Welcome to the ADC Therapeutics Third Quarter 2022 Financial Results Conference Call. My name is Kevin, and I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session.

[Operator Instructions] I will now turn the call over to Amanda Loshbaugh, Investor Relations Manager. Amanda, you may begin..

Thank you, operator. This morning, we issued a press release announcing our third quarter 2022 financial results and business updates. This release is available on the ADCT website at ir.adctherapeutics.com under the Press Releases section.

On today's call, Ameet Mallik, Chief Executive Officer; Joe Camardo, Chief Medical Officer; and Jenn Creel, Chief Financial Officer, will discuss recent business highlights and review our third quarter 2022 financial results before opening the call for questions. As a reminder, this conference call may contain forward-looking statements.

Such statements are subject to risks and uncertainties.

For additional information concerning forward-looking statements and factors that could cause actual results to differ materially from those expressed or implied in these statements, we refer you to the section titled Cautionary Statement regarding forward-looking Statements in Exhibit 99.2 of our report on Form 6-K filed with the U.S.

Securities and Exchange Commission earlier today. Such statements speak only as of the date of this conference call, and we expressly disclaim any obligation or undertaking to update these forward-looking statements unless required to do so by applicable law. Today's presentation also includes non-IFRS financial measures.

These non-IFRS measures have limitations as financial measures and should be considered in addition to and not in isolation or as a substitute for the information prepared in accordance with IFRS.

You should refer to the information contained in the company's third quarter earnings release for definitional information and reconciliation of historical non-IFRS measures due to comparable IFRS financial measures. It is now my pleasure to pass the call over to Ameet Mallik.

Ameet?.

one, health care professionals; two, community practices and networks; and three, patients and caregivers. These initiatives are building momentum in the marketplace and position us well for steady growth in the coming quarters. First, starting with health care professionals.

We enhanced our promotional materials with more competitive messaging and additional data and launch the new regional marketing capabilities. At the same time, we increased our face-to-face interactions, which is critical to build awareness, familiarity, trial and adoption.

Second, we saw a strong uptake in Zynlonta use with a significant number of new accounts in the community. At the same time, the number of academic accounts ordering remained relatively stable. In terms of volume, we're seeing growth from both segments, rapid growth in the community and steady growth from academia.

In Q3, for the first time since launch, our greater proportion of accounts ordering Zynlonta came from the community, roughly 60% as compared to 50% since launch.

In terms of volume, historically, academic accounts represented approximately 60% of our business, but with the growth in the community segment in Q3, volume by segment is now approximately a 50-50 split. As a new key initiative starting in Q4, we began contracting with community oncology networks.

We believe this will help us unlock an important opportunity as roughly half of the community market is served by these networks. Although GPO contracts will modestly impact our gross to net, we believe the upside volume will outweigh the costs. Lastly, we have increased our multichannel patient education and engagement efforts.

Since the launch of our patient campaign, we've been able to drive a meaningful increase in online awareness, interest and engagement. We know that in the third line plus setting, patients and caregivers play an integral role in making treatment decisions.

Overall, we are pleased with the significant progress we have made with the Zynlonta launch in Q3.

Looking forward, we are confident in our ability to continue to grow both the community and academic segments over the coming quarters as we engage health care professionals, community networks and patients regarding Zynlonta's differentiated product profile. Now I'll turn the call over to Joe to provide an update on our pipeline.

Joe?.

Thank you, Ameet. Let me start with Zynlonta in the Phase 3 LOTUS V study evaluating Zynlonta in combination with rituximab in patients with relapsed or refractory DLBCL. Encouraging safety lead-in data were presented at the SoHo Congress in September, showing an overall response rate of 75% and complete response rate of 40%.

Furthermore, we did not observe any safety events materially different from those observed in our prior clinical trials. These data give us confidence in the feasibility, safety and potentially the efficacy of the combination of Zynlonta and rituximab.

As the DLBCL landscape evolves, we see a significant opportunity for Zynlonta plus rituximab in second-line patients who are not eligible for transplant or CAR-T or patients who are not able to access CAR-T due to location or cost.

In addition, the combination of Zynlonta plus rituximab is also being explored in the ongoing LOTUS 9 trial for first-line DLDCL patients who are unfit or frail. This remains an underserved population of patients who are not able to receive the first-line standard of care in many cases.

We also have the ongoing LOTUS 7 trial to explore novel combinations of Zynlonta. We recently signed a clinical collaboration agreement with IGM Biosciences to evaluate IGM's novel bispecific antibody in combination with Zynlonta for patients with relapsed/refractory B-cell non-Hodgkin's lymphoma.

Our clinical team is focused on the successful execution of the Zynlonta trials, and we look forward to keeping you updated on our progress. Moving on to Cami in Hodgkin lymphoma. Following our pre-BLA meeting in September, we had a Type C meeting with the FDA in late October.

At that meeting, it became clear to us that the regulatory landscape is evolving more dramatically than we had previously anticipated with regard to the process and timing to seek accelerated approval.

Although we believe our data show that Cami has a positive benefit risk profile in late-line patients, the FDA has now given strong guidance and for them to consider an accelerated approval path, a randomized confirmatory Phase 3 study must be well underway and ideally fully enrolled at the time of any BLA submission for Cami.

This means that we will not submit the BLA for Cami next year as we estimate that it would take at least two years to fully enroll a randomized confirmatory Phase 3 study. We are engaged with FDA in an ongoing and constructive dialogue regarding their guidance and the potential regulatory path forward.

At this time, we are pausing any material investments in the Hodgkin lymphoma program. We will be evaluating options for Cami with a disciplined and strategic approach to resource allocation.

Regarding the combination study of Cami and pembrolizumab in solid tumors, we observed evidence of immunomodulatory activity and the desired impact on the ratio of key effector to T regulatory cells. However, the clinical data were not compelling enough for us to move forward.

Given the resources needed to fully explore the signal, we decided it would be better not to pursue this opportunity on our own, but rather to explore potential partnerships. I would like to remind you that this study employed a unique approach to enhance immune activation by targeting specific intratumor T cells.

We have prioritized our other solid tumor programs moving forward, programs for which the PBD will have a direct effect on the cancer cells. As for the rest of the solid tumor portfolio, we are progressing with the Phase 1 trial of ADC T901 targeting CAG-1.

As you may remember, CAG-1 is expressed in a variety of solid tumors, including platinum-resistant ovarian cancer and prostate cancer. Dose escalation is proceeding, and we expect to have an indication of the safety and tolerability as well as any early signals of antitumor activity in 2023.

Moving on to ADCT-601, targeting AXL the Phase 1b trial is ongoing. As a reminder, the study has a monotherapy arm, including patients with actual gene amplification and a combination arm with gemcitabine in patients with sarcoma.

Our goal is to determine the optimal combination dose as well as the dose as a single agent, either of which could be used in an expansion cohort. We are also using this opportunity to optimize the assay to detect axle expression on the surface of tumor cells in order to identify appropriate patients.

Lastly, we are completing IND-enabling work for two preclinical solid tumor programs. ADC-T701 targets PLK1 and will be evaluated in neuroendocrine malignancies in collaboration with the National Cancer Institute. ADCT-212 is our optimized second-generation PBD-based ADC targeting PSMA, a validated target in metastatic prostate cancer.

We plan to enter the clinic with both of these programs next year. I would also like to share that initial data showing clinical activity from the Phase 1/2 study of ADCT-602, targeting CD22 for patients with relapsed or refractory acute lymphoblastic leukemia has been released as an ASH abstract from MD Anderson.

Additional details will be disclosed in an oral presentation at ASH. We continue to work with MD Anderson to optimize the dose and schedule for ADCT-602. With that, I will turn the call over to Jen to give a financial update.

Jen?.

Thank you, Joe, and good morning, everyone. As of September 30, we have cash and cash equivalents of $381 million as compared to $377 million as of June 30, 2022. We received the upfront payment of $55 million from Sobi in Q3.

Based on our business plan and expected milestones from Sobi and Healthcare Royalty Partners, we continue to expect a cash runway that extends into early 2025.

Potential near-term milestone payments from those agreements include a $50 million milestone due from Sobi upon European regulatory approval of Zynlonta in third-line DLBCL and a $75 million milestone from our Healthcare Royalty Partners agreement for the first EU commercial sale.

During the quarter, we entered into a strategic transaction with Owl Rock and Oaktree to refinance the Deerfield convertible notes that were due in May 2025 and push the term of our debt obligations out to 2029. In addition to refinancing the existing convertible debt, we were pleased with an equity investment by Blue Owl.

Deerfield also accepted equity as part of the exchange of the convertible notes. Turning to the P&L. Zynlonta's net sales were $21.3 million for the third quarter of 2022 and license revenue was $55 million for the third quarter.

Looking forward, we expect our GPO contracting to negatively impact our gross to net, starting in Q4 by approximately two to three percentage points. Despite this impact, we see the GPO contracts as an important opportunity to drive volume growth in the community over time.

Cost of product sales was $1.3 million for the quarter compared to $0.5 million for the same quarter in 2021. The increase was primarily related to impairment charges in connection with manufactured product intermediates that did not meet our specifications.

Please note that the specification issues did not and are not expected to impact the company's ability to supply commercial products. R&D expenses were $42 million for the third quarter 2022 compared to $37 million for the same quarter 2021. R&D expense increased for the quarter due to continued investments in our pipeline.

Selling and marketing expenses were relatively stable at $17 million for the third quarter 2022 versus 2021. Lower share-based compensation expense was offset by an increase in expenses for the Zynlonta launch and ongoing commercial efforts. G&A expenses were $20 million for the quarter compared to $17 million for the same quarter 2021.

G&A expenses increased for the third quarter 2022 as compared to the same quarter in 2021, primarily due to costs related to the recent CEO transition and higher share-based compensation expense. Net loss was $51 million for the third quarter compared to a net loss of $72 million for the same quarter 2021.

Our diluted net loss per share was $0.65 in the third quarter compared to a net loss per share of $0.93 for the same quarter 2021.

Adjusted net income, a measure that excludes certain items as described in the press release issued earlier today was $10 million for the third quarter compared to an adjusted net loss of $46 million in the same quarter 2021.

Adjusted net income per share was $0.13 for the third quarter compared to an adjusted net loss per share of $0.59 in the same quarter 2021.

The decrease in net loss and adjusted net loss for the quarter ended September 30, 2022, as compared to the same period in 2021 was primarily due to higher product and license revenue, partially offset by the increase in operating expenses.

In addition, net loss decreased for the third quarter of 2022 as a result of lower charges arising from changes in the fair value of our warrant obligations and derivatives, partially offset by the loss on extinguishment of the Deerfield credit facility and higher interest expense. With that, I will turn the call back to Ameet for closing remarks.

Ameet?.

Thank you, Joe and Jen. To conclude, we are pleased with the progress in the third quarter, and we remain focused on executing on our key objectives going forward. We are a well-positioned leader in the ADC space with unique capabilities from discovery to commercialization and over a decade of experience.

We have a validated technology platform with Zynlonta, a rich pipeline of hematological and solid tumor programs and an innovative toolbox to develop next-generation assets with novel antibody constructs and payloads. We look forward to keeping you updated on our ongoing progress. Now the team will be available for questions.

Operator?.

[Operator Instructions] Our first question comes from Gregory Renza with RBC. Your line is open..

Yes. Thank you for taking our questions. This is Sudan on for Greg. So first, Jen, I wanted to ask you, based on the gross to net impacts that you're mentioning at 2% or 3%, is that specifically for this year for 2022.

Is that extended to 2023 as well? Just wanted to get more insight into how you're looking at that and how that's going to also have a positive impact with the community outreach that may bring.

Then secondly, for Joe, just wanted to ask some more details on the Cami meeting that you guys have with the Type C meeting and how that transpired to make the decision to potentially start the confirmatory enrollment? Is that something that's still on the table to get the filing potentially on board in the next two to three years? Then for me, I just wanted to get a question in on Zynlonta, just mostly on the business development side of things, how looking at building into the earlier-stage pipeline that we have and then also how the developments of the early-stage pipeline that we're expecting could dictate how this development is looked at going forward next year.

Thanks..

Hi Greg, this is Jen. Thanks for the question. I'll start out with the gross to net question. So for year-to-date 2022, we've really been in the general range for gross to net deductions that we'd expect for a drug, an infusion drug, in the late-line population.

As I mentioned in the prepared remarks, starting in Q4, so really effective October 1, we are starting the GPO contracting. We do think that, that's going to modestly impact the gross to net about two to three points, and that will be from Q4 onwards. So you would expect that also in 2023.

We really see this as something that's going to help us to drive incremental volume going forward in the community. So a net positive for the company. I'll pass it over to Joe now..

This is Joe Camardo. I'll answer your question about Cami. Over the years, we've interacted with FDA several times, and we were working on a good plan for accelerated approval based on Phase 2 data with a follow-on confirmatory studies. As a reminder, Cami is very active in late-line Hodgkin's lymphoma patients.

We had an overall response rate of 70% and a complete response rate of 30% in patients who have failed brentuximab, pembroizumab. Half of them had relapsed after stem cell treatment. So we had a very important population of patients here.

What happened in the last year is that the regulatory environment has changed very significantly, specifically with regard to the approach to accelerated approval. At our most recent meeting in October, it became clear that the requirements for the Phase 3 confirmatory trial have changed.

FDA told us that the trial would need to be well underway and ideally fully enrolled at the time of a BLA submission, which is a different kind of a plan than what we had been working on in the last several years.

At the moment, we paused our investments in order to move forward, we're going to have to assess the trial requirements, the time, the feasibility, the cost the patients, the endpoints, etcetera, and evaluate that as an opportunity for an investment relative to the rest of what we have in our portfolio.

So a change in the requirements has led us to consider a change in how we would move forward..

Yes. Thanks, Jen and Joe. Yes, with regards to our pipeline, we do really have a pretty rich pipeline. We have 901, 601 and 602 which are currently in Phase 1 trials. And then we have 212 and 701, which will move into the clinic next year. So by next year, we'll have five different Phase 1 programs.

In addition, a pretty robust research platform where we've been doing a number of investments to expand our platform, both in terms of novel antibody constructs, but also in terms of drugs, including novel payloads beyond our PBD platform.

So we're always going to explore given that we don't have infinite resources, how we prioritize what we decide to perform our own and where we decide to collaborate. So I think that will increasingly be a part of our strategy to sort that out, but we're lucky that we have such a rich pipeline and such a differentiated research platform..

Thanks. Congrats on the quarter again..

One moment before our next question. Our next question comes from Brian Cheng with JPMorgan..

Hi guys. Thanks for taking my question. So one on when you're contracting with the community networks.

Can you give us a better sense of how different your contracting those network would potentially give you a better edge over competitors? Is this contracting offering more of an ease of access to those who want to get on the drug? Then lastly, on expenses.

Can you give us a sense of where you stand in terms of the run rate given Cami is now on POV? Thank you..

Yes. Thanks, Brian. So first, with regards to contracting with the community networks, we do think that puts us in a place which is at least at parity. I mean there are other competitors that were already contracting before in the community and we warrant, potentially even in advance of the terms that we've given.

We think it was important for us to be able to tap the overall community network. Just to give you a sense, the four biggest GPOs cover roughly half of the total community accounts in the country. So it's a big part of the overall community opportunity.

As with any contract that you do with GPOs to open up the community opportunity, there's a fixed component and a volume-based variable component. So that's at least in the range of 2% to 3%. In a way, we get to the higher end of the range, it's because we've driven even higher volume in those accounts, which would be a good thing.

We believe that contracting with community accounts just opens up the opportunity more to able to access those patients and drive a lot of educational initiatives. So we think it's important for us to remain very competitive in the DLBCL space. With regards to expenses, at this point, we're still confirming.

We've had a lot of positive momentum in our pipeline even beyond Cami, but we're currently still confirming our cash flow on the way into early 2025..

Great. Maybe just one question to follow up. So maybe on the broader level related to the accelerated approval path in oncology.

Can you give us a better sense of how the agency is thinking about just a requirement in general to get the FDA approval? Is it because more of the unmet need now is now somewhat changed in the Hodgkin space? Or do you think that the requirement is more now applicable to all cancer types across?.

Hello Brian, this is Joe. I really can't speculate about the changes, I mean, there have been public statements by FDA by the commissioner. There have been articles written by the Head of the Division of Oncology about the accelerated approval pathway. I can only refer to those public comments that are available.

The physicians still holds that accelerated approval is supposed to be an opportunity for patients to have access to drug sooner rather than later because of the medical need. I don't think that's really changed. I think what's changed is what FDA has stated, that they're interested in having the confirmatory studies.

As they told us, somewhat more progressed at the time they review the dossier. That's what they told us and I think they've made that statement also publicly..

Thanks Joe..

You're welcome..

One moment before our next question. The next question comes from Boris Peaker with Cowen. Your line is open..

Great, a couple of questions for me. First, maybe on Zynlonta.

Can you talk about any changes in inventory during the quarter that may have impacted the results?.

Yes. We're not aware of any inventory changes. So we believe this is demand-driven growth..

Got it.

And do you have some kind of an internal estimate based on Zynlonta label? Like what fraction of your target market you've penetrated so far?.

It's hard to estimate because, as you can imagine, the data sources with just a small disease like this aren't precise. I mean directionally, we can obviously tell we're gaining on every metric. We're gaining share.

We have competitive share of voice and our awareness, which is one of the big issues we had, particularly in the community earlier in the year, has really improved. The overall launch metrics are improving. We believe there's still a good amount of potential to continue to grow..

Got it.

Lastly, so in all the genetic analyses BLA filing compology and frontline DLBCL, so is based on the POLARIX trial, so if approved, I'm curious, how do you see that impacting Zynlonta? I guess, other drugs in relapsed/refractory DLBCL?.

Yes, I think it's an opportunity, frankly. I think if all of these, just like CAR-Ts are moving earlier lines, I think it actually opens up the space even more for us in the third line plus setting. I mean I actually think in a way the third-line cost setting is getting less competitive, even as DLBCL is getting more competitive overall.

So we see it as a positive. Physicians rarely cycle through the same therapy in multiple lines of therapy. So if polatuzumab moves frontline, it's unlikely that, that same patient will get polatuzumab's subsequent line. So we think it's a great opportunity for Zynlonta. Obviously, we have a very good risk medicine profile with a monotherapy too.

I think beyond our current indication, we also see opportunity in combination. I see we're studying it with rituximab in the front and second line setting, but also with a number of novel agents. You may have seen also, we announced a clinical collaboration with IGM to look at Lonca with their bispecifics.

So we think there's a lot of potential for Lonca as a monotherapy in our current indication, but also in combination in earlier lines..

Great. Thanks for taking my questions..

Thank you..

One moment before our next question. Our next question comes from Kelly Shi with Jefferies. Your line is open..

Hi. Thank you for taking my question. My first question is what are the key launch metrics do you follow for one, for example, like a new patient addition per month? And how have they evolved since launch? Also any noticeable change in Q3? Lastly, how do you think about the growth trajectory going forward? Thanks..

Yes. Thank you, Kelly. Yes. So the launch metrics, and again, I would just say the reason we don't disclose numbers is more because the sample size of the data we get are directional. So they're good for trends. As you mentioned, since the launch, we look at a number of different things.

One thing we look at is awareness of our products, both aided and unaided. While we got to relatively high levels of aided awareness early in launch, unaided awareness was really far below competitors at the beginning of this year. That's really improved, particularly in Q2 and Q3, we've seen improvement in our unaided awareness.

Also share of voice we look at, just how competitive are we in terms of reaching physicians, and we've maintained a competitive share of voice. The other thing we look at, of course, is our third line patient share, which again is directional, but we're increasing share steadily. The last thing we look at is account level performance.

So we track every account in the country and look at how we're doing, where we're gaining, where we're losing. What I can tell you is we continue to grow. We continue to have steady growth in the academic segment overall, but with a roughly stable number of ordering accounts. The community was more dramatic.

We saw very strong growth in the community in this quarter and a fairly large increase in the number of ordering accounts. So what that translates into is, whereas before, we used to have roughly 60% of our accounts, I'm sorry, 50% of our accounts in the community right now, 60% of our order in accounts for the community.

And the volume used to be only about 40% from the community. Now it's about 50% of our total volume. So it's a pretty dramatic shift given that the academic segment is still growing right now, and it's growing at a nice steady clip.

If I think about going forward, we're further penetrated in the academic segment given that we drove awareness and uptake very early in the launch, so almost 1.5 years ago. So we think we're going to have steady growth in that segment, but we're a little bit more mature into the launch.

Whereas in the community segment, because our unaided awareness was low and access started to open up, really starting in Q2. That's also when we got the J-code and other effects, that community opportunity started opening up in Q2 and into Q3. We've obviously driven much more robust growth.

While we continue to believe that we're going to continue to grow while it's likely to be more moderate than the growth we saw in Q3 in the community segment..

Super helpful. I also have a follow-up. So you mentioned the cash runway now extended into 2025 given the new pipeline progress. I'm curious in near term, what kind of a cost reduction on R&D and SG&A in 2023? Thanks..

Yes. We think we'll have roughly similar costs, I would say, that I think that's what I would model. I mean, as I said, we have a pretty rich pipeline. So although Cami costs we're projecting to go down, we will next year, have five assets into the clinic.

Really interesting, I would say, investments that we're making on the research area as well in terms of novel antibody construction payload. So we think we're going to have a roughly stable cost base given the evolution and honestly, the progress that we're making in the R&D side..

Great thanks Ameet..

Thank you..

One moment before our next question. Our next question comes from Matthew Harrison with Morgan Stanley. Your line is open..

Hi, this is Chris on for Matthew. I have two questions. The first question is on ADCT-602. Given the Phase 1 results in the abstract published recently, how are you viewing this asset in terms of its priority? And the second question is on Cami. Did the FDA point to how much enrollment is necessary for the confirmatory Phase 3 trial? Thank you..

Thank you. This is Joe. Yes, the response rates as cited in that abstract are very intriguing. So our plan is to do what one would normally do in the situation, optimize the dose and the schedule and that's what we're doing with MD Anderson, took a while to actually get to a dose that looks like it could be moving forward. So that's where we are now.

We have to expand the population now in that dose and make sure that it is optimal. But we're very interested in this and as is MD Anderson, and I'll just point you to the presentation where there will be more data. So very promising, very important area. Adult ALL can be treated, but there are a lot of patients who still relapse.

So we're looking forward to continued data development there. With regard to Cami, I will tell you the FDA was very specific with us. They said that we would like your confirmatory Phase 3 trial to be well underway and ideally fully enrolled at the time of the submission. That's pretty clear guidance.

That's the main reason for our reevaluation of the time and cost and future opportunity for the program..

Thank you..

You're welcome..

[Operator Instructions] I'm not showing any further questions at this time. I'd like to turn the call back over to Ameet for any closing remarks..

Yes. Thank you all for joining our call today, and thank you so much for your continued support. We look forward to keeping you updated on our progress. Have a nice day, everyone..

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day..