ADC Therapeutics S.A. (ADCT) Q1 2023 Earnings Report, Transcript and Summary

Welcome to the ADC Therapeutics First Quarter 2023 Financial Results Conference Call. My name is Anton Alexander [ph], 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 Q&A session. [Operator Instructions]. I'd now like to hand 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 first 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 Harrington-Smith, Chief Commercial Officer; Mohamed Zaki, Chief Medical Officer; and Pepe Carmona, Chief Financial Officer, will discuss recent business highlights and review our first 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 U.S. 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 and long-term revenue and operating expenses, as well as our future cash requirement projections, future revenue growth, prescription volume, 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 and our ability to repay our outstanding debt obligations. 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, in the accompanying slide presentation on Slide 2 and in the company's filings with the SEC on Form 20-F and is 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 a 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 first 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?

Thanks, Amanda, and thank you all for joining us. We will provide you with details regarding our progress during the first quarter. But I want to spend most of my time today focusing on some important changes to our corporate and capital allocation strategy. These changes follow a comprehensive assessment of the business by the Executive Team and take into account our current status, the evolving DLBCL treatment landscape, and the reality of the current capital markets environment. By successfully executing our updated strategy, we believe we can optimize our operations and maximize value for all of our stakeholders. There are three main components to our updated strategy: one, we are implementing a new go-to-market model to help drive growth in both academic and community centers; two, we are prioritizing our pipeline on nearer-term clinical programs, which we believe have the greatest potential to drive value over the next 12 to 15 months; and three, we are increasing efficiencies across the organization to reduce operating expenses. Now, I'd like to expand on each of these three elements. Starting with the commercial organization supporting ZYNLONTA, which delivered net sales of $19 million in the first quarter, up 15% year-over-year and a slight decline versus prior quarter. We remain confident in the uniquely differentiated product profile of ZYNLONTA, but we know that we can do better communicating this to physicians, particularly those in the community setting. Since Kristen joined as Chief Commercial Officer last November, she has had the opportunity to carefully assess the existing go-to-market model from every angle to figure out areas of improvement. As a result, we have decided to change our model to better align with how prescribers make treatment decisions and how health care is delivered locally. We know that in local geographies, academic centers are expanding into the community. Community centers are consolidating, and the influence across the two is growing. Our new model has aligned local teams with the right skills to address these shifts from the marketplace. I worked with Kristen for over a decade, and I've seen her successfully lead her teams to maximize the value of product launches. I'm confident in her ability, along with the commercial team, to take on this new phase of growth for ZYNLONTA. Turning to the pipeline, we've decided to focus our resources on our more advanced programs, which we believe have the highest potential to drive value in a reasonable time frame. These include the ZYNLONTA lifecycle management program as well as our clinical programs targeting AXL, KAAG1, and CD22. We are encouraged by the progress of these programs to date, and after a thorough review of the protocols and plans of action. We have agreed with Mohamed to increase investments to either expand and/or accelerate the patient enrollment for these programs. At this time, as part of our prioritization exercise, we are halting investments in our preclinical programs targeting PSMA and DLK1. Mohamed will elaborate on this a little later. Finally, after a comprehensive business assessment conducted by the Executive Team, we are streamlining the organization and optimizing efficiencies. As Pepe will discuss later, the cost reductions derived primarily from the prioritization of our R&D activities, a 17% reduction in the workforce, and greater operating efficiencies across the company. With these savings, we are redeploying capital to fund the prioritized programs. Taken together, the key elements of our updated corporate strategy will better position us to maximize a tremendous commercial and patient opportunity with ZYNLONTA and to progress our most advanced pipeline programs, all while being fully funded through mid-2025. With that, I'd like to turn the call over to Kristen for a commercial update. Kristen?

Thanks, Ameet. It is my pleasure to share an update on ZYNLONTA. Including our plans to reorganize the commercial field teams to optimize the opportunity we have with this differentiated therapy. As you've already heard, first quarter net sales of ZYNLONTA were $19 million, a 15% increase year-over-year and a slight decline versus Q4 2022, which includes the gross-to-net headwinds. While we are encouraged to see increased awareness and trial, there is much more we can do to embed ZYNLONTA into prescribing patterns, particularly in the community. By establishing leadership in the third line, third line plus setting as a single agent, we believe we will be well positioned for growth in potential combinations and in earlier lines of therapy. Consequently, I want to spend my time today sharing our assessment of the evolving market dynamics and how we are adapting by implementing a new go-to-market model to optimize performance. I've spent the last few months analyzing the DLBCL market and in particular the interplay between the thought leading academic setting and the community setting. What is clear is that ZYNLONTA's unique product profile is distinguished from other products used in the third line, third line plus DLBCL setting. Furthermore, the profile is even more attractive for community treaters givens ZYNLONTA's strong single agent activity, manageable safety profile, and ease of administration. The relapsed refractory DLBCL market is highly fragmented with no standard of care in the third line, third line plus setting, and a large portion of patients still receive systemic chemo-based therapy. We believe these dynamics present a tremendous opportunity to gain breadth and depth in the market. Let me now explain the market dynamics from a competitive and treatment setting perspective. On the competitive front. We are fully aware that the DLBCL market is a fast moving space with new treatment paradigms approved or near approval. In terms of emerging treatments Pola-RCHP was just approved for the frontline setting, and we are anticipating the approval of bispecifics within the coming months. This represents an opportunity as much as a challenge for us. For example, many physicians will not retreat with Polivy after they use it in the frontline setting, which potentially opens up more opportunity for ZYNLONTA. And while the anticipated approval of bispecifics will increase competition, we believe that based on feedback from certain experts, the use of bispecifics may be limited primarily to academic centers that are best equipped to provide this treatment. In the long run, we believe that the entrance of bispecifics is also an opportunity for ZYNLONTA. The potential of these two powerful single agents in combination could provide a benefit to a large patient population with unmet medical needs. As Mohamed will explain, the combination of ZYNLONTA with bispecifics being studied in LOTIS-7 and other studies has the potential to transform the treatment paradigm. Now, let's move on to the shifting treatment dynamics that we must address in order to optimize ZYNLONTA adoption and uptick today. One, academic centers continue expanding into the community through acquisition and partnerships. Two, the community practices are consolidating and are more centralized in decision making. Three, the interplay between the two settings is stronger than ever, particularly in the later lines of DLBCL. In some cases, community physicians refer to academic physicians for complex therapies such as CAR-T and in the majority of cases where they don't refer their patients, the community physicians will often consult with a local expert. These market dynamics require tighter coordination across local teams to leverage advocacy and ultimately drive depth of prescribing. Given the combination of these competitive trends and the evolving treatment setting dynamics in the DLBCL market, I would like to discuss how we can best capture the ZYNLONTA opportunities through transforming our go-to-market model. By evolving our commercial model, we believe we will more effectively target and manage key accounts, and we will enlist key thought leaders as advocates in both academic and community centers. The key changes in our new field model include the following: One, we have defined the territories that naturally work together between the academic and community centers. Two, we are implementing a structure in which the entire field force has a customer facing role. Three, we are realigning the field force to smaller local teams based around two key roles, an account manager with experience in navigating complex institutions and hematology specialists focused on community centers. Now, let me give an example of how this will work in practice. Florida is a critically important region with a mix of top tier institutions such as Moffatt, University of Miami and Florida cancer specialists, as well as their satellite offices and surrounding community practices. Until now, we had three hematology sales specialists splitting the state equally, but no clear account ownership and suboptimal coordination across different sites of care. Under the new model, we will have one account manager who acts as the lead for these institutions and two hematology sales specialists who will leverage the relationship with the main treatment center to pull through ZYNLONTA in the satellite offices and surrounding community sites. All three work together as one local team with shared objectives. This reorganization is designed to increase the effectiveness of the commercial team, matching the right people with the right roles and improve overall execution so that we optimize the curve of adoption and uptick for this important medicine. We plan for overall customer facing headcount to be relatively stable as we implement the new structure and we will continue to cover over 90% of the potential market. The change was announced internally mid-April and will be finalized by the end of May. Once the reorganization is complete, we will have a results oriented, empowered and fully accountable organization that is better aligned with the intricacies of their local market. The team will be focused on the top accounts in each geography while driving influence and pull through to the community. You have heard us describe the commercial opportunity in the third line plus setting of DLBCL as around 20% of an ultimate $500 million to $1 billion opportunity for ZYNLONTA. I am confident that we will deliver with this new model while laying the foundation for ZYNLONTA as the combination agent of choice. Now I'll turn the call over to Mohamed.

Thank you, Kristen. It is my pleasure to share an update on the pipeline. As Ameet mentioned, we have conducted a deep dive on all parts of the business and as part of our updated strategy, we have decided to further prioritize our R&D pipeline. Our intention is to focus our efforts and resources on our more advanced programs, which have the highest potential to drive value. We will be continuing with the lifecycle management of ZYNLONTA including LOTIS-5, 7, and 9 and with the clinical development of ADCT-601 targeting AXL, 901 targeting KAAG1 and 602 targeting CD22. Based on our prioritization efforts, we are halting investments in our preclinical programs, ADCT-212 targeting PSMA and 701 targeting DLK-1. Regarding the ZYNLONTA lifecycle management program, all studies remain on track. Each is designed to address distinct unmet needs that remain in all lines of therapy in DLBCL despite new and emerging treatment options. Taking a closer look at the lifecycle program, we continue to expect enrollment completion of our ongoing Phase 3 confirmatory LOTIS-5 study next year. This trial examined the combination of ZYNLONTA and rituximab in second line, plus DLBCL patients not eligible for transplant and has produced early encouraging data. The safety lead and data was released at SOHO 2022. We continue to make good progress on the Phase 2 LOTIS-9 study in unfit or frail patients. This open label study also utilizes a combination of ZYNLONTA and rituximab in frontline therapy, where there is a significant unmet need among unfit or frail patients not able to tolerate full doses of R-CHOP. Our previous guidance has been that we would release initial data on this program in the first half of 2024. I am pleased to report that we have seen an acceleration in patient enrollment for this trial and consequently we are now expecting to share initial data by the end of this year. Beyond the rituximab combination, we are exploring several novel combinations and expect to have early data next year. We are particularly excited about the possibility of combining ZYNLONTA with bispecifics giving their distinct mechanism of action and non-overlapping toxicity profiles. The LOTIS-7 study is evaluating combination with Roche's glofitamab and mosunetuzumab, and we also have a collaboration with IGM to combine with its bispecific imbodimab. Turning to the rest of the pipeline beyond ZYNLONTA. Starting with ADCT-601 targeting AXLs, it is a validated target, which has been shown to be well suited for an ADC approach. We have made the decision to initially focus the Phase 1 study of 601 to explore single agent activity rather than combination activity. We are implementing an amendment to focus the current monotherapy arm on patient with Sarcoma and adding second monotherapy focused solely on patients with non-small cell lung cancer. In parallel, an ICSA for possible biomarker approach is being finalized. Initial data from the Phase 1 trial is expected in the first half of 2024. Turning to ADCT-901 targeting KAAG1. This is a Novel first-in-class asset that targets various solid tumors. As previously announced, we are finalizing the protocol amendment to explore different dosing schedules to optimize the potential clinical outcomes for patients. So far there have been no dose limiting toxicities and we have not yet reached the maximum tolerated dose. Once agreed with regulatory agencies, we will advance to the next dosing level. We are also completing validation of the IHC assay. We expect to share initial data in the first half of 2024. Now I would like to discuss ADCT-602 targeting CD22 inpatients with relapse or refractory ALL our program in collaboration with MD Anderson. Considering the encouraging initial data shared at ASH showing MRD negative complete responses in high refractory population. The plan is to continue expanding at the current dosing level as well as to dose escalate. In addition, new sites will be added to the study to enhance enrollment. And we expect additional data from Phase 1 study to be shared in the first half of 2024. Lastly, let me say a few words on our research approach. Clearly, we have a long history and tremendous scientific expertise in the ADC space. While our early success was based exclusively on PBD-dimer technology, we will be focusing our efforts going forward on next generation ADC technologies, including new antibody contracts and payloads. I look forward to providing further updates on the progress of our pipeline over the coming months. With that, I will turn the call over to Pepe to give a financial update.

Thank you, Mohamed. Before I review the financials for the first quarter, I want to elaborate on our efforts to increase operating efficiencies. During my first few months, in coordination with entire Executive Team and key leaders of the company, we have carefully evaluated the capital allocation strategy, including every line item of the income statements and operational process to assess where we have the greatest potential to create value, streamline operations, and reduce operating expenses. We have conducted this exercise to find the most critical areas in which we can create value through a holistic approach to unlock the potential of the company. The result is that we have identified a number of key areas where we will drive incremental efficiencies. This include external expenditures, for example, on vendor procurement and consultancy, as well as internal expenditures. Notably on the earlier stage pipeline assets that Mohamed highlighted. There will also be an approximate 17% workforce reduction across the company, including full-time employees and full-time contractors as we focus our resources on the key value drivers for the company. As Kristen noted, overall headcount in the customer facing footprint behind ZYNLONTA will remain relatively stable as we seek to optimize this tremendous opportunity. Turning now to the financials for the quarter, starting with our balance sheet, as of March 31st, we had cash and cash equivalent of $310.5 million, representing a $15.9 million reduction from our position at the end of 2022. As a reminder, we expect to receive a $75 million milestone in the second quarter from Health Care Royalty Partners on the first commercial sales of ZYNLONTA in Europe by our partner Sobi. Including this payment and taking account our updated business plan, including the increased cost efficiency I just highlighted, we expect that our cash runway will extend to mid 2025. We're increasing investments in our near-term catalyst, most of which are open label and anticipate having data to share with the market and the scientific community over the next 12 to 15 months. Moving to the P&L as you already heard, ZYNLONTA net sales were $19 million in the first quarter, up 15% versus Q1 2022. Moving down the P&L, our combined operating expenses on a non-IFRS basis, which excludes stock-based compensation, were down 14% year-on-year. This mainly reflected reduced R&D expenditures due to the discontinuation of a number of clinical studies during 2022 and already realized operating efficiencies. Commercial expenses for ZYNLONTA were broadly maintained year-over-year. Moving to the bottom of the P&L on an adjusted basis, we reported a net loss of $42.5 million for the first quarter, or $0.53 per basic and diluted share. Turning to our full-year guidance, we're reiterating what we previously announced in February. We continue to expect ZYNLONTA net pro sales to grow by a double-digit percentage year-over-year. In terms of total operating expenses, we expect a decrease in 2023 and 2024 as compared to 2022. Finally, I would like to share the important value driving milestone over the next 12 to 15 months. Starting with ZYNLONTA. In addition to delivering double-digit growth this year, we expect to achieve commercial brand profitability. This means that by the end of 2023, ZYNLONTA will start to pay in part for the development of new indications and the pipeline. Outside the U.S. we expect our European partner to launch ZYNLONTA in the coming quarter. By the end of the year, we expect to share initial results from the LOTIS-9 study in unfit and frail DLBCL patients. In 2024, we expect to complete the enrollment of our LOTIS-9 confirmatory study in the second line setting, and we also expect to share some initial results from our LOTIS-7 study. In terms of the pipeline, in the first half of 2024, we expect to share initial data from ADCT-901 targeting KAAG1 and ADCT-601 targeting AXL. We also expect additional data from the Phase 1 study for ADCT-602 targeting CD22 in the first half of 2024. So a number of important milestones, both for ZYNLONTA and our pipeline. With that, I'll turn the call back to Ameet for closing remarks. Ameet?

Thank you, Kristen, Mohamed, and Pepe. To conclude, we believe that we have a clear road map and the capabilities to execute on our new strategy to help create future value for all of our stakeholders. We are excited about the numerous opportunities, which lie ahead and look forward to keeping you updated on our ongoing progress. Now the team will be available for questions. Operator.

Thank you. At this time, we will conduct the Q&A session. [Operator Instructions]. Our first question comes from Gregory Renzo from RBC Capital Markets. Please go ahead.

Great. Good morning, Ameet and team. Thank you for taking my questions. Maybe just a couple for me. Just first, it's helpful to hear your views on the competitive landscape and bispecifics. I'm just curious, on the CAR-T front, how do you see CAR-T in earlier lines impacting the market opportunity for ZYNLONTA? And maybe more specifically, what is the ability to use ZYNLONTA as a bridging therapy without impacting the efficacy of CAR-T? And maybe I'll just get in my second question as well. Just on the updated corporate strategy, Ameet just as you've contemplated the reductions and optimization, I'm curious what range of scenarios did you and the team consider just in order to arrive at what is that current level of impact with the changes? Thanks so much.

All right. Well, thanks, Greg. Thanks for all the questions. I'm going to start by turning it to Kristen to talk about the competitive landscape. You asked both about the impact of bispecifics, but also in terms of CAR-T moving to earlier lines. So I'll have her address that first, and then I'm going to turn it to Mohamed next to talk about ZYNLONTA as a potential bridging therapy.

Sure. Thanks Ameet. Thanks, Gregory. So when we look at the DLBCL market, it's highly fragmented and quickly evolving, that's for sure. We believe that ZYNLONTA is well positioned in the third line setting as we see the evolving landscape shake out. So for instance, with CAR-T, we definitely see increasing utilization in the second line, and this really opens up opportunity, more opportunity for us in the third line, third line plus setting. As you know, 60% of CAR-T patients will relapse, and about 25% of community patients actually won't get to CAR-T, whether it's because of the complexity, toxicity, or lack of access. So, again, as CAR-T moves up, it definitely opens up an opportunity for ZYNLONTA. Your question about bispecifics? We anticipate the approvals bispecifics in the next month, and over time, we expect bispecifics will have access in earlier lines. However, initially, we do see their use really in the academic centers where they are best equipped to manage these agents. When we think about the competitive landscape, we've actually been competing against bispecifics, because they've been studied in so many clinical trials. So we already feel the competition to some extent. At the same time, over the long run, because of our LOTIS-7 study and other studies that we have, we do see an opportunity potentially for ZYNLONTA to be combined with the bispecifics. And this is a great opportunity for us, given the differentiated mechanisms and non-overlapping toxicity. So I will turn it to Mohamed for the second one.

Yes, Greg. Thanks so much for your question. We are currently actually assessing the use of the possibility of using ZYNLONTA as a breaching therapy for CAR-T. We have an investigator issue, the study that addressing that was signed both in the U.S. and in Europe. Now, what do we have now in terms of information? What we know that there is 14 patients in the LOTIS-2 that after receiving ZYNLONTA, went on and received CAR-T therapy. The median time between ZYNLONTA dosing and using CAR-T was about 120 days around four months. The efficacy of CAR-T in these patients was overall response of 50% and complete response of 43%. Most importantly, of those patients, 10 was in for CD19 and 10 out of 10 were positive for CD19. It's also worth saying that the IIT I mentioned or Investigator-Initiated Trials I mentioned, will be testing for all patients post ZYNLONTA for CD19 before they go to CAR-T.

Thank you, Mohamed. And then, Greg, your question around the different scenarios. We actually looked at all different possibilities, I mean starting with ZYNLONTA. We think it has tremendous opportunity just having -- we're right now playing in the smallest part of where we're going to eventually play in the market, because we're in the third line, third line plus setting. There is no clear standard of care, here the market is evolving quickly, but we think we can position ourselves to become a standard of care and get to our peak sales estimate in that indication of $1 million to $200 million. Now, longer-term, we think the bigger opportunity there is, of course moving to earlier lines of therapy. First with the rituximab combinations, and then eventually potentially with the bispecific combination. So we think there's a lot of potential. So that was clearly a priority. It's already an approved product. So even combination data, we think is more de-risked than, let's say, a new asset. The second thing we focused on was our three Phase 1 clinical programs. We have strong belief in all three of them, and we're going to see data readouts within the next 12 to 15 months on all three of the programs. And so we wanted to play those bets out. Of course we're going to be data driven in terms of how we invest moving forward with any of those programs, but we wanted to play those bets out, and then we knew we needed to prioritize further on some of the earlier work to make sure that we maintained a cash runway into the middle of 2025. And so that's how we derived our prioritization. We feel like we have a lot of shots on goal now with ZYNLONTA or three Phase 1 assets, all while maintaining a strong cash runway that's still more than two years out. Thanks for your questions, Greg.

Thanks, guys. I appreciate all the color.

Thank you. One moment for our next question. Our next question comes from Jeff Hung from Morgan Stanley. Please go ahead.

Thanks for taking my questions. With the new go-to-market model in place by the end of May, how long do you think that it will take before you start to see the full impact of the updated commercial strategy? And then I guess, besides actual sales, what kinds of metrics might you be looking at to gauge that progress over time and I have a follow-up?

Okay, no, thanks for the question. I'm going to turn to Kristen to talk about that.

Sure. So we were really thoughtful in our approach with this change and we wanted to handle this as quickly as we possibly could to minimize disruption. So the change was announced mid-April. It'll be completed by the end of this month. And with the restructured field force, I'm confident that we'll start seeing the benefits of this new model in the second half of this year. When you ask about how we'll measure success, the true measure of success for us is net sales. And again we anticipate seeing the benefits from this in the second half of this year.

Great. Thanks. And then just for the 17%, can you talk about where these are coming from? Is it a mix of your field force and R&D or more focused from a particular part of the organization? Thanks.

Yes, so I'm going to turn it to Pepe to talk about the 17% reduction.

Yes, thanks for the question, Jeff. Just for clarity, the footprint, the commercial footprint is stable, so we're not impacting our customer facing workforce. So the reduction is mostly attributed to the portfolio prioritization. So you will see there that we have impacts in clinical and in CMC type of efforts and in DNA, so back office support, that's where the impacted workforce is taking place.

Okay. Thank you.

Thanks, Jeff.

Operator, are there any other questions?

Our next question comes from Kelly Shi from Jefferies. Please go ahead.

Hi, this is Sean on the call for Kelly. Thanks for taking our questions. So regarding your first line study, LOTIS-9, excited to see now the initial data is expected by year-end. So we're just wondering, will the initial data be sufficient to support a potential label expansion? What will be the next steps? Thank you.

Yes, I will make sure Mohamed answer that question.

As a reminder, LOTIS-9 is an open label study expected to enroll 40 patients per cohort, total of 80 patients in frontline frail or unfit patient population. It is by design, not a regulatory enabling study. However, it will guide us for any possible future regulatory pathways. We are very excited to say that we will be sharing data by the end of this year instead of mid next year or somewhere next year. The data we'll be sharing later this year would be meaningful data to the medical community and the overall scientific community. It is also pleased to see that the enrollment has been accelerated, mainly because of the physicians and KOL's orientation of the study.

Thanks, Mohamed. Yes, just to add on, Sean, it won't be complete by the end of this year, but we'll have meaningful data to share. By the end of this year, and then the full study would complete read out next year.

Okay. Thanks for the color.

Thank you. One moment for our next question. Okay. Our next question comes from Naureen Quibria from Capital One Securities. Please go ahead.

Good morning. Thanks for taking the question. Just two from me, with regards to the entries of the bispecifics near-term, do you think the shift in the landscape that might affect for instance, recruitment in your LOTIS-7 trial, do you think it'll impact that trial in any way with regards to the patient type getting lot of patients or something?

Yes, Naureen, thanks for the question. I don't think so. I think there's excitement around bispecifics. I think there's excitement about the combination. I have to say we've seen now when bispecifics get approved, the bispecifics and ZYNLONTA will be the two most potent single agent therapies approved on the market outside of CAR-T. And I think everyone is looking in early lines. Is there a possibility to move away from systemic chemo free regimens and to move from therapies that require really complex setups like CAR-T in the academic centers, it's not really available in the community, so there really is a need for more potent combinations. We've seen a lot of interest, I would say in LOTIS setting, and we think there's lot of excitement amongst the medical community around this possibility of the combination.

Great. That's helpful. And then with regards to 602 in ALL, I mean that's currently an investigator sponsored trial, so is there anything that will sort of trigger from your point of view? What will it take for you to launch a company sponsored trial?

Yes. So thanks for the question. We want to continue to see data. I mean, we've agreed with MD Anderson to expand the sites. MD Anderson, the City of Hope is already in it as well, and we're going to be adding some more sites to there. Within this, we want to continue to see more data both at the current dosing cohort as well as expanding to higher dosing cohorts as well. And then based on some initial data, we'll decide if we bring this in house and decide to do a company sponsored study. But we're moving forward, I would say with more intensity in terms of more sites and faster enrollment on this study as well.

Okay, great. Thank you.

Thank you. One moment for our next question. Our next question comes from Boris Peaker with TD Cowen. Please go ahead.

Hi, good morning. This is [indiscernible] for Boris Peaker. Thank you for taking my questions. So based on your current sales and your new implemented model, what market share do you think ZYNLONTA penetrated?

So I'll answer this question, and make Kristen feel free to add. Yes, we don't disclose market share. What I could say is, in the whole third line setting, there's no dominant player. There's not a player that has 20% more share of the market. I mean, it's a very fragmented segment of the population, and we think there's still clear opportunity for the product to grow. So as you probably saw, we've reiterated our guidance for the year of double-digit growth, but also reiterating that we think the peak sales potential in this indication is somewhere between $100 million to $200 million.

I don't have much to add to that. Just reinforcing the fragmented market and we truly see an opportunity to embed ZYNLONTA as the standard of care in the third line ZYNLONTA setting.

Thank you for that color. And then just a follow-up question. What is the additional addressable market size if the LOTIS-5, LOTIS-7 or LOTIS-9 if they're successful? If you can give it a little color on that?

Yes, so I would say if you look at LOTIS-5, it should roughly double the opportunity that we have in our current indication. When you look at the second line population, there's still a good amount that's not either getting CAR-T or transplant. I mean, almost half patients aren't getting either one when you look at how low the penetration of CAR-T is in the community. So that at least doubles the opportunity. LOTIS-9 could again be a similar size opportunity to our current indication and LOTIS-5 and of course, LOTIS-7 could be the biggest opportunity. If that works, you can start potentially transforming early lines of therapy and even potentially again, we have to see data potentially even competing with some of the curative attempt products if the data looks good. So that's, I would say the largest potential opportunity. That's what adds up to our peak sales estimate of if they all work, of getting to $0.5 billion to $1 billion in peak sales.

Thank you very much. If I could, I'm going to ask a third question for the discontinued preclinical PSMA targeting ADC, could you give a little color? Did you discontinue just due to the fundamental technical reason or some cost optimization here?

Yes, that's a great question. I appreciate it. This is purely a capital allocation decision. We want to make sure that we're focusing on areas that can unlock shareholder value in the near-term. And so that's why we're focusing our resources on really maximizing ZYNLONTA as well as maximizing the potential of our near-term pipeline, all of which are going to have data readouts in the next 12 to 15 months. And we have three programs. So this is purely capital allocation decision. When I look at the scientific rationale, when I look at the preclinical data for 701, 702, they're very strong. So if we were in a different capital markets environment right now, we would continue to fund both of them. But we know we need to make tough choices right now in this market and we're prioritizing our clinical that we think have the highest chance of success as well as better than nearest term.

Got it. Thank you very much.

Thank you. [Operator Instructions]. Our next question comes from Brian Cheng from JPMorgan. Please go ahead.

Hey team, thanks for taking my question this morning. Our first question is on ZYNLONTA sales. We're wondering if you can provide a bit more color on the sales trajectory this quarter that you've seen. Given that you talked about the gross to net and also the Medicare discarded drug policy impact, what do you see in the baseline growth? In other words, if you discount the fact that there is these policy impact in place, how much quarter-to-quarter growth in terms of vial use and prescriber account that you're seeing. And I have one follow-up. Thank you.

Let me start with that. So as we have guided before, there's a gross to net impact this year compared to last year because of the wastage policy from Medicare Part B and the contracting of GPO. So both have an impact. We have guided that the GPO impact is between two to three points over 2022. And Medicare Part B wastage policy is in the mid-single to high-single-digits. So that already started impacting in Q1. Quarter-over-quarter, the volume was slightly down. And the mix of the two elements is taking the revenue to be slightly down versus Q4 of 2022. Yes, go ahead.

Yes, maybe one for Kristen. And are these local teams in your new go-to-market plan already familiar with the doctors that are in these new carved out regions? And if you can elaborate on that point, that would be great. And then how long do you think, will it take to see an inflection point in adoption in this new go-to-market strategy and see more of this local network effect that you mentioned? Thank you.

Yes, thanks for that question. So these local teams, what we see when we took a step back and looked at this right, so we've got the changing market dynamics and we also know that we've got a differentiated product. We know our field force is right size. So when we look at that and we look at the observations, we see across the nation in terms of performance, variations by geography, right? So we have our top performing geographies, they're already adopting some core elements of this model, right? So, like you said, where they have worked with these local networks and influence and leverage them for the community and in those satellite offices. So what we need to do now is really formalize this model across the nation. You asked about familiarity with the physicians, of course all of our folks who are in the market, that's what they work to do is really work with these top thought leaders and their customers in terms of delivering the clinical education around ZYNLONTA. What we want to do with this model is have that tighter coordination between the academic and the community setting and these local teams will enable that coordination. You asked about the inflection point. We are confident that we will deliver with this model and start to see the benefit in the second half of this year.

Thank you.

Thank you. I am showing no further questions. I will now hand the call back over to Ameet for closing remarks.

Well, thank you all so much for joining. Really appreciate all the thoughtful questions and look forward to engaging and keeping you updated in the future months. Thank you all so much.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Thank you.