Earnings Call Transcript - ADCT Q4 2024

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the ADC Therapeutics Fourth Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Operator instructions were provided. I will now turn the call over to Marcy Graham, Investor Relations Officer for ADC Therapeutics. Marcy, please go ahead.

Marcy Graham, Investor Relations Officer

Thank you, operator. This morning, we issued a press release announcing our fourth quarter and full year 2024 financial results and business update. The 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, who will discuss our operational performance and recent business highlights, followed by our Chief Financial Officer, Pepe Carmona, who will review our fourth quarter and full year 2024 financial results. We will then open the call to 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 US 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 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 fourth quarter earnings release for information and reconciliation of historical non-GAAP measures to the comparable GAAP measures. I will now turn the call over to our CEO, Ameet Mallik. Ameet?

Ameet Mallik, Chief Executive Officer

Thanks, Marcy, and good morning, everyone. Thank you for joining us on today's call. Looking back, 2024 was a year focused on execution where we achieved multiple exciting milestones, helping to advance our strategy to unlock value for our shareholders. We made significant progress across key areas in our ADC portfolio, both with ZYNLONTA and our early-stage solid tumor pipeline, all while strengthening our balance sheet. We are confident in the path ahead as we work to make an impact for more patients moving forward. Among our key 2024 accomplishments, we reached commercial brand profitability with ZYNLONTA as we continue to maintain our position in the highly competitive third-line-plus DLBCL space. Sales of $69.3 million were in line with the prior year despite the growth of bispecifics in this setting. We made significant progress in advancing our strategy to expand the use of ZYNLONTA into earlier lines of DLBCL and indolent lymphomas. December included completion of enrollment in our pivotal Phase 3 LOTIS-5 trial and an initial efficacy and safety update on Part 2 of our Phase 1b LOTIS-7 trial. In addition, we were pleased to see Phase 2 investigator-initiated trial indolent lymphoma data presented at ASH and the simultaneous publication of the follicular lymphoma data in Lancet Haematology. From a solid tumor perspective, we continue to advance our exatecan-based preclinical candidates. The most advanced targets are PSMA and Claudin-6 and we continue to seek potential research collaborations to further advance our programs. Additionally, in a year marked by continued progression, we were able to achieve a double-digit reduction in operating expenses for our second year in a row. In addition, we strengthened our balance sheet through an equity financing, providing an expected cash runway into the second half of 2026. We are proud of what we accomplished in 2024 and are confident in our path forward. In support of our commitment to further expand usage of ZYNLONTA, we are pursuing the substantially larger opportunity in earlier lines of DLBCL therapy with combinations through LOTIS-5 and LOTIS-7. With LOTIS-5, we are pleased to have closed 2024 by completing enrollment of our Phase 3 trial, bringing us a step closer to providing a potential combination treatment in the second-line-plus DLBCL setting. Initial data from the safety lead-in portion of the study showed an overall response rate of 80% and a complete response rate of 50% with no new safety signals demonstrating that this combination of ZYNLONTA plus rituximab has the potential to provide competitive second-line-plus efficacy with a favorable safety profile allowing broad accessibility. Updated data are expected by the end of 2025 once the pre-specified number of events is reached. With LOTIS-7, in December, we reported encouraging initial data including safety and efficacy in a subset of patients from the Part 2 dose expansion of the ZYNLONTA plus glofitamab combination arm in non-Hodgkin lymphoma. Initial data showed a best overall response rate among the 18 efficacy-evaluable relapsed or refractory DLBCL patients of 94% and a complete response rate of 72%. These encouraging efficacy data were observed across patients with different numbers of lines and types of prior treatments. Initial safety data on all 29 NHL patients suggest the combination is generally well tolerated with no dose-limiting toxicities across all dose levels. We believe these initial data support our hypothesis that combining these two potent approved single-agent drugs with complementary mechanisms of action will yield additive or synergistic efficacy, a manageable safety profile and accessibility across care settings. This combination has the potential to be best-in-class in a highly competitive market. Enrollment of 40 patients and dose expansion is expected to be completed in the second quarter of 2025. We'll share data on a subset of those patients in the second quarter of this year with a fuller, more mature data update anticipated during the second half of 2025. In addition to our expansion trials in DLBCL, promising Phase 2 data from two key investigator-initiated trials, led by the Sylvester Comprehensive Cancer Center at the University of Miami Miller School of Medicine, were reported in indolent lymphomas with presentations at ASH on ZYNLONTA in combination with rituximab in high-risk relapsed or refractory follicular lymphoma and as monotherapy in relapsed or refractory marginal zone lymphoma with a simultaneous Lancet Haematology publication of the FL data. Data showed strong results in high-risk relapsed/refractory FL patients treated with the combination of ZYNLONTA plus rituximab with the best overall response rate of 97% and a complete response rate of 77%. In addition, ZYNLONTA data from the relapsed or refractory MZL study showed clinically meaningful activity with an overall response rate of 91% and a complete response rate of 70%. We look forward to further updates at future medical conferences from these two studies evaluating the potential of ZYNLONTA in FL and MZL. With sufficient data, we plan to discuss the path forward with regulatory authorities as well as seek inclusion in compendia. Looking forward into 2025, we expect to have multiple data catalysts which can further de-risk ZYNLONTA life cycle management opportunities. Together, these have the potential to lead to a peak revenue of $600 million to $1 billion in the US, assuming regulatory approval and compendia listing. Within our current indication, our commercial strategy remains focused on relapsed or refractory DLBCL patients who need a treatment with a fast, durable response and a manageable safety profile, which can be administered in the outpatient setting. We are holding our own in the competitive third-line-plus market, demonstrating that ZYNLONTA has a place as a monotherapy with a significantly greater opportunity as we move toward combinations in earlier lines of DLBCL therapy. We believe LOTIS-5 has the potential to take ZYNLONTA to $200 million to $300 million in peak sales as we expand into the second-line setting, taking the company to profitability. This is driven by doubling the patient population, extending the duration of therapy and improving the clinical profile versus our current indication as a monotherapy. Market research suggests that only about 50% of the second-line population are expected to have access to and/or be suitable for CAR-T and bispecific-based therapies. For patients who are not treated with or progress on a CAR-T or bispecific, ZYNLONTA plus rituximab has the potential to have a differentiated clinical profile with high and durable response rates, a manageable safety profile, and ease of administration. With LOTIS-7, we estimate we can expand the total opportunity for ZYNLONTA in DLBCL to $500 million to $800 million in peak revenue with regulatory approval and compendia listing. If the data persists, we believe ZYNLONTA plus rituximab has the potential to transform the future lymphoma treatment paradigm by becoming the preferred bispecific combination in the second-line-plus DLBCL setting. Additionally, in indolent lymphomas, there is a clear unmet need in both relapsed or refractory marginal zone lymphoma and relapsed or refractory follicular lymphoma. We are encouraged by the data seen in the Phase 2 investigator-initiated trials suggesting a ZYNLONTA regimen could provide significant benefit in these indolent lymphomas and plan to engage regulatory agencies and pursue competitive strategies as soon as sufficient data are available. The indolent lymphomas opportunity could provide additional peak revenue of $100 million to $200 million. Taken together, we believe we are well positioned for success as we progress toward key milestones in 2025 and beyond. With that, I would like to turn the call over to Pepe.

Pepe Carmona, Chief Financial Officer

Thank you. As Ameet has noted, we achieved many milestones in 2024, including reducing operating expenses and strengthening the balance sheet. On the financial front, we remain well capitalized, ending the year with $251 million in cash and cash equivalents, which is expected to fund operations into the second half of 2026 based on our current plans. ZYNLONTA net product revenues in fourth quarter 2024 were $16.4 million as compared to $16.6 million in the same quarter of 2023. For the full year 2024, net product revenues were $69.3 million as compared to $69.1 million in 2023. Throughout 2024, we maintained our disciplined capital allocation strategy and decreased operating expenses by 13% year-over-year on a non-GAAP basis, which excludes stock-based compensation. In the fourth quarter, our non-GAAP operating expenses decreased versus prior year by 15% due to efficiencies in our operations and diligent portfolio management decisions. 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. On a GAAP basis, we reported a net loss of $30.7 million for the quarter or $0.29 per basic and diluted share as compared to net loss of $85 million or a net loss of $1.03 per basic and diluted share for the same period in 2023. Net loss for the full year ended December 31, 2024 was $157.8 million or a net loss of $1.62 per basic and diluted share as compared to a net loss of $240.1 million or a net loss of $2.94 per basic and diluted share for the full year ended December 31, 2023. The decrease in net loss during both periods is primarily attributable to lower income tax expenses and lower operating expenses. On a non-GAAP basis, adjusted net loss was $26.5 million or an adjusted net loss of $0.25 per basic and diluted share as compared to adjusted net loss of $79.5 million or $0.97 per basic and diluted share for the same period in 2023. Adjusted net loss for the full year ended December 31, 2024 was $111.4 million or an adjusted net loss of $1.15 per basic and diluted share as compared to net loss of $185.7 million or an adjusted net loss of $2.27 per basic and diluted share for the full year ended December 31, 2023. The decrease in net loss and adjusted net loss during both periods is primarily attributable to lower income tax expenses and lower operating expenses. With our current 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 US directly and through our partnership outside the US. In addition, we continue to pursue research collaborations to advance our early-stage solid tumor pipeline. With that, I will turn the call back over to Ameet.

Ameet Mallik, Chief Executive Officer

Thanks, Pepe. With a year of completed milestones behind us, we enter 2025 with great confidence, proud of what we have achieved and excited for what is to come. Within our current ZYNLONTA indication, we maintained our annual revenue in line with prior year. We believe the real growth opportunity comes with the expansion of ZYNLONTA both through regulatory approvals as well as inclusion in guidelines, and we are confident in the multiple pathways we have to get there. We continue to be encouraged by ZYNLONTA's consistently strong clinical profile, both as monotherapy and in combinations, giving us confidence in the ultimate success of our expansion strategy. 2025 will be a period of important data readouts as we progress towards the key milestones here today, potentially de-risking and setting us up to grow our ZYNLONTA brand significantly in the future. As we build on the strength of our established commercial foundation of ZYNLONTA with the expected expansion into the second-line-plus DLBCL and indolent lymphomas, we believe we have the potential to reach $600 million to $1 billion in peak revenue in the US on our journey to bring these important treatments to patients who need them. Beyond this, we believe there is additional value creation opportunity with our preclinical solid tumors portfolio as we pursue potential research collaborations. Looking ahead, I am confident that ADC Therapeutics is well positioned to make a truly meaningful impact for patients while driving value creation for all our stakeholders. We can now open the line for questions. Operator?

Operator, Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Operator instructions were provided. Your first question comes from Eric Schmidt of Cantor. Please go ahead.

Eric Schmidt, Analyst, Cantor

Good morning. Thanks for taking my question. Maybe just a first real quick one on the LOTIS-7 update in Q2. Is there going to be a specific forum that you have in mind or timing within the quarter we can look to?

Marcy Graham, Investor Relations Officer

Hello?

Eric Schmidt, Analyst, Cantor

Hi. Can you hear me?

Pepe Carmona, Chief Financial Officer

Yeah, we can hear you.

Ameet Mallik, Chief Executive Officer

Yeah. Did you hear me? Okay. So, let me repeat. Thanks for the question. We haven't disclosed yet what forum or exact timing within Q2 that we're going to be sharing the data, but what I can tell you is that we're on track to enroll the 40 patients in the dose expansion in the second quarter. We'll share a portion of those patients' safety and efficacy data in the second quarter and then data on all 40 of those patients in the second half of the year.

Eric Schmidt, Analyst, Cantor

Thanks for repeating that. And then, second question just with regard to your newest competitor in what's already a fairly crowded marketplace with existing market for ZYNLONTA in relapsed/refractory NHL. Obviously, we saw the Pfizer approval of ADCETRIS plus R2. Is it too early to say whether you've got a real challenge there? I know you've guided to kind of flattish revenue for the year. Thank you.

Ameet Mallik, Chief Executive Officer

As you said, the triplet of ADCETRIS plus R2 was recently approved in the third-line setting based on the ECHELON-3 study. We believe this is going to have limited impact as physicians have access, as you said, to multiple options. Based on a lot of the quantitative market research we've done, any use is likely to be in place of older regimens such as R2 or R-based chemo in the third-line-plus DLBCL setting.

Eric Schmidt, Analyst, Cantor

Thanks a lot.

Operator, Operator

Your next question comes from Kelly Shi of Jefferies. Please go ahead.

Kelly Shi, Analyst, Jefferies

Thank you for taking my questions. For LOTIS-7, do we expect a meeting with the regulatory agencies after the second half update? And if that's the case, would ADC share the information to the public domain? And secondly, what is your estimate of ZYNLONTA as a market opportunity in indolent lymphoma including follicular lymphoma and marginal zone lymphoma? Thank you.

Ameet Mallik, Chief Executive Officer

Once sufficient data is available on the 40 patients, and we have the appropriate follow-up, we do plan to pursue discussions with regulatory authorities, likely in the second half of this year. We also plan to pursue a compendia strategy. Based on some of the recent inclusions of bispecific combinations in guidelines, we believe that publication of data on approximately 100 patients with the selected dose could be sufficient for submission to compendia. So, we do plan to pursue both a regulatory strategy and a compendia strategy for LOTIS-7. With regards to the indolent lymphoma opportunity, as you know, we presented what we think are compelling data both in marginal zone lymphoma and follicular lymphoma at ASH this past year and those studies continue. Based on the opportunity, potential regulatory approval and compendia from those studies, we believe that the peak opportunity from indolent lymphomas will be somewhere in the $100 million to $200 million range.

Kelly Shi, Analyst, Jefferies

Thank you.

Operator, Operator

Your next question comes from Michael Schmidt of Guggenheim. Please go ahead.

Michael Schmidt, Analyst, Guggenheim

Hey, guys. Thanks for taking my questions. By the end of the year, you should most likely also have the result of the LOTIS-5 trial in hand. I guess I'm just wondering how your LOTIS-7 strategy is impacted by potential outcomes of LOTIS-5 by the end of the year? And then, I had a follow-up.

Ameet Mallik, Chief Executive Officer

It's a great question. In this market, outside of the front line, no given treatment dominates. Physicians make treatment choices based on efficacy, safety and accessibility in the context of individual patient needs. For example, CAR T, which has outstanding efficacy, only captures about 20% of the share. We think having both approaches—ZYNLONTA plus rituximab in LOTIS-5 and ZYNLONTA plus glofitamab in LOTIS-7—are complementary approaches that allow us to address different individual patient needs. Specifically with LOTIS-5, we believe that offering a non-systemic chemo combination could provide a competitive second-line efficacy profile with favorable safety and convenience, especially for patients who either can't access or are not suitable for, or progress on, CAR T or bispecific therapy. With LOTIS-7, based on the recent data we shared in December, which we believe is very compelling, we think that ZYNLONTA plus glofitamab has potential to be the preferred bispecific combination in second-line-plus DLBCL with highly competitive efficacy, a manageable safety profile and the potential for off-the-shelf convenient dosing. So, we believe both approaches are complementary. Based on our quantitative market research, about 50% of patients are anticipated to get a CAR T or bispecific, leaving substantial room for other therapies. Of course, many patients will progress on those therapies.

Michael Schmidt, Analyst, Guggenheim

Okay. And then, we saw you have an AACR oral presentation coming up at AACR on your Claudin-6 ADC. I was wondering how important that presentation is and, in terms of learnings relative to other ADC platforms like the Daiichi Sankyo technology, how much insight will we gain from that presentation in terms of differentiation?

Ameet Mallik, Chief Executive Officer

I think you will see more data that has not been disclosed yet in the public domain, not only on Claudin-6, which is an oral presentation, but we also have poster presentations for PSMA and ASCT2 compounds. We are using exatecan with a novel linker system, which allows us to offset the hydrophobicity of exatecan and reduce aggregation. Preclinically, we have consistently seen a therapeutic index greater than 10, which is quite differentiated. Relative to DXd, we've seen higher potency and higher activity in MDR substrate models. We also have not observed interstitial lung disease, which has been seen with DXd and other topoisomerase platforms. We do think the data is differentiating. With both the oral presentation for Claudin-6 and the poster presentations for PSMA and ASCT2, there will be additional compelling data to be shared that hasn't been public to date.

Michael Schmidt, Analyst, Guggenheim

Okay. Thank you.

Operator, Operator

Your next question comes from Gregory Renza of RBC Capital Markets. Please go ahead.

Anish (on behalf of RBC Capital Markets), Analyst

Hi, guys. Thank you so much for the time this morning. It's Anish on for Greg. Thanks also for the updates and for taking our questions. Just on LOTIS-5, what must the combination of ZYNLONTA and rituximab demonstrate in terms of efficacy and safety to be considered competitive? And what are the benchmarks for approval and to make a compelling case for clinical adoption in terms of complete response, median PFS, median DoR and median OS? Thanks so much.

Ameet Mallik, Chief Executive Officer

For LOTIS-5, the competitive set is CAR-Ts and bispecific-based combinations, of which a portion of the population will have access and be suitable for those therapies. When you look at other therapies and combinations, whether targeted or chemo-based, they tend to have complete response rates in the 25% to 40% range. Anything north of 40% would be differentiated. We are encouraged by the safety run-in, which was the first 20 patients looking at ZYNLONTA plus rituximab prior to the randomized portion of the study. What we saw was an overall response rate of 80% and a complete response rate of 50%. In terms of PFS, the study is randomized versus R-GemOx; R-GemOx typically has a PFS of around three to four months. In the STARGLO study, for example, the PFS was 3.6 months. The study is powered such that we need to show approximately a two-month difference to have a positive study. Based on the safety run-in data, we feel encouraged, but the randomized results remain blinded until the pre-specified events are reached.

Anish (on behalf of RBC Capital Markets), Analyst

Great. Thank you so much. And if I could squeeze in one more: on the commercial side, how do you foresee the competitive landscape for third-line DLBCL evolving in 2025 and beyond? How might that differ from 2024? Thanks again.

Ameet Mallik, Chief Executive Officer

The biggest competitive impact we've seen since the product launch is the introduction of bispecifics about 18 months ago. Bispecifics now have taken about a third of the third-line-plus market. During this period, our quarterly sales have been in the $16 million to $18 million range, with some fluctuation due to order patterns, but overall pretty consistent despite bispecific competition. The only recent new impact in the third-line-plus setting is the ADCETRIS plus R2 approval question. We expect some impact but believe it will be relatively limited, likely replacing older regimens such as R2 and R-based chemo in the community.

Operator, Operator

Your last question comes from Sudan Loganathan of Stephens. Please go ahead.

Sudan Loganathan, Analyst, Stephens

Hi, Ameet and Pepe. Thank you for the update and for taking my questions. My first one is, can you provide some examples of comparable bispecifics that demonstrated meaningful market share gain with DLBCL patients through compendia listing? And then, what were the number of patients in those bispecific clinical trials that were run and considered for compendia listing?

Ameet Mallik, Chief Executive Officer

Recently, glofitamab plus GemOx, epcoritamab plus GemOx and mosun plus polatuzumab have all been added to NCCN guidelines as preferred regimens based on roughly 100 patients. When we look at those analogs, approximately 100 patients is what's required to get into guidelines, which is what those regimens had. It's too soon to tell what the uptake will be, but once a regimen is listed, physicians can use it and payers typically reimburse based on preferred listings.

Sudan Loganathan, Analyst, Stephens

Got it. Thank you. And if I can squeeze in one more: how long do you anticipate it will take to achieve the peak penetration predictions for ZYNLONTA after achieving compendia listing or potential approval in the second- and third-line setting? I know when it was first approved, it was pretty swift in gaining market share. So, curious if you expect the same type of ramp once it's added to listings?

Ameet Mallik, Chief Executive Officer

We haven't guided to a specific timeframe for peak penetration. Historically, with other products in this setting, peak penetration is often achieved within the first two years after introduction. Oncologists and hematologists tend to adopt effective therapies relatively quickly for life-threatening conditions where prognosis is poor after relapse. For example, polatuzumab in the front line achieved peak adoption in about two years, and bispecific growth in the third line is at about the 18-month mark. That's typically what's happened in the DLBCL setting, though I won't predict exactly what will happen for our product.

Operator, Operator

There are no further questions at this time. That concludes our question-and-answer session. I'd like to turn the conference back to our CEO, Ameet Mallik, for closing remarks.

Ameet Mallik, Chief Executive Officer

I want to thank you all for joining our call today and for your continued support. We look forward to keeping you updated on our progress. Operator, please end the call.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.