ADC Therapeutics S.A. (ADCT) Q4 2024 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the ADC Therapeutics Fourth Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] I will now turn the call over to Marcy Graham, Investor Relations Officer for ADC Therapeutics. Marcy, please go ahead.

Thank you, operator. This morning, we issued a press release announcing our fourth quarter and full year 2024 financial results and business update. The 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, who will discuss our operational performance and recent business highlights, followed by our Chief Financial Officer, Pepe Carmona, who will review our fourth quarter and full year 2024 financial results. We will then open the call to 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. 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 slide presentation 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 as a substitute for the information prepared in accordance with GAAP. You should refer to the company's fourth quarter earnings release for information and reconciliation of historical non-GAAP measures to the comparable GAAP measures. I will now turn the call over to our CEO, Ameet Mallik. Ameet?

Thanks, Marcy, and good morning, everyone. Thank you for joining us on today's call. Looking back, 2024 was a year focused on execution where we achieved multiple exciting milestones, helping to advance our strategy to unlock value for our shareholders. We made significant progress across key areas in our ADC portfolio, both with ZYNLONTA and our early-stage solid tumor pipeline, all while strengthening our balance sheet. We are confident in the path ahead as we work to make an impact for more patients moving forward. Among our key 2024 accomplishments, we reached commercial brand profitability with ZYNLONTA as we continue to maintain our position in the highly-competitive third-line-plus DLBCL space. Sales of $69.3 million were in-line with the prior year despite the growth of bispecifics in this setting. We made significant progress in advancing our strategy to expand the use of ZYNLONTA into earlier lines of DLBCL and indolent lymphomas. December included completion of enrollment in our pivotal Phase 3 LOTIS-5 trial and an initial efficacy and safety update on Part 2 of our Phase 1b LOTIS-7 trial. In addition, we were pleased to see Phase 2 IIT indolent lymphoma data presented at ASH and the simultaneous publication of the follicular lymphoma data in Lancet Haematology. From a solid tumor perspective, we continue to advance our exatecan-based preclinical candidates. The most advanced targets are PSMA and Claudin-6 and we continue to seek potential research collaborations to further advance our programs. Additionally, in a year marked by continued progression, we were able to achieve a double-digit reduction in operating expenses for our second year in a row. In addition, we strengthened our balance sheet through an equity financing, providing an expected cash runway into the second half of 2026. We are proud of what we accomplished in 2024 and are confident in our path forward. In support of our commitment to further expand usage of ZYNLONTA, we are pursuing the substantially larger opportunity in earlier lines of DLBCL therapy with combinations through LOTIS-5 and LOTIS-7. With LOTIS-5, we are pleased to have closed 2024 by completing enrollment of our Phase 3 trial, bringing us a step closer to providing a potential combination treatment in the second-line-plus DLBCL setting. Initial data from the safety lead in portion of the study showed an overall response rate of 80% and a complete response rate of 50% with no new safety signals demonstrating that this combination of ZYNLONTA plus rituximab has the potential to provide competitive second-line-plus efficacy with a favorable safety profile allowing broad accessibility. Updated data are expected by the end of 2025 once the pre-specified number of events is reached. With LOTIS-7, in December, we reported encouraging initial data including safety and efficacy in a subset of patients from the Part 2 dose expansion of the ZYNLONTA plus glofitamab combination arm in non-Hodgkin lymphoma. Initial data showed a best overall response rate among the 18 efficacy evaluable relapsed or refractory DLBCL patients of 94% and a complete response rate of 72%. These encouraging efficacy data were observed across patients with different numbers of lines and types of prior treatments. Initial safety data on all 29 NHL patients suggest the combination is generally well tolerated with no dose limiting toxicities across all dose levels. We believe these initial data support our hypothesis that combining these two potent approved single-agent drugs with complementary mechanisms of action will yield additive or synergistic efficacy, a manageable safety profile and accessibility across care settings. This combination has the potential to be best-in-class in a highly-competitive market. Enrollment of 40 patients and dose expansion is expected to be completed in the second quarter of 2025. We expect to share data on a subset of patients in the second quarter of this year with a fuller more mature data update anticipated during the second half of 2025. In addition to our expansion trials in DLBCL, promising Phase 2 data from two key investigator initiated trials, led by the Sylvester Comprehensive Cancer Center at the University of Miami Miller School of Medicine, were reported in indolent lymphomas with presentations at ASH on ZYNLONTA in combination with rituximab in high-risk relapsed or refractory follicular lymphoma and as monotherapy in relapsed or refractory marginal zone lymphoma with a simultaneous Lancet Haematology publication of the FL data. Data showed strong results in high-risk relapse/refractory FL patients treated with the combination of ZYNLONTA plus rituximab with the best overall response rate of 97% and a complete response rate of 77%. In addition, ZYNLONTA data from the relapsed or refractory MZL study showed clinically meaningful activity with an overall response rate of 91% and a complete response rate of 70%. We look forward to further updates at future medical conferences from these two studies evaluating the potential of ZYNLONTA in FL and MZL. With sufficient data, we plan to discuss the path forward with regulatory authorities as well as seek inclusion in compendia. Looking forward into 2025, we expect to have multiple data catalysts which can further derisk ZYNLONTA life cycle management opportunities. Together, these have the potential to lead to a peak revenue of $600 million to $1 billion in the US, assuming regulatory approval and compendia listing. Within our current indication, our commercial strategy remains focused on relapsed or refractory DLBCL patients who need a treatment with a fast, durable response and a manageable safety profile, which can be administered in the outpatient setting. We are holding our own in the competitive third-line-plus market, demonstrating that ZYNLONTA has a place of a monotherapy with a significantly greater opportunity as we move toward combinations in earlier lines of DLBCL therapy. We believe LOTIS-5 has the potential to take ZYNLONTA to $200 million to $300 million in peak sales as we expand into the second-line setting, taking the company to profitability. This is driven by doubling the patient population, extending the duration of therapy and improving the clinical profile versus our current indication as a monotherapy. Market research suggests that only about 50% of the second-line population are expected to have access to and/or be suitable for CAR-T and bispecific-based therapies. For patients who are not treated with or progress on a CAR-T or bispecific, ZYNLONTA plus rituximab has the potential to have a differentiated clinical profile with high and durable response rates, a manageable safety profile, and ease of administration. With LOTIS-7, we estimate we can expand the total opportunity for ZYNLONTA in DLBCL to $500 million to $800 million in peak revenue with regulatory approval and compendia listing. If the data persists, we believe ZYNLONTA plus rituximab has the potential to transform the future lymphoma treatment paradigm by becoming the preferred bispecific combination in the second line plus DLBCL setting. Additionally, in indolent lymphomas, there is a clear unmet need in both relapsed or refractory marginal zone lymphoma and relapsed or refractory follicular lymphoma. We are encouraged by the data seen in the Phase 2 IIT suggesting a ZYNLONTA regimen could provide significant benefit in these indolent lymphomas and plan to engage regulatory agencies and pursue competitive strategies as soon as sufficient data are available. The indolent lymphomas opportunity could provide additional peak revenue of $100 million to $200 million. Taken together, we believe we are well positioned for success as we progress toward key milestones in 2025 and beyond. With that, I would like to turn the call over to Pepe.

Thank you. As Ameet has noted, we achieved many milestones in 2024, including reducing operating expenses and strengthening the balance sheet. On the financial front, we remain well capitalized, ending the year with $251 million in cash and cash equivalents, which is expected to fund operations into the second half of 2026 based on our current plans. ZYNLONTA net product revenues in fourth quarter 2024 were $16.4 million as compared to $16.6 million in the same quarter of 2023. For the full year 2024, net product revenues were $69.3 million as compared to $69.1 million in 2023. Throughout 2024, we maintained our disciplined capital allocation strategy and decreased operating expenses by 13% year-over-year on a non-GAAP basis, which excludes stock-based compensation. In the fourth quarter, our non-GAAP operating expenses decreased versus prior year by 15% due to efficiencies in our operations and diligent portfolio management decisions. You can find 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. On a GAAP basis, we reported a net loss of $30.7 million for the quarter or $0.29 per basic and diluted share as compared to net loss of $85 million or a net loss of $1.03 per basic and diluted share for the same period in 2023. Net loss for the full year ended December 31, 2024 was $157.8 million or a net loss of $1.62 per basic and diluted share as compared to a net loss of $240.1 million or a net loss of $2.94 per basic and diluted share for the full year ended December 31, 2023. The decrease in net loss during both periods is primarily attributable to lower income tax expenses and lower operating expenses. On a non-GAAP basis, adjusted net loss was $26.5 million or an adjusted net loss of $0.25 per basic and diluted share as compared to adjusted net loss of $79.5 million or $0.97 per basic and diluted share for the same period in 2023. Adjusted net loss for the full year ended December 31, 2024 was $111.4 million or an adjusted net loss of $1.15 per basic and diluted share as compared to net loss of $185.7 million or an adjusted net loss of $2.27 per basic and diluted share for the full year ended December 31, 2023. The decrease in net loss and adjusted net loss during both periods is primarily attributable to lower income tax expenses and lower operating expenses. With our current 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 US directly and through our partnership outside the US. In addition, we continue to pursue research collaborations to advance our early-stage solid tumor pipeline. With that, I will turn the call back over to Ameet.

Thanks, Pepe. With a year of completed milestones behind us, we enter 2025 with great confidence, proud of what we have achieved and excited for what is to come. Within our current ZYNLONTA indication, we maintained our annual revenue in line with prior year. We believe the real growth opportunity comes with the expansion of ZYNLONTA both through regulatory approvals as well as inclusion in guidelines, and we are confident in the multiple pathways we have to get there. We continue to be encouraged by ZYNLONTA's consistently strong clinical profile, both as monotherapy and in combinations, giving us confidence in the ultimate success of our expansion strategy. 2025 will be a period of important data readouts as we progress towards the key milestones here today, potentially derisking and setting us up to grow our ZYNLONTA brand significantly in the future. As we build on the strength of our established commercial foundation of ZYNLONTA with the expected expansion into the second-line-plus DLBCL and indolent lymphomas, we believe we have the potential to reach $600 million to $1 billion in peak revenue in the US on our journey to bring these important treatments to patients who need them. Beyond this, we believe there is additional value creation opportunity with our preclinical solid tumors portfolio as we pursue potential research collaborations. Looking ahead, I am confident that ADC Therapeutics is well positioned to make a truly meaningful impact for patients while driving value creation for all our stakeholders. We can now open the line for questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Eric Schmidt of Cantor. Please go ahead.

Good morning. Thanks for taking my question. Maybe just a first real quick one on the LOTIS-7 update in Q2. Is there going to be a specific forum that you have in mind or timing within the quarter we can look to?

Hello?

Hi. Can you hear me?

Yeah, we can hear you.

Yeah. Did you hear me?

No, I'm sorry. I was cut off.

Okay. So, let me repeat. So, thanks for the question. We haven't disclosed yet what forum or exact timing within Q2 that we're going to be sharing the data, but what I can tell you is that we're on track to enroll the 40 patients in the dose expansion in the second quarter. We'll share a portion of those patients -- safety and efficacy data on a portion of those patients in the second quarter and then data on all 40 of those patients in the second half of the year.

Thanks for that repetitive response. And then, second question just with regard to your newest competitor, latest competitor, I guess, in what's already a fairly crowded marketplace with existing market for ZYNLONTA and relapsed/refractory NHL. Obviously, we saw the Pfizer approval of ADCETRIS. Is it too early to say whether you've got a real challenge there? I know you've guided to kind of flattish revenue for the year. Thank you.

Yeah. As you said, the triplet of ADCETRIS plus R2 was recently approved in the third line setting based on the ECHELON-3 study. We believe this is going to have limited impact as physicians have access, as you said, to multiple options. And we believe based on a lot of the quantitative market research we've done that any use is likely going to be in place of older regimens such as R2 or R-based chemo in the third-line-plus DLBCL setting.

Thanks a lot.

Yeah. Thank you.

Your next question comes from Kelly Shi of Jefferies. Please go ahead.

Thank you for taking my questions. For LOTIS-7, do we expect a meeting with the regulatory agencies after second half update? And if that's the case, would we hear from ADC and if the info could actually share to the public domain? And secondly, what is your estimate of ZYNLONTA as market opportunity in indolent lymphoma including follicular lymphoma and [marginal zone] (ph) lymphoma? Thank you.

Okay. So, once sufficient data is available on the 40 patients, and we have the correct follow-up, we do plan to pursue discussions from regulatory authorities, likely in the second half of this year. We also plan to pursue compendia strategy. We know that based on some of the recent inclusions of biospecific combinations and NCCN guidelines, we believe that the publication of data on approximately 100 patients with the selected dose would be sufficient for submission to compendia. So, we do plan to pursue both a regulatory strategy and a compendia strategy for LOTIS-7. With regards to the indolent lymphoma opportunity, as you know, we presented, we think, quite compelling data both in marginal zone lymphoma and follicular lymphoma at ASH this past year and those studies continue. Based on the opportunity, the potential regulatory approval and certainly the compendia from those studies, we believe that the peak opportunity from indolent lymphomas will be somewhere in the $100 million to $200 million range.

Thank you.

Your next question comes from Michael Schmidt of Guggenheim. Please go ahead.

Hey, guys. Thanks for taking my questions. By the end of the year, you should most likely also have the result of the LOTIS-5 trial in hands. And I guess I'm just wondering how does your LOTIS-7 strategy -- I mean how is it impacted by potential outcomes of LOTIS-5 by the end of the year? And then, I had a follow-up.

Okay. Well, it's a great question. We know that in this market, outside of the front line, really, no given treatment sort of dominates. A lot of the physicians really make treatment choices based on efficacy, safety and accessibility profile, but in the context of individual patient needs. So, for example, you see something like a CAR T, which has outstanding efficacy, only capture about 20% of the share. So, we think having both approaches ZYNLONTA plus rituximab and LOTIS-5 as well as ZYNLONTA plus glofitamab and LOTIS-7 are complementary approaches, which allow us to address different individual patient needs. Specifically with LOTIS-5, we believe that having a non-systemic chemo combination and offer a competitive second-line advocacy profile, but also with favorable safety and convenience, especially for patients who either can't access are not suitable for or progress on a CAR T or bispecific therapy. With LOTIS-7, based on the recent data we shared in December, which we believe is very compelling, we think that ZYNLONTA plus glofitamab has potential to be the preferred bispecific combination in second-line-plus DLBCL with a highly competitive efficacy as well as with the manageable safety profile and the potential for off-the-shelf convenient dosing. So, we believe that both approaches are complementary. Based on our quantitative market research, what we've seen is about 50% of patients are anticipated to get a CAR T or bispecific. So, it still leaves a lot of room for other therapies. And then we, of course, know that many of them, of course, they will progress.

Okay. And then, yeah, we saw you have an AACR -- an oral presentation coming up at AACR on your Claudin-6 ADC. And yeah, I was just wondering if you can help us understand sort of how important that presentation is and -- in terms of some of the learnings perhaps relative to other ADC platforms like the Daiichi Sankyo technology, how much insight will we gain from that presentation in terms of differentiation?

Yeah. I think you will see more data that has not been disclosed yet in the public domain, not only at Claudin-6, which, as you mentioned, is an oral presentation, but we also have poster presentations for at PSMA and ASCT2 compounds. As you're aware, we're using exatecan with a very novel linker system, which allows us to offset the hydrophobicity of exatecan and [indiscernible]. What we've seen so far preclinically is pretty consistently at therapeutic index that's greater than 10, which is quite differentiated. Relative to DXd, we've seen higher potency, higher [indiscernible] we noticed on MDR substrate. And we've also seen -- we haven't seen ILD, which you see with DXd and other topoisomerase platform. So, we do think the data is differentiating. And as both the oral presentation for topoisomerase as well as the poster presentations for PSMA and ASCT2, there will be additional, I believe, compelling data that share that hasn't been in public demand at this point.

Okay. Thank you.

Thank you.

Your next question comes from Gregory Renza of RBC Capital Markets. Please go ahead.

Hi, guys. Thank you so much for the time this morning. It's [Anish] (ph) on for Greg. Thanks also for the updates and for taking our questions. Just on LOTIS-5, what must the combination of ZYNLONTA and rituximab demonstrate in terms of efficacy and safety to be considered competitive? And what are the benchmarks for approval and to make a compelling case for clinical adoption in terms of complete response, median PFS, median DoR and median OS? Thanks so much.

Yeah. No, thanks. For LOTIS-5, the way I think about the competitive set is that the world is going to be sort of CAR-Ts and bispecific-based combinations, of which there's going to be a portion of the population that's going to have access to those therapies and be suitable for those patients. But again, we anticipate based on the independent quantitative market research that about half the patients are going to get one of those therapies in the second line setting. And when you look at the other therapies and all the other combinations, whether they do targeted therapies or with chemo-based regimens, they tend to have CR rates anywhere between the 25% to 40% range. So, clearly, anything north of 40% would be differentiated. I think what we're encouraged by is in the safety run-in, which was the first 20 patients looking at the combinations in ZYNLONTA plus rituximab prior to the randomized portion of the study. What we saw was that overall response rate of 80% and a complete response rate of 50%. So, we believe anywhere in that 40% to 50% range is going to be compelling relative to the non-CAR T and non-bispecific options, which we know is going to be a big opportunity. In terms of PFS, the way this study is powered, so this is a randomized study versus R-GemOx. What we know is R-GemOx typically has a PFS of anywhere from three to four months. In the STARGLO study, for example, where it was most recently used as a control arm, the PFS was 3.6 months. The way the study is powered is that we need to show approximately a two-month difference to have a positive study. So, we feel good based on the safety run-in data. Obviously, it's blinded to the results of the study. So, we have to wait to see the results. But based on the early data, we're quite encouraged by the prospects of having a positive LOTIS-5 study, and for it to be clinically relevant, particularly relative to the non-bispecific and non-CAR-T options.

Great. Thank you so much. And if I could just squeeze in one more. I guess just on the commercial side, how do you foresee the competitive landscape for third-line DLBCL evolving in 2025 and beyond? And how might that differ from '24? Thanks again.

Yeah. I mean I think the biggest competitive impact we've seen with the product since the launch is really with the introduction of bispecifics about 18 months ago. Bispecifics now have taken about a third of the third-line-plus market. I think what I'm happy about is that during the period, and if you look at the past several quarters, we've been in that $16 million to $18 million sales per quarter range. We had some fluctuation due to order and pattern variability, but we've been in that $16 million to $18 million range pretty consistently over the past several quarters despite the bispecific combination. The only real new competitive impact in the third-line-plus setting is the question before that Eric asked about ADCETRIS plus R2. So, we believe, of course, there's going to be some impact, but we believe it will be relatively limited, particularly as there's likely to be more community use and really in place of some of the other regimens like R2 and R-based chemo.

Thank you.

Your last question comes from Sudan Loganathan of Stephens. Please go ahead.

Hi, Ameet and Pepe. Thank you for the update and for taking my questions. My first one is, can you provide some examples of comparable bispecifics that demonstrated meaningful market share gain with DLBCL patients through compendia listing? And then, what were the number of patients in those bispecific clinical trials that were run that got published and were considered for compendia listing?

Yeah. So recently, I think it's too soon to tell what the update can be. But I think what we know is that very recently glofitamab plus GemOx, epcoritamab plus GemOx and mosun plus polatuzumab have all been very recently added to NCCN guidelines and the preferred regimen based on roughly 100 patients. So, when we look at all those analogs, we think about 100 patients is what's required to get into guidelines. That's what -- approximately what all three of those regimens had and too soon to set to what the uptake is going to be. Obviously, as you know, with any compendia listing, we, of course, will not promote off-label. And I assume none of these companies are going to promote off-label. But these become available to physicians to do what's best for the patients. And once again, the preferred regimen, payers, of course, will reimburse based on preferred listings typically.

Got it. Thank you. And if I can squeeze in one more. I just wanted to ask on how long do you anticipate it will take to kind of achieve that peak penetration predictions for ZYNLONTA after achieving compendia listing or even a potential approval in the second and third-line setting? I know like whenever it was first approved, it was pretty swift in gaining market share. So, just kind of curious if you expect the same type of ramp once it's added to listing?

Yeah. We [haven't] (ph) guided to what the peak penetration would be, the timeframe, but what I can tell you is if you look at the other analogs that have been introduced up to this point, typically, the peak penetration is achieved usually within the first two years. Oncologists and hematologists, I think, are always searching to use the best products for the patients, especially unfortunately, in something that's life-threatening and where patients, especially when they relapsed post the front line, they tend to -- the prognosis is not great, unfortunately, for these patients. And so, usually, what you do see is adoption pretty quickly. For example, polatuzumab in the front line, obviously, we showed good data in the frontline setting, seems to have plateaued and it's in about two years. We see bispecific growth going down a little bit in the third line setting, we're at that 18-month mark. So that's typically what we've seen. I don't want to again predict what's going to happen for our products, but I'd just say that's typically what's happened up to this point in the DLBCL setting.

Thanks. Appreciate it.

There are no further questions at this time. That concludes our question-and-answer session. I'd like to turn the conference back to our CEO, Ameet Mallik, for closing remarks. Ameet?

I want to thank you all for joining our call today and for your continued support. We look forward to keeping you updated on our progress. Operator, please end the call.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.