanning so that any responses have been confirmed. So basically, once you get to late August, you kind of get to the cut-off for what's going to be shown. We expect to have the full data from that trial in the first half of next year. Similar with AXL, 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 non-small cell lung cancer, we want to make sure that we can share the data that we have.

Kelly Shi from Jefferies is online with a question.

Thank you for taking my question, and congrats on the progress. Maybe in terms of the variability and order pattern for ZYNLONTA, could you provide more color on this front? Is this a variability in terms of the academic and community split in prescription and also maybe comments on distribution inventory channel and also gross-to-net?

Okay. So I'll comment on the order variability that we see by quarter. If you look at quarter-by-quarter variability, a lot of it is just month by month. For instance, we may have a large iconic institution order a significant quantity because, as you can imagine, we are a relatively rare disease. The number of cycles on average is about four. So you don't need a lot of vials per patient. They may order for five to ten patients and then not need to order for three or four months. That happens a lot with smaller accounts as well. Thus, we see certain months with much higher orders and certain months with much lower. Depending on how the quarters get cut off, that can affect performance. We've seen this since the launch, with fluctuations all the time. Despite an increasingly competitive environment, we're still seeing a strong place for ZYNLONTA in academic settings, either where bispecifics can't be used or post-bispecifics. Especially in academia, there's a clear understanding of how and when to use it. In the community, there is variability due to the adoption of bispecifics in some large community counts. However, the majority of accounts have yet to adopt bispecifics, and variability comes from when they see patients and whether they are suitable for ZYNLONTA.

From the gross-to-net side, we saw a favorable prior period adjustment this quarter. I would expect that to be just a one-off. In general, if you look at the year-to-date, or even the first quarter, that's when you should expect for the balance of the year.

Thank you very much. And also, I have a follow-up regarding the solid tumor program 601 targeting AXL. What is the relative proportion of sarcoma versus pancreatic cancer patients that will be enrolled and to be shown like data by the end of the year, and also are there any particular sub-types you're going to focus on for sarcoma enrollment?

Yes. So for sarcoma, we're focused on soft tissue sarcoma. In terms of enrollment, both are enrolling at a good pace. AXL is expressed in these cancers, meaning we don't need to select patients for sarcoma. Although it's a rare disease, that helps to drive up the numbers. Given the early signals we saw, there's a lot of awareness within the community as these patients have limited options. For pancreatic cancer, we are conducting an enrichment strategy and looking at different levels of expression to understand the cut-offs. We believe we will have a meaningful number in both tumor types. For non-small cell lung cancer, since we have just started screening and the proportion of AXL expression is lower, I don't expect to share an update on that until the first half of next year.

Michael Schmidt from Guggenheim is online with a question.

Good morning. Thanks for taking my questions. Roche recently reported positive data from their STARGLO study evaluating their C20 bispecific antibody in second-line DLBCL. How do you expect that to affect market dynamics in that setting and perhaps the opportunity from ZYNLONTA?

Yes. Look, I think the STARGLO data was impressive from an efficacy standpoint. It validated that combinations of toxins with bispecifics is a really good approach. On the LOTIS-5 front, the primary endpoint is median PFS. We are doing ZYNLONTA plus rituximab versus R-GemOx. The R-GemOx arm had roughly 3.6 months of PFS. That provides us a clear opportunity to do better. It gives us confidence with LOTIS-5 because the study is powered with even a two-month difference to be considered a positive study. We hope to do much better than that. We have not seen any new safety signals. There is no CRS or ICANS. This makes it a very accessible option for patients in the community. ZYNLONTA plus rituximab has the opportunity to provide better efficacy with a better tolerability profile than what exists today. For LOTIS-7, as STARGLO showed over 13 months of PFS with glofit plus GemOx, the efficacy bar is high and we need to be comparable or better from an efficacy standpoint. We believe that ZYNLONTA can be better than R-GemOx. We have seen promising safety data with the combination.

Great. Thanks, Malik. Regarding the marginal cell lymphoma and follicular lymphoma interim data that you had presented, do you see an opportunity to include that into guidelines before publishing the full results sometime next year, or would you need to wait for the completion of those two studies?

Yes, I think it's possible before full completion, but what it requires is presentation at a major medical congress and a concomitant publication. You need a publication in a key medical journal. It will be data-driven and governed by the study investigators. If the data looks good and is published before full patient completion, it's possible. We need a meaningful amount of data to be published, and we are working closely with the investigators to make sure we have sufficient data to support this.

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

Hey, guys, thanks for taking our questions this morning. Maybe just going back to ZYNLONTA sales, it seems that some of the variability can be explained by inventory build at some of the institutions. Can you comment on the growth in your prescriber base in academia versus community? What are you seeing currently in the institutional market? And how confident are you that you will be able to see continued growth for the rest of the year? Thanks.

This concludes today's conference call. Thank you for participating. You may now disconnect.