Legend Biotech Corp Q1 FY2024 Earnings Call

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Legend Biotech First Quarter 2024 Financial Results Conference Call. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Jessie Yeung, Head of Investor Relations and Public Relations. Please go ahead.

Good morning. This is Jessie Yeung, Head of Investor Relations and Public Relations at Legend Biotech. Thank you for joining our conference call today to review our first quarter 2024 performance. Joining me on today's call are Ying Huang, the company's Chief Executive Officer; and Lori Macomber, the company's Chief Financial Officer. Following the prepared remarks, we will open up the call for a Q&A. We have Guowei Fang, Chief Scientific Officer; and Steve Gavel, Head of Commercial Development for the U.S. and Europe, joining the Q&A session. During today's call, we will be making forward-looking statements, which are subject to risks and uncertainties that may cause our actual results to differ materially from those expressed or implied here within. These forward-looking statements are discussed in greater detail in our SEC filings, which we encourage you to read and can be found under the Investors section of our company website. Thank you.

Hello, everyone, and welcome to our first quarter earnings call. I am pleased that you could join us. As many of you on this call know, 2024 has been an eventful year for us. Obviously, our major news was the approval of CARVYKTI by the FDA and European Commission for second-line relapsed or refractory multiple myeloma. These approvals have the potential to change the treatment paradigm for tens of thousands of patients in the United States and Europe. The feedback from key opinion leaders, oncologists, advocates, patients and caregivers has been tremendous. On March 15, we received international media attention when the FDA's Oncologic Drug Advisory Committee, or ODAC, meeting raised awareness about multiple myeloma and the positive benefit-risk profile of CARVYKTI. ODAC's unanimous 11 to 0 recommendation in favor of CARVYKTI was independent and objective validation of its value proposition. We also added another noteworthy approval to our growing list. The Brazilian health regulatory agency has approved CARVYKTI for second-line multiple myeloma. I am pleased to report that CARVYKTI is now available by prescription in Brazil. Our patient-facing colleagues and those who work in manufacturing are energized and eager to share our transformative therapy with more patients around the world. As you will see on our addressable market slide, our second-line indication translates to an addressable patient population of 80,000 across 3 major markets. Turning to financial development. CARVYKTI net trade sales for the first quarter were $157 million, which is a 100% increase year-over-year. Sequentially, net sales decreased by $2 million from $159 million in the fourth quarter of last year. This was a result of phasing due to the timing of orders and when they were delivered and built for as well as manufacturing testing needed for the upcoming expansion. Importantly, there was growth in patient demand, and this was before the recent second-line approvals. So we do anticipate continued growth for CARVYKTI, particularly in the second half of the year as we continue to add more swaps and expand our capacity. Right now, there's no higher priority in the company than making more supply available to the market and reducing the van-to-van time. We're working to expand production from every angle. We're continually increasing production at our Raritan, New Jersey facility, where we have doubled sale processing capacity since the beginning of 2023. We're laser-focused on completing physical expansion of our Raritan site this year. We plan to double CARVYKTI capacity by the end of 2024 compared to the end of 2023. Our production capacity will be augmented later in the year when our Obelisc facility in Ghent, Belgium is approved for commercial production. Clinical production already started back in January. With the second-line FDA approval, the specifications for manufacturing CARVYKTI were widened, which should give us greater yield going forward. Finally, Legend and J&J expanded a previous agreement with Novartis to perform commercial manufacturing for CARVYKTI through the end of 2029. The increases to our production capacity will help ensure we meet our target of annualized capacity of 10,000 patient slots by the end of 2025. Our cash balance now stands at $1.3 billion, which we believe provides us the resources needed to increase production and gives us financial runway into 2026 when we expect to begin to achieve an operating profit. In other developments, we continue to bring more hospitals online as authorized treatment centers. We have now a total of 72 U.S. hospitals certified to treat CARVYKTI patients. So our reach in the community is growing in parallel with the increase in eligible patients. Outpatient treatment comprises approximately 1/3 of our volume and remains an important differentiator for us. Due to the longer onset of CRS for CARVYKTI patients, this side effect can potentially be managed in the outpatient setting, which allows those hospital beds to be utilized for other patients who need them. Finally, since our last earnings call in March, we published our first ESG report. It not only summarizes our achievements as a responsible corporate citizen, but also provides a great overview of the company and transparency into how we conduct our business. To sum up, so far in 2024, we have achieved significant regulatory goals and are working to execute with excellence to meet the growing demand for CARVYKTI. Now I would like to turn the call over to Lori to walk you through the financials for the first quarter. Lori?

Thank you, Ying. And good morning, everyone. As Ying mentioned, we generated approximately $157 million in total net sales for CARVYKTI during the first quarter, an increase of 118% year-over-year. Sequential growth was roughly flat due to the timing of orders and when they were delivered and billed, as well as manufacturing testing needed for the upcoming expansions. As a reminder, we show equally in all profits and losses for CARVYKTI ex-China with our partner, Janssen. Turning to revenue, total revenues for the first quarter were $94 million, consisting of $78.5 million of collaboration revenue from the sale of CARVYKTI and license revenue of $12.2 million from the recognition of deferred revenue in connection with our agreement with Novartis to develop, manufacture and commercialize LB2102 and other potential CAR-T therapies selectively targeting DLL3. Net loss for the quarter ended March 31, 2024, was $59.8 million or a loss of $0.16 per share compared to a net loss of $112.1 million or a loss of $0.34 per share for the same period last year. Moving on to expenses, collaboration cost of revenue for the first quarter of 2024 was $49.1 million compared to $35.6 million for the same period last year. These are Legend's portion of collaboration cost of sales in connection with the collaboration revenue under the Janssen agreement, along with expenditures to support the manufacturing capacity expansions. Additionally, cost of license and other revenue for the first quarter of 2024 was $5.6 million compared to no cost of license and other revenue for the first quarter of 2023. These costs are in connection with our agreement with Novartis to develop, manufacture, and commercialize LB2102 and other potential CAR-T therapies selectively targeting DLL3. Research and development expenses for the first quarter 2024 were $101 million compared to $84.9 million for the same period last year. The increase of $16.1 million for the 3 months ended March 31, 2024, compared to 3 months ended March 31, 2023, was primarily due to research and development activities in cilta-cel, including higher patient enrollment for Phase III clinical trials and continued investment in our solid tumor programs, which includes 2 IND approvals that advanced into Phase I development. Administrative expenses for 3 months ended March 31, 2024, were $31.9 million compared to $22.2 million for the same period last year. The increase of $9.7 million year-over-year is primarily due to the expansion of administrative functions and infrastructure to increase manufacturing capacity. Selling and distribution expense for 3 months ending March 31, 2024, was $24.2 million compared to $18 million for the same period last year. The increase of $6.3 million year-over-year is due to the costs associated with the commercialization of CARVYKTI, including the expansion of the sales force and second-line indication and launch preparations. To summarize, our spending remains on track, and we continue to maintain a strong balance sheet. As of March 31, we have $1.3 billion in cash and equivalents, deposits, and investments. Additionally, we earned in April a milestone payment of $45 million in connection with the FDA's approval of CARVYKTI's label expansion to treat second-line multiple myeloma in accordance with the Janssen agreement. Thus, we believe we have sufficient capital to fund our operating and capital expenditures into 2026 when we expect to begin to achieve an operating profit. Thank you. I will now pass it back to Ying for closing remarks.

Thank you, Lori. To sum up, 2024 has already been a monumental year for Legend with a string of regulatory successes. CARVYKTI continues to be the fastest launched CAR-T therapy, and now we have new opportunities to serve even more patients. I want to thank each of our 1,900 employees for their commitment and dedication that will ensure patients who need CARVYKTI are able to access it. And with that, we'd like to take your questions.

Now our first question is from Jessica Fye with JPMorgan.

I have two, please, sort of related. First, I know 1Q was impacted by a number of non-revenue batches for comparability work. How should we think about the scale of that work in 2Q and beyond? And then second, when you talk about doubling capacity from the end of '23 to the end of '24, but I think you mentioned that the Obelisc commercial production was going to be kind of back-half weighted or back-end weighted. What does that mean for how we should think about revenue year-over-year in '24 relative to '23? I'm just trying to figure out kind of is it one-to-one on that doubling year-end from your end to your end of capacity? Or are there other factors we should think about when we're thinking about revenue this year?

This is Ying. I'll help answer those two. So first on the manufacturing investments, I would tell you that qualitatively in the first quarter of this year, we did have a number of non-revenue-generating rounds. And that includes bringing up the CMO from Novartis and also bringing up a couple of other additional nodes, including our facilities in Ghent up for production, including clinical and then in the future also for commercial production. So I cannot disclose exactly the number of the non-revenue-generating rounds, but it is on a similar order of magnitude compared to, for example, clinical rounds. And we do expect that for the rest of the year, in the next 3 quarters, that number will come down. The reason is we are pretty much complete in terms of the work we're doing with Novartis. So we believe that Novartis is in a position to file IND very soon. And assuming the IND is cleared by the FDA, we expect Novartis to start clinical trial production in the third quarter, followed by commercial production in the first quarter of next year. And then, of course, we also have 2 other facilities in Ghent. The first one, Phase I is called Obelisc, and Obelisc is already producing for CARTITUDE-6 as we speak, and we expect pending regulatory approval probably around late third quarter or early fourth quarter this year, Obelisc will start commercial production. And then followed by our much larger facility in Belgium called Tech Lane. Tech Lane right now is on track to complete physical construction and validation by the end of this year. So we expect that facility to start clinical trial production early next year, followed by commercial production in the second half of 2025. So that's kind of like the cadence. And then to address your second question, as I just mentioned, Obelisc is expected to start commercial production late 3Q or early 4Q this year. So in general, I think we have said that we are looking at a roughly doubling of our capacity from 2023 to 2024. We don't provide guidance for the product sales. But I think the capacity expansion gives you a good idea of where the revenue would lie, consistent with our policy to have similar or same disclosure from J&J, which does not provide product-specific guidance, we cannot guide the product sales. But I think that doubling of expansion gives you confidence about where the revenue would be in terms of growth year-over-year.

Can I just clarify, when you say doubling of capacity, there's other factors as it relates to revenue, whether it's kind of like in-spec, out of spec, the amount going to clinical trials, the amount going to these comparability batches or what have you. So when you say doubling of capacity, is that just like total capacity inclusive of all these other things that may not generate revenue? Or is that commercial capacity?

That is correct. When we talk about capacity, that includes the number of total slots from all nodes of production. That includes clinical production, that includes non-revenue manufacturing investment rounds, that includes commercial production. And then when you think about commercial production, yes, of course, you have to make assumptions about the in-spec success rate, right? I mean, we're encouraged by the trend so far this year because given what we're seeing in Q1 and now in Q2, that continues to improve. So then there's, of course, the net pricing. So audits will factor into the revenues. But when we talk about total capacity, we're talking about order capacity, order flux from different nodes, and that includes everything.

And our next question coming from the line of Gena Wang with Barclays.

Maybe I'll just follow Jessica's questions. So should we still expect revenue growth in the second quarter, '24 or should we wait until the second half, '24 when Obelisc commercial production is onboard in 3Q, 4Q? And another related question is regarding CARTITUDE-5 and 6, now mainly 6, you still have maybe roughly 700 patients that need to be enrolled. Where do you expect these 700-patient enrollment mainly at? Would that be in New Jersey site? Or would that be in Belgium site?

This is Lori. I'll respond to your first question regarding revenue. We anticipate some growth in the second quarter, but as we have discussed, we expect significant growth in the latter half of the year. As Ying indicated, several factors will come into play during this period. With the ramp at Raritan, we are expecting a second capacity increase there. The Obelisc facility is our main contributor as it becomes operational for commercial production. Additionally, we foresee a CMO that will shift clinical production, thereby freeing up some commercial capacity at Raritan. As we begin launching more nodes, we look forward to multiple country launches in the latter half of the year. Given the complexities involved in cell therapy, our sales performance will rely on how these launches progress. Historically, we have seen an initial influx of acute patients following launches. Although we want to be cautious, we do foresee more significant growth as we move into the second half of the year.

Yes, Gena. So on CARTITUDE-5, we have completed all international enrollment already for CARTITUDE-5, and that's actually above our preplanned number. Right now, we're just enrolling additional U.S.-based patients so that we satisfy the minimum of the U.S. patient representation by the FDA. So by now, we have manufactured a significant portion of CARTITUDE-5 patients. Now on CARTITUDE-6, since we opened the enrollment in October last year, right now, it's enrolling really fast. It's actually faster than our plan. So in terms of where we're manufactured for those trials, I can tell you that, right now, Raritan, New Jersey is the main site for CARTITUDE-5 manufacturing. For CARTITUDE-6, right now actually, again, our first facility called Obelisc is the main site for that trial now and will shift to other sources. But we're trying to really save the Raritan facility for commercial production for the rest of 2024. So that's where we're manufacturing for CARTITUDE-5 and CARTITUDE-6 for now.

And our next question coming from the line of Kelly Shi with Jefferies.

Congrats on achieving a great milestone in early approval. So for the launch in the U.S., could you talk about the current launch activities? Have you started treating patients in second to fourth line? And do you see a switch from lifeline? And I also have a follow-up.

Yes, why don't I take that question. This is Steve Gavel. I think the question had to do with part of the status of it and patients and so forth and so on. One of the things I do want to just piggyback a little bit to Lori's response earlier concerning the second half component of this year, even though the product was approved in earlier lines in April, there's just a natural lag in the market, especially with a CARTITUDE-4 launch where we are looking for getting patients referred into our institutions. So I think this is some of the key differences with the CARTITUDE-1 launch versus 4, that there will be a natural lag in it just because of the referral piece of this. Now also to Lori's point, there are a number of patients that meet the eligibility criteria today in our hospitals that are moving very quickly through the approval processes and so forth. So again, we continue to do very quickly in terms of patient identification and apheresis, but I did want to caution you all that it's just a natural phenomenon of referrals and manufacturing and ultimately to revenue recognition. That's why we're basing our assumption on a really strong second half.

And also to reach the goal of 10,000 doses by year-end for 2025, would you need to consider the signing up for additional CDMO contracts? Also, what percentage of the patients would be needed to treat in all patient settings to reach the 10,000 doses goal if we're assuming like on the hospital side, there's also capacity constraints?

So Kelly, let me take the first half of the question, and then I'll ask Steve to talk about the outpatient administration of CARVYKTI. So when we look at the goal of reaching 10,000 annualized dose capacity by end of 2025, we believe that with existing nodes, there are 4 nodes, right, that includes our own site in Raritan, New Jersey, our 2 sites in Ghent, Obelisc and Tech Lane, plus on Novartis' site here, that should pretty much give us the reach to that number. Of course, we're continuing to evaluate the CDMO of other companies that could potentially give us a boost as well. So stay tuned on that front. And then I'll ask Steve to talk about the outpatient administration of CARVYKTI.

So you're hearing at the top, talking about roughly about 1/3 of all patients now being treated in the outpatient setting. That's grown quite a bit. I mean, that's to give you a comparator versus other CAR-Ts in the market that we compete with, which are right around 15%. So I think the question was from an outpatient perspective, what would we need to see in order to achieve the target doses that you referenced earlier? We expect by the end of 2025 to be at least double to where we are today. And it's reflected in the growth in the outpatient sector that we are seeing today. So we are relatively confident that we are going to be there. I think the one wrinkle, and you're seeing now a number of our sites investigating this today, is the partnerships that they are going to be and they're currently embarking with other outpatient players, whether it be in the community setting, I'm talking about pure community retail setting. And actually, if you haven't seen a good example of that is back in 2022, HCA Healthcare announced a partnership with McKesson, which is U.S. Oncology. And I know that they are very interested in leveraging outside of their own hospitals to bring these therapies out to as many patients that are eligible to receive them. So you'll see the definition of outpatient will change quite a bit over the next couple of years, not just hospital outpatient, but in the next few years, you will start to see community administration of our program.

Our next question coming from the line of Jon Miller with Evercore ISI.

This is Umer filling in for Jon. Ying, I don't have any single question on CARVYKTI today. And instead, I want to focus on a very important area in CAR-T space, which I don't think has come up in Legend conversations. So you have this triple-targeted CAR-T ongoing in China since March 22. I think it's wrapping up now. That's CD19, CD20, CD22 on autologous. And separately, you have this LUCAR-G39P, which is the dual targeting CD19, CD20 ALLO that I think you just started Phase I, both of these in China. My question is, shouldn't those trials have been an autoimmune and/or is that a plan that you're intending to do in the near term?

I will ask our CSO, Dr. Guowei Fang, to answer your question.

This is an important question. In our disease-focused area, both oncology and autoimmune diseases, for both assets we have plans to develop those in autoimmune disease indications as well, and it's in process.

And when would that start, Ying? And would it be a U.S. trial? I think that's the other very important question, obviously.

Currently, our U-1 is in the process of initiating the autoimmune IT study in China across multiple disease indications. For the U.S. autoimmune diseases asset, our current strategy is focusing on the auto-generic approach given some of the key challenges associated with the target treatment options. For example, the requirement of lympho-depletion and the requirement of manufactured at the individual patient level, high cost, etc. We have assets in the process of initiating the U.S. IND enabling study. We will provide additional information in the future.

Sorry, one last one. If I may just clarify, in that ALLO trial for U.S., I'm assuming that's your CD19, CD20 dual targeting. Is it safe to assume that you would not need the full site loading, the preconditioning for autoimmune?

That's an open question. And I think we will make a decision based on the clinical data we are collecting. In terms of targeting mechanisms, we believe that autoimmune diseases cover a very broad spectrum of different diseases, and we want to have options and choices for patients. In terms of targeting mechanism, CD19, CD20 certainly validates the type of mechanism. We think plasma also plays a major component in BCMA-driven disease pathology. So we are also considering BCMA as additional types of opportunities.

And Umer, I know you had a question about the disclosure and also moving to U.S. IND. So I will just add that you see that we already initiated the triple-specific CD19, CD20 program, and it will probably start dosing for autoimmune by the end of this year. So based on that clinical data, we will make the decision when and how to move assets into the U.S. IND process. And of course, like Dr. Fang just mentioned, we are very interested in whether we can either bypass or lower the dose intensity for fluid lymphodepletion regimen. That is one goal of our IIT trials in China. So that is also the trial we're conducting for the dual-targeting ALLO CD19, CD20 program.

Sounds great. So it sounds like you could have some autoimmune data next year. Is that a reasonable conclusion from all of this?

Without officially guiding, yes, that's a possibility.

And our next question is coming from the line of Yaron Werber with TD Cowen.

Great. Let me maybe just follow Umer's last question and then I have a question on CARVYKTI. Can you just discuss a little bit the concept of autologous with the triple CD19, CD20, and CD22 versus with ALLO, it looks like you're doing dual targeting. Can you just help us understand kind of your thoughts, why not do triple in both? And then I have a follow-up on CARVYKTI.

So for tumor targeting, it's the design principle is to drive the deep response by targeting multiple B-cell biomarkers. And so for that, we are currently initiating the IIT study and the clinical data. For the ALLO, we are going to have different targeting mechanisms. And based on the IIT study, we will have additional insight in terms of which disease we should target among different autoimmune indications.

Okay. With the dual, but you'll keep that as a dual 19, 20 only because you don't need to drive deeper responses. Is that the thinking? Or you just need to reset the immune system?

Yes. So we are talking about both CD19 and CD20 as well as with different assets, talking about CD19 and BCMA from a different aspect.

Okay. Got it. Okay. Maybe just to move back. I have a quick question on CARVYKTI. Can you give us a little bit of a sense now that second-line is approved, is the auto specs now different, pretty much, and easier across the board? Or is the FDA still keeping a certain bar sort of on fourth line onwards and a different bar in the second line?

This is Ying. I'll answer your question. So the answer is that when we received FDA approval on April 5 for second-line, we did receive one label with one spec. So as of today, right, if we treat any patient on-label, the release spec is the same for second-line patients versus fifth line and beyond. And also, by the way, it is a wider release spec. So I know it's early days, but based on the data from the full month of March production, which we tested in April, so far, we're seeing encouraging trends in OS based on either probably wider release spec approved by the FDA and also potentially once we start to see more second-line patients rolling in, the natural evolution of better baseline for those patients.

And those release specs, how do they compare with ABECMA and maybe TECARTUS as far as you can tell?

Without disclosing the number, I can tell you that based on latest data we have on out-of-spec, I think our success rate is approaching that of our competition at this point. Of course, like I said, it's very early days, we have only March production data, we have only a little bit partial of the April production data.

Okay. And maybe just finally, I think you talked about 100 ATC target for the year. What's the gating kind of rate to open all of those? Is it capacity? Or are there other factors as well?

Yes, no, it's Steve Gavel. I mean, the gating element is really the site certification process. One thing to take note, and I've talked about this on previous calls, is as we add more and more sites, you don't see nearly the volume that you see in our initial Phase I site. But we will continue to certify sites and our tenants to get between 90 to 100 this year. The key metric, just so you know what we look at is because there's so much outpatient now, administration in our facilities on a per site basis, we're seeing much more throughput per site versus what you would see, for example, with ABECMA. So I just want to make sure we're kind of viewing this the same way.

And our next question coming from the line of Ziyi Chen with Goldman Sachs.

I have two questions. First, regarding the EU launch. While the U.S. has seen a decline quarter-over-quarter, there has been a notable increase to 23%, which is promising. Can you provide more details about the pricing in Europe? Additionally, what is the status of reimbursement coverage in your markets? Also, could you give us updates on the commercial launch in the U.K. and Japan? My second question is about the DLL3 partnerships. I see that you recognized about USD 12 million of the $100 million upfront payment in the first quarter. Can you clarify the accounting for that? Will it be distributed over the next few quarters? Lastly, there is a licensing cost associated with this. Could you explain where that cost originates from?

Yes. Let's break this down as there are several points to address. First, regarding the European question, I believe everyone is aware that a reliable partner is responsible for promotional activities outside the U.S., particularly in Europe. I'm not sure if you already know that we have a partner in Germany and Austria for both CARTITUDE-1 and 4. Additionally, it's important to note that despite our presence in those countries, the majority of global slot allocation is focused on the United States. You also asked about pricing. Unfortunately, we haven't disclosed any pricing information in Europe yet, so we cannot provide details until it is made public. Regarding other European inquiries, concerning pricing and reimbursement, we're not able to comment at this time. We have received approvals in Japan, but we have not launched there yet. I’ll defer to my partner on that matter since they have not shared their timeline intentions for either Japan or the U.K.

For DLL3, as you saw in how we recognize that in the P&L, there are actually three different locations for what we are recognizing and on our balance sheet. As you remember and we disclosed, we received a $100 million upfront payment. However, we must defer the recognition of that amount over time for the activities we are obligated to perform as part of the collaboration agreement. In response to your question about how that will spread out, yes, it will be distributed over various quarters in the future as we continue our required activities for that study. We also have passthroughs; there are certain material costs that we will passthrough to our collaboration partner, which we recognize as other income. That is actually separated out. The cost of the license, which triggers the revenue recognition, is based on the costs we have incurred derived from our obligations to perform, specifically the actual costs for the clinical study.

And our next question coming from the line of Leonid Timashev with RBC Capital Markets.

I would like to inquire about the timeline for data we should expect for the remainder of the year. Specifically, I'm interested in cohorts E and F and when that data might be available. What level of follow-up and efficacy measures should we concentrate on? Additionally, what do you consider to be the PFS benchmark we should aim for in CARTITUDE-5 overall?

This is Ying. So first, maybe I can just give you a quick review of ASCO. We expect to present some data from one cohort, Cohort D. These are the patients who did not achieve optimal response to the standard care regimen in the front line. And then for Cohort E and F, we enrolled and dosed a total of roughly 60 patients in newly diagnosed multiple myeloma. So right now, we're expecting to release and publish the data at a major medical meeting towards the end of the year. So that's roughly the timing for cohorts E and F. And in terms of the level of follow-up, I think you should expect to see a year of follow-up or maybe even longer than that. If you talk about the PFS benchmark, for CARTITUDE-5, as you know, the standard of care regimen we use here is RVD or Revlimid, Velcade and dexamethasone. If you look at the registration study for that regimen online, the median PFS is about 34, 35 months. And that is the benchmark we're looking at to beat. I just want to remind you that this is a superiority trial. And then for CARTITUDE-6, I think you got the answer from the PERSEUS trial that was presented at ASH last year, that is a DRVD regimen in combination of stem cell transplant. So there, you're looking at the 4-year PFS rate of 84%, and that's the benchmark we're looking at, right? Again, we are looking at a superiority in PFS as a primary endpoint. Now given the recent ODAC vote, we will be engaging with the agency to talk about potential of using MRD as an endpoint to accelerate the approval timeline. So if you look at CARTITUDE-5, MRD negativity is already a secondary endpoint. And then for CARTITUDE-6, if you look at our clinicaltrials.gov, actually, the co-primary endpoint is PFS and MRD negativity. So we will follow all the patients through MRD negativity. And at the same time, we plan to engage the FDA and EMA to talk about the potential of using MRD as endpoint as well.

And our next question coming from the line of Vikram Purohit from Morgan Stanley.

We just had 2 on CARVYKTI. The first on the topic of future disclosures, Ying and team, do you anticipate providing kind of a split of patients by line of therapy or any directional sense of how kind of patients used in the quarter has trended between earlier line versus later lines in the coming quarters of performance data? And then secondly, I know you don't provide long-term guidance, but looking at a couple of years out, how do you expect the CARVYKTI sales base to kind of trend U.S. versus EMA?

It's an important metric because it relates to how we look at line of therapy use. Tracking this is quite challenging due to the data currently available in the public domain. Our assumption is that in about a year, around 70% of our product use will be in earlier line treatments, and that percentage will likely increase over time. This is due to the large market and high demand for these treatments in patients who are responding well. However, we won't be breaking this down by line of therapy, not because we don't want to, but rather the data comes from various sources, and one significant source, claims data, has some inconsistencies. So, to directly answer your question, we will not disclose that information by line. Ying, you may proceed with your second follow-up.

Yes. So Vikram, on your second question, I mean, again, we're not in a position to provide guidance for CARVYKTI. But as you know, typically, when you launch a new indication, it takes about 3 years to get to that peak sales. And as of now, we are not changing the projection that CARVYKTI will peak at $5 billion plus. And by the way, that is really on stipulation that we'll have a healthy market share in the second line for which we already have received official approval from both FDA in the U.S. and EMA in Europe. So we feel confident about the growth potential for CARVYKTI in the second line in the next few years.

And our next question coming from the line Kostas Biliouris from BMO Capital Markets.

One question from us on the guidance around the 10,000 slot production by year-end 2025. Can you maybe provide some color around the number of FDA approvals on manufacturing copies in case you will need to be able to manufacture this launch by year-end 2025?

So let me just give you a little bit more details about how we think about all the different nodes, right? So obviously, right now, the only commercial production site is Raritan, New Jersey facility. And we are implementing an FDA-approved increase as of now. And then we expect to have another increase towards the second half of the year. So that's what we're doing with Raritan. And then, meanwhile, we and our partner, Johnson & Johnson, are conducting a physical expansion of the Raritan facility. So that progression should complete by the end of this year. So over the course of next year, we are going to validate the equipment and then bring all the fees up to the GMP facility standards. So sometime next year, towards the second half, we expect that doubling of the manufacturing area in Raritan to start to contribute to additional capacity. So that's what we're doing for Raritan. And then for the 2 facilities in Ghent, the first one, Obelisc right now is already manufacturing for clinical trial. And I just said in the call that towards probably late 3Q or early 4Q, we expect that facility to receive the regulatory approval for commercial production. The much larger Tech Lane facility in Ghent, right now, we're on track to complete all the validation work by the end of this year. So that we expect clinical trial production to start early next year in 2025. And in the second half of next year, that facility will also come online pending regulatory approval for commercial production. And then we talked about Novartis as CMO. Again, we expect the commercial production to start early next year. So if you look at those 4 nodes, right, we're adding 3 additional for commercial production starting the second half of this year and then throughout 2025. That's how we can achieve the 10,000 dose capacity by the end of next year, all these 4 nodes together. And I can tell you that without disclosing all the technical details, if we track as of last Friday, we're on track to achieve that 10,000 total capacity by the end of next year, given where we are in Raritan, where we are in the Ghent facilities and where we are with Novartis.

And our next question coming from the line of George Farmer with Scotiabank.

Ying, could you explain how the wider release-back approval might impact top line sales? Additionally, recognizing that CARVYKTI is primarily moving into the second-line treatment for relapsed/refractory patients in the fourth line and beyond, could you discuss the positioning of CARVYKTI in relation to bispecifics? There seemed to be an unexpected number from J&J in their report. Lastly, could you provide more details on how you plan to manage your cash flow through to 2026?

I'll take the first question, and then ask Steve and Lori to provide answers for the second and third one. So on a wider release spec granted by the FDA in April, I think what we have said previously is that based on our modeling and also the data from the CARTITUDE clinical program, we believe this widened spec should result in an additional 5 to 10 percentage points lower out-of-spec compared to before the wider release spec was approved by the FDA. So right now, like I said, it's still very early days. But based on what we are seeing so far, the out-of-spec is already coming down by roughly 5% last month. So that is very encouraging, and we're going to have to have a little bit longer follow-up data to provide you with better confidence about where exactly the out-of-spec will be. But so far, things are trending very positively. Steve?

Yes. Let me address how we are positioning our assets specifically for the CARTITUDE-4 launch in the second-line setting. There is a distinct advantage compared to the standard of care, and it will be the primary focus for my team. Regarding the bispecific question, which is certainly relevant, you heard Ying mention something in her opening remarks. It’s evident to us, and Ying brought up a notable number from Janssen regarding bispecifics. What we are observing, which we had anticipated, is that a key focus for us, as Ying indicated, is not only to create more opportunities in the market but also to enter the market more quickly. This is crucial in later-line disease where patients progress rapidly. This is where we see growth in bispecifics as teclistamab was introduced, followed by another treatment. I want to emphasize something we've discussed extensively with our partner: now that the other treatment has launched in the fifth line and beyond in the U.S., we are witnessing a shift regarding which bispecific is used first. It makes sense that with the new product in the market, it is now being utilized before teclistamab. The rationale behind this, supported by research, is that it serves as an effective bridging strategy to cilta-cel. Previously, without this treatment available, the market had no choice but to use teclistamab to support patients. The issue was that both targeted the same BCMA target. While we know teclistamab is effective, using the new treatment targets a different area, allowing us to preserve the BCMA target for CARVYKTI. I realize this is more information than you may have expected, but I wanted to highlight that although the new treatment may be used for some rapidly progressing patients, we expect them to eventually transition to cilta-cel. Lori?

I'll take the question on cash and the runway into 2026. As you guys know, we ended Q1 with $1.3 billion in cash. If we take a look over the next 2 to 3 years, that will be adequate cash to bridge us until we get to profitability from the BCMA program. But what I do want to say is that doesn't prohibit us from potentially looking at additional couple of raises. And that's really going to be dependent upon pipeline advancement. If there's something that we want to do on a business development perspective, and also if there's a certain level of working capital that we want to maintain, so yes, we do see us having adequate cash to get to profitability, but there are other factors that will come into play if we decide that we do on the raise of additional capital.

And our next question coming from the line of Justin Zelin with BTIG.

Steve, can you talk about some of the factors that are constraining outpatient administration and just the dynamic that centers decide on whether to offer outpatient administration?

Yes, sure. Thanks for that question. There's a number of different factors. The challenge in later-line disease is the fact that you're dealing with a very difficult-to-treat patient to begin with, right? So I think just from a patient perspective, it's a challenge. However, as we see in our trends, we're saying almost 30% of the time, our facilities are working quite effectively to treat those very difficult-to-treat patients. What you're going to see, though, in an earlier line more mobile patient, out of many of these patients are often working is it becomes much easier for the sites. And that's what we are projecting as well. So from a patient selection, these are more mobile patients and some of the patient-related issues that the sites were challenged with will get a bit easier for them. So that's the first thing. And the other thing that we keep an eye on is their intent to move forward. The question was asked earlier around capacity. So the sites recognize this, and they also want to use outpatient CAR-T administration as a strategy to reduce the amount of resources, to treat the numbers of patients that are eligible for this therapy. So just from a resource perspective, sites also look at this as a very effective strategy to do so. So we're very excited about this, and you've heard me talk about a little bit on the back end and one of the questions around outpatient, you will see with this program a very different type of migration to full outpatient use. Our strategy, we've been very deliberate on how we went to market with this program. And I think I'm proud in terms of what's going on in the marketplace, in terms of introducing this into the hospitals, having the hospitals move into their outpatient clinics. And like I said, over time, our hospitals are looking at other third-party partners on how to take this even further out to the community to ensure that these numbers that we talked about earlier 10,000 doses, etc., we can meet that potential. So it's a very exciting step.

And our next question coming from the line of Ash Verma with UBS.

So regarding doubling the capacity by the end of 2024 compared to 2023, what is the annualized dose goal to ensure we have an equivalent comparison to your year-end 2025 target of 10,000 doses? Additionally, I would like to know if you believe that the adoption of the PERSEUS quad regimen in the first-line setting could limit the pool of patients for CARVYKTI in the long run due to these delays. These patients may experience several years of progression-free survival, which could potentially affect the future market opportunity for CARVYKTI.

Yes, Ash. Let me address your first question. By the end of 2025, our goal is to reach an annualized dose capacity of 10,000. However, as we enter 2025, we won't be at that capacity just yet. With the addition of more sites to our commercial production, we expect to achieve that capacity by the end of the year. Moreover, we plan to maximize output from each of those sites, so we believe the actual number could exceed 10,000 doses once all expansions are complete. It’s challenging to provide specific capacity distribution among the four nodes we mentioned, but Raritan, New Jersey will remain our largest facility and is expected to be the most productive in the near future, likely followed by our site in Tech Lane, Belgium. This is our approach to peak capacity and distribution across the nodes. As for your second question about how the introduction of DRVD in the front line might influence the second-line opportunity, I'll have Steve respond to that.

Thank you for the question. We have been modeling certain assumptions about how eligible patient populations are progressing with the quad. This eligible patient population has been included in our forecast, which we have communicated with the manufacturing team. From my viewpoint, we have accounted for that and incorporated it into our supply plan.

And then, Ash, maybe I'll just add to Steve to answer that. Number one, you do have this 20%, 25% so-called patients with high-risk cytogenetics mutations, and those patients unfortunately do not respond well. So they'll relapse. And that is why we are releasing the data at ASCO for Cohort D. These patients do not achieve optimal or a complete response from DRVD. They need a second-line therapy, right? That is your early adoption market. And then obviously, we are conducting CARTITUDE-5 trial. If you look at clinicaltrials.gov disclosure, we expect the primary position in the year 2026. So hopefully, within a couple of years, we'll have first-line label. And then obviously, we are going to pivot from second line to frontline when that happens.

And our next question coming from the line of Sean McCutcheon with Raymond James.

Could you elaborate on the MRD negativity observed in the FAM outcome? What implications do you see for the timelines of CARTITUDE-5 and CARTITUDE-6? Do you think the official draft guidelines will arrive in time to have an impact, or will they be late? What are your thoughts on the potential details for the MRD negativity requirement in CARTITUDE-6, specifically regarding a 12-month sustained MRD-negative complete response? Is that likely the standard, or could there be a possibility for an earlier landmark that would be acceptable? Additionally, how do you think this affects the competitive landscape for your earlier competitors if they are able to use MRD across various treatment lines?

So first of all, we have all along worked through the MRD endpoint, right? If you look at all the CAR-T program trials, everyone has MRD measurement in the trial built-in. Like I mentioned just on the call today, in CARTITUDE-6, we actually have already designed the trial with MRD negativity as a co-primary endpoint with all this in our mind. So if you look at ODAC recommendation, right, the ODAC voted to recommend a 12-month MRD negativity as a potential endpoint. Right now, we don't expect FDA to publish the official guidance documents, but we do plan to engage with the agency to talk about the endpoint for CARTITUDE-5 and 6. For CARTITUDE-5, it probably would make a small difference because anyway, we expect the readout to be in 2026. Now for CARTITUDE-6, it could make a big difference because if you look at our disclosure on clinicaltrials.gov, the primary completion is estimated at 2033. Now if FDA does agree upon the 12-month MRD negativity in combination, for example, with CR or any other endpoint as a potential endpoint for accelerated approval, then we can make that much, much faster in terms of the process right? Because if we can complete all the enrollments for CARTITUDE-6 by the end of next year, which is the end of '25 then if the 12-month MRD negativity is amenable at the endpoint, that means potentially by the end of 2026, we could have that kind of readout, right? So it does help a lot for frontline trials. Now if you look at competition, I mean, I think in second line based on our experience, it doesn't change too much, right? Because the median PFS for our control was about 12 months. So I wanted to complete the enrollment, the readout shouldn't take that much longer. So I don't think there's a huge difference if you look at the second line or third line. But for frontline, it does make a significant difference here. In terms of the bar, I don't think there is a quantitative bar here that the regulators have already determined at this point. But you can follow our disclosure from CARTITUDE-4, CARTITUDE-2, CARTITUDE-1 trial. In general, we achieved a very high MRD negativity rate. In fact, at ASH last year, we even published the data from CARTITUDE-1. If you look at patients who achieved 6, 12 months or even longer than 12 months MRD negativity in combination with CR, those patients tend to have a very good prognosis in terms of longer-term PFS and survival. So we do have data from the CARTITUDE program to show that if a patient can achieve complete response in combination with some sort of longer-term MRD negativity, that is a very good predictive marker for a long-term outcome here.

And our next question coming from the line of Mitchell Kapoor with H.C. Wainwright.

I have two, the first one I wanted to ask a bit on the second-line launch and the payer discussions. Can you just talk about kind of the color of payer discussions in the second-line population? And how did those second-line reimbursement discussions compare to those that you have had previously for later-line reimbursement discussions? And the second question is on COGS. Could you just talk about the trend in COGS, and any impacting factors or levers that could influence the COGS in the future?

It's Steve. I'll address the first question about payers and compare CARTITUDE-4 to CARTITUDE-1. The key point in our discussions with payers revolves around the value proposition related to treatment-free intervals. The data from CARTITUDE-4 shows a notable improvement in progression-free survival. Payers, especially in earlier treatment settings, are very favorable toward cilta-cel due to the benefits it offers both financially and from the patient's perspective regarding patient-related metrics. We are optimistic about early-line approvals; from a reimbursement standpoint, we have encountered no difficulties. In fact, private payers are among our strongest supporters.

I'll take the COGS actually. So as you move into the second line and the payer structure changes, to your question, where you're going to see that is in the gross-to-net adjustment. On the COGS line, the reason that you see variability actually has to do with the manufacturing capacity investments that we're making. So you will continue to see the COGS variability as we start to bring these in, finalize the capital investments and bring these nodes online in '24 and actually '25. So you continue to see that noise, it's the revenue line and the gross to net where you'll see the impact for the second-line launch.

So if I come back to that first point because it just occurred to me one more thing around the payers piece of this, it ties back into the issue around outpatient administration as well. I mean other than the treatment-free interval component of this, as you can imagine, private insurers love the fact of a now a CAR-T therapy that can be given by hospitals very safely in the outpatient setting just purely from a cost reduction as opposed to admitting these patients, keeping them in some time for weeks to reduce costs and continue to maintain these patients safely and then also benefit from that long-term, treatment-free interval is a very compelling story to private insurers.

Our next question coming from the line of Rick Bienkowski with Cantor Fitzgerald.

For the CARVYKTI launch in Europe, could you comment on the number of certified treatment centers that are open in Germany and Austria? And how many are expected to be certified by the end of the year? And as a second question, Ying, I was hoping you could expand on the prepared comments around reducing the CARVYKTI van-to-van time. Could you talk about the work that's being done here and if there are any internal targets for how much this could be improved?

I will address the first question about Germany and the sites. Unfortunately, I cannot provide details about the sites and the rollout plan in Germany. However, I can assure you that it is very robust. I would also like to mention that in any country, the site certification process can be somewhat lengthy. I emphasize this because I know our partners are putting in a lot of effort to onboard more sites, but I can't provide specifics regarding the number of sites at this time.

Our goal is to achieve a median of less than 4 weeks for van-to-van by the end of this year. Additionally, we have introduced a new metric called P90, which indicates that 90% of all the sellbacks we dispatch will take less than 5 weeks from apheresis to receipt. Achieving this is our objective for the end of this year, meaning that on average, we expect to see shorter times, allowing nearly all patients to receive their product within 5 weeks. That is our aim.

I'm showing no further questions at this time. Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation, and you may now disconnect.