ADC Therapeutics SA (NYSE:ADCT) Q3 2023 Earnings Call Transcript
ADC Therapeutics SA (NYSE:ADCT) Q3 2023 Earnings Call Transcript November 7, 2023
ADC Therapeutics SA beats earnings expectations. Reported EPS is $-0.58, expectations were $-0.61.
Operator: Welcome to the ADC Therapeutics Third Quarter 2023 Financial Results Conference Call. My name is Cathy 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'll now turn the call over to Eugenia Litz, Vice President of Investor Relations and Corporate Communications. Eugenia, you may now begin.
Eugenia Litz: Thank you, operator. This morning, we issued a press release announcing our third quarter 2023 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; Kristen Herrington-Smith, Chief Commercial Officer; Mohamed Zaki, Chief Medical Officer; and Pepe Carmona, Chief Financial Officer, will discuss recent business highlights and review our third quarter 2023 financial results before opening 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 US Private Securities Litigation Reform Act of 1995.
Examples of forward-looking statements include those related to our future financial and operating results, the impact of our updated strategic path forward, including our commercial field strategy, portfolio prioritization and capital allocation and restructuring plan, our ability to achieve our guidance for 2023 operating expenses, as well as our future cash requirement projections, future revenue growth, market acceptance, competition and volume growth for our products, product launches and market share for our products, either alone or through our foreign partners, timing and results of ongoing and future development programs and clinical trials for our products, either alone or in combination with our partner products, FDA and foreign regulatory authorities, actions and potential regulatory approval for our products either alone or in combination with our strategic partners' products, future strategic partnerships and business development efforts, our ability to regain and maintain compliance with the New York Stock Exchange listing requirements, our ability to repay our outstanding debt obligations and future access to capital.
These forward-looking statements are subject to certain risks and uncertainties, and actual results could differ materially. They are identified and described in today's press release and the accompanying slide presentation on slide two and in the company's filings with the SEC on Form 20-F and as updated in ADCT's recent periodic filings on Form 6-K. ADCT is providing this information as of the date of today's conference call and does not undertake any obligation to update any forward-looking statements contained in this conference call as the result of new information, future events or circumstances after the date hereof, except as required by law or otherwise. The company cautions investors not to place undue reliance on these forward-looking statements.
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 thirds quarter earnings release for definitional information and reconciliations of historical non-IFRS measures to the comparable IFRS financial measures. It is now my pleasure to pass the call over to our CEO, Ameet Mallik. Ameet?
Ameet Mallik: Thanks, Eugenia, and thank you all for joining us. Starting with ZYNLONTA, we had a challenging quarter with net sales of $14.3 million, down 33% year-over-year. The decline was attributable to the extended disruption following the field force restructuring and increasing competitive environment, and higher gross to net deductions. We continue to believe that restructuring in the commercial model was necessary to fully capture the longer term value of ZYNLONTA, and we expect to see progressive growth in the coming quarters. Kristen will provide further detail shortly. Turning to our clinical development program for ZYNLONTA. Enrollment in our ongoing Phase 3 LOTIS-5 confirmatory trial in combination with rituximab and second-line plus DLBCL is progressing well.
In September, we shared updated safety run-in results from LOTIS-5 at the SOHO Congress, which showed signs of durable responses and importantly no new safety signals. In Japan, our partner, Mitsubishi Tanabe, has now joined the LOTIS-5 study to fulfill local regulatory requirements. Enrollment continues to progress as planned in our Phase 2 LOTIS-7 clinical trial of ZYNLONT in combination with bispecific for the treatment of DLBCL, follicular lymphoma, and marginal zone lymphoma. We now expect to share initial data from this program in the first half of next year. We also look forward to expanding the clinical evidence base for ZYNLONTA with upcoming data from several ongoing investigator initiated trials. These include the oral presentation from the University of Miami of a study exploring ZYNLONTA in combination with rituximab in follicular lymphoma at ASH in December.
We also expect monotherapy data from an investigator initiated trial in marginal zone lymphoma next year. Overall, these anticipated data updates are especially exciting as we see the current approved indication in third-line plus DLBCL as a stepping stone to expanding the potential of ZYNLONTA to earlier lines of therapy and combination in DLBCL and across other lymphomas. Turning to the remainder of our pipeline, we continue to strategically invest in our higher priority portfolio programs. We look forward to several potential value creating data readouts in the first half of 2024. In particular, we expect to share initial Phase 1 data from ADCT-601targeting AXL and from ADCT-901 targeting KAAG1. We also expect additional Phase 1 data to be shared from ADCT-602 targeting CD22.
Lastly, I want to highlight our continued progress in increasing operating efficiencies throughout the organization. This resulted in a 23% year-over-year decrease in operating expenses in the quarter. Going forward, we will continue pursuing a disciplined approach in our capital allocation to ensure that we maintain our expected cash runway to mid-2025. To summarize, we're confident that we have the right team and strategy in place to progressively drive them onto growth. Our pipeline has several potential meaningful catalysts over the next 12 months, and we believe our expected cash runway provides us with the ability to execute our business plan. The team has a clear roadmap for execution and I remain confident that we are on track to unlock the tremendous value in the company.
With that, I'd like to turn the call over to Kristen for a commercial update. Kristen.
Kristen Herrington-Smith: Thanks, Ameet. Third quarter net sales of ZYNLONTA decreased by 33% year-over-year, impacted by disruption from the field force restructuring and the evolving competitive environment, particularly with the launch of bispecific. We also faced growth to net headwinds from the Medicare Part B discarded drug policy. We continue to believe that restructuring our commercial model was critical to fully capture the longer term value of ZYNLONTA, in particular with our realigned field force. I am confident that we are now set up to most effectively reach treaters in the community, where increasing awareness and trial is a top priority. While there was significant disruption during this period, as around half of the field force was either entirely new or in new role.
I am happy to report that we are now fully ramped up and seeing strong customer engagement. This is an important component of our strategy to keep ZYNLONTA top of mind in the crowded DLBCL market. As you see on this chart, call volume has recovered to pre-restructuring levels with an approximate 40% increase in August and September compared to the prior four months. Call volumes are one of the key leading indicators, with the commercial impact typically lagging by a couple of months. This explains why we felt the brunt of the restructuring in the third quarter, and also why we expect to see a return to growth over the coming quarters, particularly as we look into 2024. The pace of that growth will also depend on the evolving competitive dynamics.
Despite the evolving competitive landscape, we believe ZYNLONTA has a clear role to play in the treatment of relapsed refractory DLBCL today and over the long-term. This is a highly fragmented market with no standard of care in the third-line, third-line plus setting and with different dynamics between the academic setting and the larger community opportunity. Bispecifics have seen early adoption in the academic setting. However, we are confident that ZYNLONTA will continue to play a role for patients who are either not suitable candidates for bispecific or CAR-T or for patients who have progressed on these complex therapies. We believe maintaining a strong presence in this setting is vital as the experts in the academic centers are critical in recommending ZYNLONTA to the community treaters who patients are unwilling or unable to access complicated therapies like CAR-T and bispecific.
In addition, we have seen increased use of polatuzumab across all lines of DLBCL following their first line approval. However, as it becomes more embedded as a front line treatment over time, we believe this should open up further opportunity for ZYNLONTA in the later lines. While it's important we maintain a solid base and influence in the academic setting, we continue to see the majority of the growth opportunity for ZYNLONTA in the community and we are focusing our resources and efforts accordingly. For physicians in the community setting, ZYNLONTA represents a highly effective monotherapy with a manageable safety profile that can be administered in the outpatient setting. One of the major obstacles we face is that prescribing behavior in the community is slow to change due to the entrenchment of older and/or less effective agents.
We understand the challenges, and I am confident that we have the right team and the right strategy in place to effectively position ZYNLONTA now as a monotherapy and in the future, as we look to move to earlier lines of therapy in combination. With that, I'll turn the call over to Mohamed.
Mohamed Zaki: Thank you, Kristen. It is my pleasure to share an update on the pipeline. We continue to focus our efforts and resources on the programs, which we believe have the highest potential to drive value. Enrollment in the Phase 3 LOTIS-5 study is progressing well. As a reminder, this trial examines the combination of ZYNLONTA and rituximab in second-line plus DLBCL patients not eligible for transplant. At the SOHO Congress in September updated safety lead-in data from LOTIS-5 demonstrated an overall response rate of 80%, a complete response rate of 50% and a median duration response of eight months with no new safety signals. This study includes patients that are difficult to treat double-hit, triple-hit primary refractory to the last treatment, which represents the real world patient demographic.
While encouraging, we recognize that these data are from 20 patients cohort out of the total planned 350 patients. Moving to LOTIS-7. This is our study to explore novel combinations of ZYNLONTA with Roche bispecifics glofitamab or mosunetuzumab in relapsed or refractory non-Hodgkin lymphoma, including DLBC follicular lymphoma, and marginal zone lymphoma. There is a tremendous amount of interest in this study from physician community. And if successful, we believe this novel combination could change the non-Hodgkin lymphoma treatment paradigm. We look forward to sharing initial data in the first half of next year. I would like to highlight that beyond our own clinical studies, we are encouraged to see substantial interest in the investigator community to explore ZYNLONTA in novel combinations and across multiple types of B-cell malignancies.
We believe this will be important in identifying new routes to optimising the potential of ZYNLONTA. Of note, I would like to highlight an ASH abstract published last week from University of Miami investigator initiated trial exploring ZYNLONTA in combination with Rituximab in high risk relapsed or refractory follicular lymphoma. The combination was well tolerated, with 95% overall response rate at week 12 and at week 21 an 86% metabolic complete response rate. This is very encouraging and we look forward to additional details in the oral presentation. Turning to the rest of the pipeline beyond ZYNLONTA. Starting with ADCT-601 targeting AXL. Dose escalation is proceeding in patients with non-small cell lung cancer and sarcoma. Importantly, the maximum tolerated dose has not yet been reached.
Based on pre-clinical data, we are adding a pancreatic cancer cohort with an enriched patient population. In parallel, we are working towards finalizing the immunohistochemistry assay for a possible biomarker approach. We continue to expect to share initial data from this prioritized Phase 1 trial in the first half of 2024. Turning to the ADCT-901 targeting KAAG1. Dose escalation is also proceeding. As with 601, we are completing validation of the immunohistochemistry assay and we expect to share initial data in the first half of 2024. Finally, dose escalation and expansion are proceeding in the Phase 1 trial of ADCT-602 targeting CD22 in patients with relapsed or refractory ALL in collaboration with MD Anderson Cancer Center. New clinical trial sites are being added to help accelerate enrollment.
We expect additional data from the trial to be shared in the first half of 2024. I look forward to providing further updates on the progress of our pipeline over the coming months. And with that, I will turn the call over to Pepe to give a financial update. Pepe?
Pepe Carmona: Thank you, Mohamed. Before I get into the financials, I would like to reiterate our continued progress in achieving operational efficiencies throughout the business. We're confident in keeping operational expenses in both 2023 and 2024 below 2022 levels. This is crucial to funding the development of our key pipeline programs and maintaining our cash runway into mid-2025. As for Q3 performance, starting with our balance sheet, as of September 30, we had cash and cash equivalents of $310 million, representing a $37 million decrease from our position at the end of the second quarter. Moving to the P&L. As you already heard ZYNLONTA net sales were $14.3 million in the third quarter. Moving down the P&L, our combined operating expenses on a non-IFRS basis, which excludes stock based compensation, were down 23% compared to the same period in 2022.
This mainly reflected the operating efficiencies I referred to earlier. Together with reduced R&D expenditures due to focus investment in our clinical studies and lower selling and marketing expenses. You can find the reconciliation of IFRS measures to non-IFRS measures in the accompanying financial tables on the press release issued earlier today and in the appendix of this presentation. Moving to the bottom of the P&L. On an IFRS basis, we reported a net loss of $47.8 million for the third quarter, or $0.58 per basic and diluted shares. Finally, this slide highlights the potential value driving milestones which we expect in 2024. We're looking forward to a catalyst rich year ahead with initial data from several key programs in the first half.
More mature data in the second half of the year and completion of LOTIS-5 enrollment during the year. We're also actively pursuing partnership opportunities and will continue to drive our productivity initiatives to enable capital allocation toward the most promising, nearer term value drivers. The potential catalyst in 2024 will shape the company's future to further serve patients and be able to create additional value. With that I will turn the call back to Ameet for closing remarks. Ameet?
Ameet Mallik: Thank you, Kristen, Mohamed, and Pepe. To conclude, we are confident we have a clear roadmap as well as the capabilities to execute on our strategy to drive future value creation for all our stakeholders. We are excited about the future and look forward to keeping you updated on our progress. Now the team will be available for questions. Operator?
See also 14 Best Dividend-Paying Stocks Under $50 and 12 Best Airline Stocks to Buy.
To continue reading the Q&A session, please click here.
