Welcome to the ADC Therapeutics Second Quarter 2024 Financial Results Conference Call. My name is Didi, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions].

I will now turn the call over to Marcy Graham, Investor Relations Officer for ADCT. Marcy, you may begin..

Thank you, operator. This morning, we issued a press release announcing our second quarter 2024 financial results and business update. This release and the slides we will use in today's presentation are available on the Investors section of the ADC Therapeutics website.

I'm joined on today's call by our Chief Executive Officer, Ameet Mallik; and our CFO, Pepe Carmona. We will discuss recent business highlights and review our second quarter 2024 financial results. We will then open the call for questions.

Before we begin, I would like to remind listeners that some of the statements made during this conference call will contain forward looking statements within the meaning of the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to certain known and unknown risks and uncertainties, and actual results, performance and achievements could differ materially. They are identified and described in the accompanying presentation on Slide 3 and in the company's filings with the SEC, including Form 10-K, 10-Q and 8-K.

ADC Therapeutics is providing this information as of today's date and does not undertake any obligation to update any forward-looking statements contained in this conference call as a result of new information, future events or circumstances, except as required by law.

The company cautions investors not to place undue reliance on these forward-looking statements. Today's presentation also includes non-GAAP financial reporting. These non-GAAP measures should be considered in addition to and not in isolation or in substitute for the information prepared in accordance with GAAP.

You should refer to the company's second quarter earnings release for information and reconciliation of historical non-GAAP measures to the comparable GAAP financial measures. I will now turn the call over to our CEO, Ameet Mallik.

Ameet?.

Thanks, Marcy, and thank you all for joining us. Today, I'd like to start by reminding everyone about our strategy to unlock the tremendous value we see in the company. Our first pillar and primary focus is hematology, within this we have a derisked asset in ZYNLONTA, the key product in our prioritized portfolio.

We continue to lay the foundation to our commercialization efforts in our existing third line plus DLBCL indication, while we pursue the substantially larger potential opportunities in earlier lines of DLBCL therapy and indolent lymphomas. The second pillar of our strategy is grounded in our emerging solid tumor pipeline.

ADCT-601, targeting AXL is our most advanced asset. Beyond this, we are advancing a broad portfolio of differentiated ADCs against solid tumor targets of interest driven by our novel exatecan-based platform.

In the second quarter of 2024, we continued our focus on execution, advancing programs on several fronts in our ZYNLONTA expansion plan while working to deliver on our commercial strategy. In the first half of 2024, we achieved commercial profitability with revenues of $34.9 million year-to-date.

Our second quarter revenues of $17 million compared to revenues of $17.8 million in the first quarter of 2024 and $19.2 million during the same period in 2023. Even in a highly competitive market, we have been able to secure our place as a treatment option for third-line patients with DLBCL.

We've observed quarter-to-quarter variability over time, and we've seen continued competition in the third-line plus space with bispecifics. That said, the commercial business is now self-funding and it's expected to be so going forward.

We are confident in the role ZYNLONTA plays today in the third-line plus DLBCL given its clinical profile as a monotherapy with rapid and durable complete responses, manageable safety and ease of administration.

Within our current indication, we see the potential to further strengthen our presence in the market, even as the environment grows increasingly competitive. We are excited about the potential to grow ZYNLONTA beyond our current indication into earlier lines of DLBCL and in lymphomas, significantly expanding the commercial opportunity.

We are progressing in our second line plus expansion efforts. Last week, LOTIS-5, our Phase 3 confirmatory study of ZYNLONTA in combination with rituximab, past futility and enrollment is nearing completion with full enrollment expected by the end of 2024 and with data likely by the end of 2025.

In our LOTIS-7 trial, enrollment remains on track in the part 2 dose expansion of the ZYNLONTA -plus glofitamab combination arm in second line plus DLBCL and complete enrollment is expected by year-end.

An update on safety and efficacy in evaluable patients is expected by the end of 2024 with data on all patients anticipated in the first half of 2025. We are also progressing our solid tumor programs.

ADCT-601, our novel axle targeting ADC, continues to enroll sarcoma and pancreatic cancer patients as we optimize the dose and scheduling and have begun screening non-small cell lung cancer patients. We plan to share an initial update from the Phase 1 trial in the second half of 2024.

And since sharing a comprehensive update in April, on our novel exatecan based solid tumor platform, including early data on our 4 lead preclinical ADC candidates. We have selected one candidate to move forward, which we expect to disclose in 2025 and continue to explore potential partnership opportunities.

Throughout the quarter, we maintained our disciplined capital allocation strategy and decreased operating expenses in the second quarter by 23% and year-over-year on a non-GAAP basis.

This, in addition to our recent financing of $105 million, enabled us to extend our expected cash runway into mid-2026, providing the company with a stronger balance sheet to execute against our strategy.

As we have now reached commercial profitability for ZYNLONTA in 2024, I'd like to go deeper on the substantially larger potential opportunity for ZYNLONTA in earlier lines of DLBCL therapy and indolent lymphomas. Our LOTIS-5 and LOTIS-7 trials are focused on expanding usage of ZYNLONTA into second-line plus DLBCL.

Assuming positive results based on these 2 studies, we are confident in our strategy to become the combination agent of choice in this setting with the potential to reach more than $500 million in peak sales. Our LOTIS-5 trial continues to advance, and we are pleased to announce a positive outcome on the interim futility analysis.

The independent data monitor and community has reviewed the unblinded efficacy and safety data and recommended to continue the trial without modification. As we have now passed futility, we remain on track to complete enrollment by the end of this year with the potential for a headline readout by the end of 2025.

If positive, we believe this trial will lead to full approval for ZYNLONTA potentially as early as the end of 2026. And expand our indication into second line plus DLBCL in combination with rituximab, a treatment frequently used in the community setting.

This could triple the potential revenue opportunity by doubling the potential patient population and increasing the treatment duration by roughly 50% compared to the current ZYNLONTA label.

In our LOTIS-7 trial combining ZYNLONTA with bispecifics, we continue to be encouraged by the initial safety and tolerability profile as well as the antitumor activity observed at the initial investigator assessment among the majority of patients in part 1 of the dose escalation.

Enrollment is ongoing in Part 2 dose expansion with ZYNLONTA plus glofitamab in second line plus DLBCL and we expect to complete enrollment and plan to share additional efficacy and safety data before year-end.

We are excited by the opportunity to demonstrate that this ZYNLONTA combination can improve efficacy versus either agent and reduce the potential need for hospitalization associated with bispecifics, thereby expanding accessibility in the community setting.

Beyond DLBCL, we also see the potential to expand into the second-line setting of indolent lymphomas based on the initial data from investigator-initiated trials at the University of Miami exploring ZYNLONTA monotherapy in marginal zone lymphoma and ZYNLONTA plus rituximab in follicular lymphoma.

Early data from these studies demonstrate the potential for rapid, deep and durable efficacy with a fixed duration of therapy and a manageable side effect profile. Based on the high CR rates seen thus far in these studies, we believe there is the potential to provide marginal zone and follicular lymphoma patient in years of remission.

As there remains significant unmet need across these indolent lymphomas, with sufficient data we plan to discuss the path forward with regulatory authorities as well as seek inclusion in compendia. We anticipate more will be shared on these 2 trials at future medical meetings.

Within solid tumors, we continue to investigate ADCT-601 targeting AXL in a Phase 1 study. While others have explored AXL as a therapeutic target, we have a potentially differentiated profile with 601 due to its innovative design, incorporating a PBD toxin as well as our patient selection approach with our validated biomarker assay.

AXL is expressed in multiple tumor types, and it has been shown that the high expression of AXL is correlated to lower overall survival across many cancer types, including sarcoma, pancreatic cancer, and non-small cell lung cancer.

In this trial, we continue to enroll sarcoma and pancreatic cancer patients as we optimize the dose and schedule and have begun screening in non-small cell lung cancer patients.

With respect to our preclinical pipeline, our focus is on advancing differentiated ADC candidates against prostate, non-small cell lung, colorectal, endometrial and ovarian cancers. For each tumor type, the combination of incidents and 5-year survival offers large potential opportunities and indicates that better treatment options are needed.

Furthermore, in each case, chemotherapy remains a key part of the treatment armamentarium. From our four lead ADC candidates, NaPi2b, Claudin-6, PSMA and ASCT2, we have now selected one that move forward to IND, which we expect to disclose in 2025.

In terms of stage, our NaPi2b, Claudin-6 and PSMA ADCs are an IND-enabling studies, and our ASCT2 ADC is in the drug candidate selection stage, which we expect to complete this year.

And we continue to seek research collaborations to advance a broad portfolio as we believe each offers the potential to improve the standard of care for cancer patients and each utilizes our novel exatecan-based platform.

Preclinical work suggests that our four lead candidates each have a high therapeutic index, reflecting the proprietary design of the ADC.

Given the unmet medical need, coupled with the market opportunity, a successful outcome for our early research programs has the potential to transform the lives of patients and create significant value in the future. With that, I would like to turn the call over to Pepe..

Thank you, Ameet. I will now take you through a brief summary of our second quarter results. Starting with our balance sheet. As of June 30, we had cash and cash equivalents of approximately $300 million. Moving to the P&L.

As you already heard, ZYNLONTA net product revenues were $17 million for the second quarter and $34.9 million for the first six months of 2024 as compared to $19.2 million and $38.2 million for the same period in 2023. The quarter-over-quarter decrease is primarily due to lower sales volume, partially offset by a higher price.

The year-to-date decrease is primarily due to lower sales volumes as well as higher gross-to-net deductions primarily due to the discarded drug rebate accrual, partially offset by a higher price. Our total operating expenses on a non-GAAP basis, which excludes stock-based compensation, were down 23% compared to the second quarter of last year.

This mainly reflected our focus on driving operating efficiencies, together with reduced R&D expenditures due to focused investment on our clinical studies and efficiencies in selling and marketing expenses. For the remainder of 2024, we will continue to take a very disciplined approach to our capital allocation.

You can file the reconciliation of GAAP measures to non-GAAP measures in the compounding financial tables of the press release issued earlier today and in the appendix of this presentation. Moving to the bottom of the P&L, on a GAAP basis, we reported a net loss of $36.5 million for the quarter or $0.38 per basic and diluted share.

On a non-GAAP basis, adjusted net loss was $24.4 million or an adjusted net loss of $0.25 per basic and diluted share. The decrease in both reported and adjusted net loss compared with the second quarter of 2023 was primarily due to lower operating expenses.

With our strong balance sheet, we believe we are well financed to continue to pursue our corporate strategy. As a reminder, hematology continues to be the primary focus of our capital allocation. And within this, our key objective is to create value by expanding the use of ZYNLONTA beyond our current indication.

We expect to achieve this by fully supporting our commercialization efforts in the U.S. directly and through our partnership ex-U.S. and by investing behind potential expansion into early lines of DLBCL and indolent lymphomas.

In solid tumors, our aim is to pursue multiple ADC candidates in parallel and increase our short-term goal, mainly through our novel exatecan-based research platform.

In addition to the candidate we are taking forward to IND, we will determine on a case-by-case basis, whether we wish to progress additional candidates internally or seek to partner in order to share the development and financial risk.

Finally, I would like to highlight that we have multiple potential value-driving milestones, which we expect in the second half of this year. This catalyst include expected completion of enrollment in LOTIS-5, initial efficacy and safety data from LOTIS-7 Part 2 expansion and an initial read of ADCT-601 in AXL in both sarcoma and pancreatic cancer.

In the first half of 2025, we expect mature data for our LOTIS-7 and AXL trials and anticipate indolent lymphoma data will be shared at medical meetings in 2024 or 2025. With that, I will turn the call back to Ameet..

Thanks, Pepe. As we've illustrated today, we made significant progress in the second quarter and are excited about what's ahead in the second half of 2024. We have achieved commercial profitability with ZYNLONTA by driving operating efficiencies while maintaining our customer-facing coverage and medical support.

We continue to be on track for each of our planned key research and development milestones and we maintained our disciplined approach to capital allocation. Looking ahead, with a strong balance sheet to execute our strategy, I am confident that ADC Therapeutics is well positioned to drive value creation for all our stakeholders.

With that, operator, could you please begin the Q&A session?.

[Operator Instructions]. Eric Schmidt from Cantor Fitzgerald is online with a question..

Thank you for taking my question and congrats on the progress. Maybe first for Ameet, on the LOTIS-5 interim look.

Was there any other statistical consideration given other than a potential futility analysis? Could there have been, say, a trial besides or any other outcome other than halting the study?.

Yes. Thanks, Eric. That was a great question. So the independent data monitoring committee reviewed the unbounded efficacy and safety data and recommended to continue the trial without any modifications.

So in terms of what they looked at, this was an interim analysis for futility with prespecified efficacy boundaries based on PFS, which, as you know, is the primary efficacy endpoint, and that pass per IDMC review.

The IDMC obviously also was looking at unblinded safety data and directly noted that the treatment-emergent AEs were as expected in this very, as you can imagine, vulnerable and pretreated population. So their recommendation was to continue the study without any modifications. And certainly, for us, just increases our confidence around the study..

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

Yes, we haven't disclosed..

Okay. And then in terms of some of the upcoming milestones for the second half of the year, you've got several lined up.

Can you be a little bit more specific about what form it can take place, which might be at medical meetings, which might be a corporate events or press releases?.

Yes. So most of them will be at the end of the year. Well, it will be a combination, but I would say specifically, if you look at LOTIS-7, which is probably one of the big ones, this would be likely through a corporate disclosure simply because as we've disclosed in the past, we want to enroll 40 patients in our trial by the end of the year.

The data we're going to have available, we'll make available for any patients that have cleaned at least 12 weeks scan so that any responses have been confirmed. So basically, once you get to late August, you kind of get at the cut-off of what's going to be shown. We want to make sure that we can show as much data as possible.

We expect to have the full data from that trial in the first half of next year. Similar with AXL, where we're currently doing dosing a number of patients in pancreatic cancer as well as in sarcoma and have just begun screening patients in non-small cell lung cancer, we want to make sure that we can share the data that we have.

And so as you can imagine, cut-offs for congresses like ASH and others have already happened actually in August. So that will be again a company disclosure. So those are probably two of the biggest disclosures. What I would say is in terms of indolent lymphomas, whether it's this year or next year, the next set of updates will be at medical meetings..

Kelly Shi from Jefferies is online with a question..

Thank you for taking my question, and congrats on the progress. Maybe in terms of the variability and order pattern for ZYNLONTA, you commented in press release.

Could you provide more color on this front? Is this a variability in terms of the academic and community split in prescription and also maybe comments on distribution inventory channel and also gross-to-net?.

Okay. So I'll comment on the order, the variability that we see by quarter. And then I'll turn it to Pepe to talk about gross-to-net in the quarter and how that's evolved. So if you look at quarter-by-quarter variability, a lot I would say is just month by month. So I'll just give you some examples. We may have a large iconic institution.

I'll give you a real example of that order, for example, in January, but they order a significant amount of quantity because as you can imagine, we're a relatively rare disease. And our -- the number of cycles on average is about four. So you don't need a lot of vials per patient.

So they may order for 5, 10 patients and for the next 5 to 10 patients and then not need to order for three or four months. And so that happens a lot also with some smaller accounts where need to see order pattern. So we see certain months, which are much higher in certain months, which are much lower.

And depending on how the quarters get cut off, that can affect performance. And we've seen this in the past, since the launch where you see some up and down fluctuation. What I would say is that despite an increasingly competitive environment, we're still seeing a strong place for ZYNLONTA in the academic settings.

We're seeing a lot of use either where bispecific can't be used or post bispecifics. And I think really, especially in the academic setting there's a clear understanding of how and when to use, this in last, as you see much more stability in outstanding.

In the community, there's variability because you've seen some adoption of bispecifics in very large community counts. But of course, the majority of the accounts have not yet adopted bispecifics.

And the variability comes with just when they see patients or not see patients, an average community physician may only see a patient every couple of months. So in any quarter, if you look at accounts, depending on what patients they show up and if they're suitable for ZYNLONTA. You can get more or less.

That's why we do see typically month-to-month and even quarter-to-quarter variability..

From the gross -- the gross-to-net side, we saw a favorable prior period adjustment this quarter. I would expect that to be just a one-off. In general, if you look at the year-to-date or even the Q1, that's when you should expect as we go for the balance of the year..

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

Yes. So for sarcoma, we're focused on soft tissue sarcoma. And then in terms of enrollment, actually, both are enrolling at a pretty good pace, to be honest. I mean, as you know, there's very high AXL expression. So we don't even need to select patients for sarcoma.

So although it's a rare, that none need to be select obviously and helps to drive up the numbers. And given the early signals that we saw, there's a lot of awareness within the community when you get to the late-line setting. There's not a lot of options for these patients. So we see continued good enrollment and similarly with pancreatic.

Again, it tend to be very late line patients, right, that have already failed multiple prior therapies. And the prognosis for these patients isn't great. So there, we're doing an enrich strategy. We're looking at different levels of expression to understand where the cut-offs can be.

And again, we'll have a number of patients now I can't tell you exactly what the proportion of that those who have expression of AXL versus those that don't. That's the work that's ongoing. But I think we'll have a meaningful number in both of those tumors.

In non-small cell lung cancer, given that we've just started screening and the proportion of AXL expression is lower. I don't expect to be able to share an update on non-small cell lung cancer. As we've said previously, we expect that to come more in the first half of next year..

Michael Schmidt from Guggenheim is online with a question..

Good morning. Thanks for taking my questions. So Roche recently reported positive data from their STARGLO study evaluating their C20 bispecific antibody and second-line DLBCL.

How do you expect that to affect market dynamics in that setting and perhaps the opportunity from ZYNLONTA? Obviously, you're evaluating both LOTIS-5 and LOTIS-7 studies in that same study?.

Yes. Look, I think the STARGLO data was impressive from an efficacy standpoint. I think it validated that combinations of toxins with bispecifics is a really good approach. So maybe just to talk about the implications of what STARGLO is going to mean for both LOTIS-5 and for LOTIS-7.

On the LOTIS-5 front, I think as you're aware, the primary endpoint is median PFS. And in our trial, we're doing ZYNLONTA plus rituximab versus R-GemOx. And there hasn't been a lot of modern data, so the large-scale clinical data with R-GemOx in recent years, especially in the current treatment landscape.

So seeing the data where -- and if you look at the STARGLO data, the R-GemOx arm had roughly 3.6 months of PFS, I think that provides us a clear opportunity to do better. I mean so it gave us even more confidence, I would say, in LOTIS-5 because the study is powered with even a two-month difference to be a positive study.

Obviously, we want to -- we would hope to do much better than that because we're going to make sure it's clinically relevant as well. But to off that kind of clearly showed that we believe ZYNLONTA can be better than the R-GemOx.

Rituximab is obviously constant across both arms and LOTIS-5, but we believe ZYNLONTA has the opportunity to prove to be better than R-GemOx. But also to do this, where we don't have any -- we've not seen any new safety signals as we've reported before, but there's also no CRS, no ICANS.

And this makes it a very accessible option in the community, either in the second-line setting or even in the academic setting for those who progress in the third line plus setting. So I think it's going to be a great combination. There's still a lot of R-based chemo use that exists within the community.

And so ZYNLONTA plus rituximab has the opportunity to provide better efficacy with a better tolerability profile than what exists today. Now if you look at LOTIS-7, as STARGLO obviously showed over 13 months of PFS with glofit plus GemOx. So the efficacy bar and with about a 58% CR rate. So the efficacy bar I think is high.

I think it's pretty clear that we're going to need to be comparable or better from an efficacy standpoint. That's what matters most when you talk about more potent therapies like biosecurity and their combinations. And so I think it clearly set a bar around that.

But we believe that's in lots and glofit, as we've seen in early data and we hope to show with the expansion data can have a synergistic or even additive effect. And when you look at the fact that ZYNLONTA plus rituximab in our early safety monitoring data showed already 50% CR rates.

We're hopeful, obviously, we believe glofit is significantly more potent than rituximab and combining glofit plus ZYNLONTA, has the opportunity to do even better. And we're hopeful that we can approach the 60% range. And I think, if you get to that level of efficacy, that's very, very meaningful.

But in addition to that, we're hoping that we can continue to show what we saw in the dose escalation, which is reduced rates and grade of CRS, which can hopefully enable a broader accessibility in the community, especially to a non-systemic chemo-free combination for patients. And I think that's the opportunity we have in our dosing regimen.

When you look at not only some of the toxicities with the bispecific, which we hope to reduce in the way we're dosing ZYNLONTA. But also GemOx where you see cumulative irreversible adverse events including neurotoxicity and neuropathy. I think there's an opportunity to improve on both the efficacy and safety for a follow on..

Great. Thanks, Malik. And then just regarding the marginal cell lymphoma and the follicular lymphoma interim data that you had presented, obviously, looks impressive.

I just wondering if there may be an opportunity to include that into guidelines prior to publishing the full results sometime next year, is that a possibility or would you need to wait for completion of those two studies?.

Yes, I think it's possible before the full completion, but I think what it's going to require is presentation at a major medical congress and a concomitant publication. I think whenever you want to submit the guidelines, you do need a publication in a key medical journal.

And of course, it's going to be data driven and driven also by the investigators of the study. But we've seen, for example, a marginal zone, the latest -- the last BTK inhibitor, which has added to the guidelines in a preferred position at 36 patients.

So it is possible that the data looks good and the data gets published before the full completion in that case of the study of 50 patients. But I can't commit yet. I think it's going to be very data-driven and driven by not only the efficacy that we've seen, but the durability of that efficacy.

And then when there's a sufficient number of patients that they can get published in a major journal. But obviously, given the unmet need in these areas, we're working closely with the investigators to make sure that once there is a meaningful amount of data it could be published.

And of course, then we would plan to talk to both regulators and go to see companion inclusion..

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

Hey, guys, thanks for taking our questions this morning. Maybe just going back to ZYNLONTA sales, it seems that some of the variability can be explained by inventory build at some of the institutions.

Can you comment on the growth in your -- whether there is any growth in your prescriber base in academic versus community? What are you seeing currently in institute market? And how confident are you that you will be able to see continued growth for the rest of the year? Thanks. [Audio Gap].

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