Legend Biotech Corporation (LEGN) Q3 2023 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Legend Biotech Reports Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Jessie Yeung, Head of Investor Relations and Public Relations. You may begin.

Good morning. This is Jessie Yeung, Head of Investor Relations and Public Relations at Legend Biotech. Thank you for joining our conference call today to review our third quarter 2023 performance. Joining me on today's call are Ying Huang, the company's Chief Executive Officer and Lori Macomber, the company's Chief Financial Officer. Following the prepared remarks, we will open up the call for a Q&A. We will be joined by Guowei Fang, Chief Scientific Officer and Steve Gavel, Head of Commercial Development for the US and Europe. During today's call, we will be making forward-looking statements, which are subject to risks and uncertainties that may cause our actual results to differ materially from those expressed or implied here within. These forward-looking statements are discussed in greater detail in our SEC filings, which we encourage you to read and can be found under the Investors section of our company website. Thank you. I will now turn the call over to Ying.

Good morning and thank you for joining us today to discuss the third quarter financial and corporate accomplishments of Legend Biotech. We are pleased with the progress we have made over the last quarter to advance our portfolio and pipeline of innovative therapies that are focused on addressing the serious and intractable disease patients face. Last week, we announced that we have entered into an exclusive global licensing agreement with Novartis, which grants Novartis the right to develop, manufacture, and commercialize LB2102 and other potential CAR-T therapies selectively targeting DLL-3. LB2102 is an investigational autologous chimeric antigen receptor T-cell therapy for the treatment of adult patients with extensive stage small cell lung cancer. As part of this agreement, we will receive an upfront payment of $100 million and are eligible to receive up to $1.01 billion in milestone payments as well as tiered royalties on net sales. We will also be reimbursed for development costs for the ongoing Phase I clinical trial, which will evaluate the safety and efficacy in patients with small cell lung cancer and patients with large cell neuroendocrine carcinoma and to determine the recommended dose for Phase II study. We're excited by this transaction and we look forward to seeing how this therapy performs in the clinic. CARVYKTI or cilta-cel, continues to drive our revenue and direct our priorities. We have worked tirelessly to bring CARVYKTI to patients who are eligible for treatment. And our efforts are reflected in the total net sales of $152 million in third quarter, bringing total net sales for 2023 to $341 million so far this year. Our third quarter performance was driven by ongoing market launches, expanding market share, and capacity improvements, as well as the commercial launch of CARVYKTI in Germany which contributed to quarter-over-quarter ex-US growth of 300%. In the US, we have experienced growth of 23% quarter-over-quarter. We remain steadfast in our goal to make CARVYKTI available and accessible to patients worldwide and we look forward to sharing highlights of that journey with you today. We have progressively met strong demand for CARVYKTI in collaboration with Janssen. First, Janssen has scaled the in-house production of Lentivirus at its factories in Switzerland and has another factory in the Netherlands under construction to complement and support LV supply, which should be online by 2025. LV expansion is crucial because it is often the rate-limiting factor in any CAR-T manufacturing and growing LV supply is an important front in our ramp-up. Second, we're still on track with our pre-planned capacity increase at our Raritan site and production from our CDMO is supporting that expansion next year. Third, the first of our state-of-the-art manufacturing facilities in Ghent has received a license from the Federal Agency for Medicines and Health Products in Belgium. This was an important hurdle to clear and once the Investigational Medicinal Product Dossier is approved by local authorities, we will begin manufacturing cilta-cel at Ghent for clinical use by end of this year. The Ghent facility will be an important part of the CARVYKTI supply chain network. We're committed to bring CARVYKTI to more patients who are eligible for this important therapy. Our manufacturing ramp-up supports commercial delivery, as well as our ongoing CARTITUDE clinical development program with Janssen. Of the five clinical trials evaluating cilta-cel, three are ongoing and CARTITUDE-6, our Phase III study for frontline patients, enrolled its first patient. The activation of one of our Ghent facilities will enable us to continue the commercial ramp we began in the US while on-boarding new clinical patients. In addition to making capacity enhancements, we work with roughly 60 certified treatment centers across the US and are expanding access to CARVYKTI in select European countries, including Germany. Our teams are working hard on multiple fronts to bring this efficacious one-time treatment to patients in need. We are pleased to share that since trials began in 2018, we have treated more than 2,000 people with cilta-cel. Our pipeline is also robust and we're exploring the potential of cell therapies in both hematologic malignancies and solid tumors. The funds from our transaction with Novartis will primarily be used to develop other promising pipeline assets such as our allogeneic cell therapies. The armoring used in LG2102 can also be deployed in other pipeline programs if validated in a clinic. We continue to explore innovation in our pipeline and are excited about their progression. Now I want to turn this to Lori.

Thank you, Ying, and good morning, everyone. As Ying mentioned, we are very pleased with the performance of our commercial product CARVYKTI this quarter, which generated approximately $152 million in total sales, an increase of 30% over the previous quarter driven by ongoing market launches, expanding market share, and capacity improvements. That performance also represents a 176% year-over-year increase. As a reminder, we share equally in all profits and losses of CARVYKTI, ex-China, with our partner Janssen. Starting with cash and cash equivalents, time deposits, and short-term investments of $1.4 billion, this will fund our planned operating and capital expenditures into 2025. Starting with revenue. Total revenues for the third quarter were $96 million, consisting of $75.9 million in collaboration revenue from the sale of CARVYKTI and $20.1 million in license revenue for the achievement of a milestone during the quarter as outlined in the Global Development Plan under the Janssen Agreement for cilta-cel. Net loss for the three months ended September 30th, 2023 was $62.2 million, or a loss of $0.17 per share compared to a net loss of $85 million or $0.26 loss per share for the same period last year. For the nine months ending September 30th, 2023, net loss was $373.4 million or a loss of $1.07 per share compared to a net loss of $310.5 million or a loss of $0.99 per share for the nine months ended September 30th, 2022. Moving on to expenses, collaboration cost of revenue for the third quarter 2023 was $43.5 million compared to $25.5 million for the same period last year. These are Legend's portion of collaboration cost of sales in connection with the collaboration revenue under the Janssen Agreement along with expenditures to support the manufacturing capacity expansion. Research and development expenses for the third quarter 2023 were $95.9 million compared to $104.5 million for the same period last year. The decrease of $8.7 million for the three months ended September 30th, 2023, compared to the three months ended September 30th, 2022 was due to timing of expenses incurred in connection with the Master Technology Transfer, Manufacturing and Clinical Service Agreement for BCMA CAR-T product with Janssen and Novartis Pharmaceuticals Corporation. Administrative expenses for three months ended September 30th, 2023 were $28.1 million, compared to $23.2 million for the same period last year. The increase of $4.9 million year-over-year is primarily due to the expansion of administrative functions to facilitate continuous business growth and continued investment in building Legend Biotech's global information technology infrastructure. Selling and distribution expense for the three months ended September 30th, 2023 was $21.1 million compared to $18.9 million for the same period last year. The increase of $2 million year-over-year due to costs associated with the commercialization of CARVYKTI. To wrap-up, our spending remains on track, and we continue to maintain a strong balance sheet. As of September 30th, we have $1.4 billion in cash and equivalents, deposits and investments, which Legend Biotech leaves will fund operating and capital expenditures into 2025. Thank you. I will now pass it back to Ying for closing remarks.

Thank you, Lori. 2023 continues to be another remarkable year for Legend Biotech, and we look forward to closing out the year strong in the fourth quarter. We have made considerable strides in enhancing our manufacturing capabilities and lowering our out-of-spec rate. We're proud to be a fully integrated cell therapy company focused on both hematologic, malignancies, and solid tumors. Looking forward, we'll continue to invest in our manufacturing capacity as we work to deliver CARVYKTI to patients expeditiously and responsibly. We'll also continue to expand our pipeline. At Legend Biotech, we strive to deliver long-term value to our shareholders and are encouraged by these developments. Thank you for joining us today. We'll now open the call up for questions.

Thank you. [Operator Instructions] And our first question coming from the line of Gena Wang with Barclays. Your line is open.

Thank you for taking my questions. Also congrats on the great quarter. So maybe I have two questions. One is regarding, I think, this morning we saw the news. The Bristol's Beckman now, they will require AdCom and PDUFA got pushed out. And maybe based on that news, what is your interaction with the FDA so far and are you also anticipating an AdCom? And second question is regarding the competitive landscape in terms of say efficacy profile. We will see some update at ASH. You know, what is your thoughts regarding staying competitive? And the other related question is a commercial strategy in the outpatient setting.

Hi, good morning, Gena. Thanks for the question. So I'll take the first one first, which is regarding the AdCom that will be hosted by FDA ODAC for our competition. So I can tell you that given our interactions with the FDA so far on our CARTITUDE-4 filing, clearly, the agency placed an emphasis on the OS benefit, overall survival benefit. And typically, the agent standard is that you have to demonstrate a significant PFS benefit with an overall encouraging trend in survival. So without disclosing anything further, I can tell you, Gena, that on August 4th, when we received the final acceptance for a CARTITUDE-4 by the agency, we were advised that FDA was not planning to hold an AdCom or advisory committee to discuss this supplement. That was as of August. Secondly, I'm also very pleased to tell you that as part of our so-called four-month safety update, we did submit to the FDA additional data. And again, we are seeing a stronger trend of overall survival since the last update when the data was presented at ASCO. So that's what I would say about the overall survival from CARTITUDE-4 and we remain very confident on the profile for CARVYKTI. Secondly, on ASH and competition, I'm not going to comment into any competitive data, but we stand behind the safety and efficacy of CARVYKTI, which has been dosed by more than 2,000 patients already since we started the program. And that includes patients with dose in a commercial setting after FDA approval last year and also patients who are dosed in various CARTITUDE program and also CARTIFAN program in China. So we are very, very happy to see the very deep, consistent, durable response in every setting of multiple myeloma we have tested so far. With the commercial strategy, I'll ask my colleague Steve to comment. Steve?

Yeah. Thanks, Ying. Hi, Gena. I think your question had to do around outpatient and maybe I could just give you an update on what's happening in that particular area. We were holding constant at about 30% share in terms of inpatient versus outpatient. We're also forecasting as we enter in earlier lines with the CARTITUDE-4 launch next year is to exit. We hope to exit next year, I would assume maybe even doubling that. It's really predicated on bringing on board our sites and obviously, getting our consistent supply into market. But right now, from a share perspective, that's how our claims data is measuring up.

Thank you very much.

Thank you. One moment for our next question. And our next question coming from the line of Jessica Fye with JPM Chase. Your line is open.

Great. Good morning. Thanks so much for taking my question. On the heels of the Novartis licensing, can you talk about what the next wave of targets Legend is interested in pursuing might be?

Thanks, Jessica. This is Guowei. So we have extensive internal pipeline both in our targets, as well as in the allogeneic cell therapy front. In our target space, we continue to focus on blood cancer building the momentum franchise. At the same time also expand into the solid tumor indications. In allogeneic space, we have several different platform and we have deep investment in gamma delta T allogeneic platform in the past several years. Two of -- one of our compound is already tested in the clinical setting and we are waiting to collect a clinical response profile and expand the allogeneic platform as well. Currently, the allogeneic platform is primarily focused on a blood cancer indication.

Thank you.

Thank you. One moment for our next question. And our next question coming from the line of Kelly Shi with Jefferies. Your line is open.

Thank you. Congrats on the great progress. How should we think about Q-over-Q growth of CARVYKTI into Q4, considering the J&J and Legend manufacturing capacity increase? And also the level of demand in the late line settings as TECVAYLI experienced a great launch? And also how do you estimate the seasonality impact from holidays and also have a follow-up. Thank you.

Hey, Kelly, this is Lori. I'm going to give you just overview quarter-over-quarter, and then I'll turn it over to Steve. As you look out going into Q4, as we talked about before, we are doing a step up. We have gotten that approved, but as we've indicated before, you won't really see the impact of that until Q1 of 2024. And as a reminder, we've also signaled that in Q4, we will be doing some comparability runs as we're getting some of our additional nodes for manufacturing capacity up and running for 2024 to help support these second-line launch. So with that, if you look at Q4, we're not giving specific guidance, but you're not going to see significant growth quarter-over-quarter because of both of those activities. And with that, Steve, I'll turn it over to you.

Yeah. Yeah. Hey Kelly, it's Steve. I think your question has to do with the TEC launch. So what we're seeing in market research that we're running is where you see market share coming out of the market in terms of CAR-T therapies has been that from a Beckman as opposed to cilta-cel. We're seeing still a robust demand in later line settings and I think you're going to see that continue in market with the bi-specifics. If you see erosion in terms of share erosion, I see it coming from Beckman, at least that's been the latest data we've seen in our research.

Terrific. Thanks. And also regarding the initiation of CARTITUDE-6 trial in the frontline transplant-eligible patient population, could you actually share, should we expect the US enrollment to start in near term? And if a majority of the enrollment come from Europe, do you consider impact on the enrollment pace compared to CARTITUDE-5 trial? Thank you.

Thanks Kelly. So we're very pleased to announce that the first patient has been enrolled last month in Spain. So we officially have kicked off the initiation of CARTITUDE-6 and we are going to initiate the enrollment in the US also very soon. At this point, I can tell you that we will promise to enroll a certain percentage of US-based patients because we have to submit the data to the agency later to make sure that we have a representative US patient population in the overall patient. Although probably the majority of the patients will be enrolled ex-US for CARTITUDE-6.

Thank you very much.

Thank you. And our next question coming from the line of Vikram Purohit from Morgan Stanley. Your line is open.

Hi. Good morning. Thank you for taking our questions. This is Vikram. We have two. First, assuming you were to obtain approval for CARVYKTI for the expanded label based on the CARTITUDE-4 data by next April. Could you just walk us through your latest thinking on what you expect the ramp to look like in earlier line use in 2024 onwards? And then secondly, back to the topic of competition. So Bristol Myers and 2seventy have mentioned that they're making a bigger commercial push for Abecma that includes site expansion to broaden out access for the therapy. I wanted to see if you've noticed any competitive impact at this point from those efforts and if you and J&J feel the need to increase your marketing and promotional spend behind CARVYKTI in response to the efforts from Bristol Myers and 2seventy. Thanks.

Yeah. Hi. It's Steve. So let me try to take them. I think the second part of your question had to do with site expansion, also promotional spend. We'll continue to expand sites over time. We'll exit this year we think right around 70 sites and we'll see -- our site expansion is predicated on delivering and our manufacturing capacity increasing. So we are targeting by the end of next year to be exiting at about between 90 to 100. So that hopefully answers your question around site expansion. And as I remember just, as I continue to state there, this is more than just site expansion. All these sites are not created equal in terms of the numbers of patients that they treat. Our philosophy is continue to increase our site expansion to ensure that we can accommodate the demand within those sites. I think your second question had to do with CARTITUDE-4. Can somebody help me here?

The ramp.

The ramp. Yeah. So thanks. So how we're planning the CARTITUDE-4 ramp in terms of the forecast perspective, we were initially, and we continue to assume a very quick ramp up, especially in the high-risk population in second line plus. In some of the research that we fielded post-ASCO, once we released the CARTITUDE-4 data, we're also seeing high demand also in the standard risk population. So generally speaking, again, we're very excited, as you can imagine, in launching CARTITUDE-4 for our patients, but we see it much broader than we were initially thinking beyond the higher-risk group.

Got it. Thank you.

Thank you. One moment for our next question. And our next question coming from the line of Leonid Timashev from RBC Capital Markets. Your line is open.

Hi, guys. Thanks for taking my question and congrats on the quarter. I wanted to stick with the competition discussion for just a little bit. We've been hearing that there's actually been capacity constraints in the CAR-T space as a whole with actually BCMA and CD19-directed CAR-Ts competing for beds and infusion capacity. I guess, is this something that you're seeing as you're continuing to launch CARVYKTI? And do you expect these dynamics to lift or continue? Thanks.

Yeah. Hi. It's Steve. I'll take that again. I think that's a very, very good point. So that's why it's so important. This is why you're seeing a large percentage now of sites moving to hospital outpatient for cilta-cel. So yes. So to your point, it's a very valid point that you cannot continue to treat CAR-T therapies as just a single inpatient modality. We knew that leading into launch and it was the reason why we were continuing to monitor how the market was moving to outpatient to increase capacity to your point. So you address capacity, in two, in essence two ways, right? So you continue to monitor to see how the market's moving in the outpatient setting. And as I stated earlier, we're running at about 3 out of 10 patients now being treated that way, and we see that continuing to grow significantly over time. So that's the first piece of that, of solving that issue. And then the second way you resolve that is by increasing sites themselves. And we'll continue to do that as well. So it's a combination of a number of different moving parts. So we'll see how the market is moving in the outpatient setting, and then we'll also continue to add more and more sites to accommodate. To your point, the patient volume to ensure that we have enough or the sites have enough volume to pull through the volume of patients for our indication.

And Leonid, this is Ying. Maybe I want to add that, you know, if you look at the number of transplants that are performed in a setting of myeloma, it's about 9,000 transplants that's performed every year in the United States market. So we think at this point, at least for multiple myeloma, we're not approaching that limit in terms of hospital beds yet. As you know, if you look at our supply into the market, right, we're nowhere near that 9,000 number yet. Thank you.

Thank you. One moment please for our next question. And our next question coming from the line of Yaron Werber with TD Cowen. Your line is open.

Great. Thanks for taking my questions. I just have two. The first one, can you give us a little bit of a sense? We're hearing that not now, but potentially later on apheresis slots might become more of a bottleneck as you're ramping up capacity. I don't know if you can give us a little bit of a sense how much capacity there is now and what can you do to enhance it. And then secondly, it looks like the facility in Europe, in Belgium, has now got approved on a local basis and you're noting that you need to wait for an Investigational Medicinal Product Dossier approval and local authorities. Is that not centralized to the EMA or is it sort of different, done differently in Europe? And just reaffirm that you're not foreseeing any sort of limitation on how many slots you're going to have in that plant in Europe? Thank you.

Hi, there. Steve again. Why don't I take a crack at the apheresis question? The apheresis question really varies by site. I know we've been having a number of conversations with our sites as we work collaboratively to on-board them and certify them. So the apheresis question really is being upfront addressed by our sites because what they are doing is forecasting what the volume looks like for them, whether it be for, obviously, the CARTITUDE-1 launch. But they have a pretty good idea, obviously, by now. But more importantly, CARTITUDE-4. So, as I keep mentioning, you know, we are addressing this in a number of different ways, this question around capacity. And right now, like I said, the number that I was guiding earlier in terms of roughly to 90 to 100 that I gave earlier in terms of number of sites, is in response to a number of these capacity questions to ensure that the marketplace has enough aggregate capacity to pull this indication through. Ying, do you want to take the second question?

Hey, Yaron. I'll take the question about the European facility. So we did receive a GMP certificate issued by the local FAG, which is the counterpart of FDA in Belgium, and that is sufficient for us to start the clinical production next month in the US, sorry, in Belgium. And then specifically on your question about the US FDA. So right now, our plan is to start clinical production by end of this year in Belgium for certain clinical trials. And then about mid-year, next year in 2024, we're planning to seek regulatory approval for our Obelisc Ghent facility to start produce commercial CARVYKTI. Initially, we're planning to supply only the European market. So at this point, we would not need FDA approval. In the future, in the case where we do have excess capacity that we could use from the Ghent facilities, then we plan to come back and ask FDA approval. So you're right, in the case of commercial production for US patients, we would need sBLA approval by the FDA. But right now, in the very near future, we're only designating the Ghent facilities for our European commercial demand and also clinical trial demand. But still that does help our supply in the US because, as you know, right now, we're only producing both clinical trial material and commercial CARVYKTI from our New Jersey facility. So whenever we can divert some of the demand from European market and also clinical trials to Ghent that will free up more slots from our Raritan New Jersey facility. I hope that answers your question.

Thank you. One moment please for our next question. And our next question coming from the line of Linhai Zhao from Goldman Sachs. Your line is open.

Hi. Thanks for taking my question. Two quick questions on the financials. The first one is, as we are still enrolling for CARTITUDE-5 and now starting to enroll for CARTITUDE-6, and the R&D expenses remain flat quarter-over-quarter, how should we see the R&D spending in fourth quarter and in 2024? And the second question is, it seems that the gross profit margin slightly decreased quarter-over-quarter. And can you share with us any colors on the potential gross profit margin improvements in the near term? Thanks.

Hi. This is Lori. In regards to the R&D spend, I think, you'll see a consistent quarter-over-quarter. I mean, the activities itself have been pretty consistent with our investment in frontlines for the CARVYKTI program, as well as our pipeline. So we continue -- going into 2024, we expect to see continual spend consistent with our historic. I'm sorry, can you repeat the second question?

Yeah, sure. The second question is about the gross profit margin. When do we expect to see a further decrease -- increase on the profit margin?

So, from a gross margin perspective, we have been seeing improvements from a product perspective. As a reminder, for gross margins, we have the product gross margin in there, as well as the OpEx related to facility investments. So that's why it's hard for you to see the continual improvement in gross margins, because as we've talked about, we continue to expand our capacity with manufacturing, so we continue to have expenses hitting in that gross margin line. But as our volumes have increased and as we've made also some process improvements, our margins are improving from a product perspective, but we don't give specific guidance on those actual percentages.

Got it. Thanks.

Thank you. One moment for our next question. And our next question coming from the line of Jonathan Miller from Evercore ISI. Your line is open.

Hi, guys. Thanks for taking my question. I'm going to ask about the DLL-3, actually, as an entree to solid tumors more broadly. Can you walk us through the dose levels for the DLL-3 Phase 1 versus CARVYKTI? And maybe talk a little bit about how that relates to your expectations for dosing in solid tumors more broadly? And I have a follow-up. Thank you.

Hey, Jonathan. Thanks for the question. This is Ying. So if you look at our disclosure on ClinicalTrials.gov, you will see that we're planning to test four different doses ranging from 0.3 million cells per kilogram body weight up until 1 million to 2 million cells per kilogram body weight. So this is a weight-based dosing plan. And because this is a solid tumor, and we foresee that you may need a little bit bigger dose than in the hematology cancers. So if you look at our prior dose-ranging finding trials for the hematology, such as multiple myeloma indication, this is a little bit higher starting dose, given that we probably need a larger amount of T-cells. But on the other hand, we did put an armor, namely the dominant negative TGF-beta armor to help the expansion and penetration into the tumor setting. So that is the dose we're looking at for DLL-3 in Phase 1.

Thank you. And then on the CARTITUDE-4 label, can you remind us how big an impact that will have on out-of-spec rate when assuming it does get approved? And should we expect that out-of-spec rate change to happen immediately on approval or will there be a ramp period or some sort of recertification for that?

Sure. So in part of our sBLA filing submitted to the FDA, we asked the agency to widen the release based on the clinical data from the Phase III randomized controlled trial in second-line beyond population, because we provide a significant amount of so-called sensitivity analysis through the agency trying to correlate the release spec with the clinical outcomes such as PFS and survival. So based on that data, we and our partner at J&J are very confident that we should be able to receive a wider release spec. And if we do receive such a wider release spec from an agency, then eventually we hope that the outer spec rate can decrease by additional 5 percentage to 10 percentage points from where it is today. That is our expectation, of course. We have to wait until we see the label and also the FDA-approved release spec next April when the PDUFA date hits. But that is our hope. And to the second part of your question, let's say, if we do receive a label and a wider release spec today, it is going to take a little bit time because once we start to roll out the second line in the market and then we start to see more uptake, you will gradually see that lower OS will take place in the manufacturing process.

Just to clarify what you just said there, Ying, when you say you'll take a little time to see that out-of-spec benefits come through, is that because you're only going to see that out-of-spec benefit in the second line plus patients? Is it not going to also apply to manufacturing in later lines?

You raise a very good question, Jon. Unfortunately, I don't have answer to you, because we would have to wait and see what the agency gives us. It's possible that we'll get a uniform release spec from both the first indication and the second indication. But it's also possible that the agency decides to give us two sets of release spec which haven't before, I'm sure you're aware, to one of the CD19 CAR-Ts in the market. So at this point, I actually don't know the answer, but it's a very good question. We'll have to wait and see what the FDA says.

Thanks so much.

Thank you. One moment for our next question. And our next question coming from the line of Ash Verma from UBS. Your line is open.

Hey, guys. Thanks for taking my question. Good morning. I have two. So just in terms of your partnership with Novartis, could that eventually allow you to use their T-Charge program to, you know, further lower the CARVYKTI vein-to-vein time? And then second one, just wanted to see where you are on the CARTITUDE-2 study with the cohort E and F. I just wanted to get an idea. Is that something that we could see at the ASH abstracts late breaker tomorrow or is this more for ASCO next year? Thanks.

So for the T-Charge platform, it's a unique manufacturer platform developed by Novartis and this is only applied for LB2102. Internally, we are also developing local manufacturing process and we are going to move internal development manufacturing process into other cell therapy products in the future. Thank you.

Ash, this is Ying. I'll take the second part of your question, which has to do with the CARTITUDE-2 cohort E and F. So I can tell you that at this point we have completed enrollment for both CARTITUDE-2 cohort E and F in the newly diagnosed patient cohort. But we're not going to release data at this moment because, as you know, typically in the frontline setting, the PFS is relatively long. So we believe it will be more informative when we present data with a longer follow-up. So you should stay tuned when we present the cohort E and F in the future. Thank you.

Thank you. One moment for our next question. And our next question coming from the line of Kostas Biliouris from BMO Capital Markets. Your line is open.

Hello, everyone. Thanks for taking our question and congrats on the quarter. One question from us on the clinical ongoing trials. Can you comment on whether the enrollment in CARTITUDE-5 is completed? And given that the CARTITUDE-6 trial is slightly larger than CARTITUDE-5, should we expect any impact from this increase on the commercial slots or these two are somewhat independent now with the clinical manufacturing support from Novartis and the Ghent sites? Thank you.

Thank you, Kostas, for your questions. So on CARTITUDE-5, we're very much on track to complete the ex-US enrollment of CARTITUDE-5 by end of this year. And now we're looking at potentially over-enrolling CARTITUDE-5 in the US because as I mentioned previously in this call, we would like to have a very representative US patient population in the overall patient enrolled in CARTITUDE-5. So we're going to probably extend the US enrollment by about one quarter into the first quarter of next year. But at this point, I can tell you that we're very pleased with the enrollment status. Like I said, we're pretty much down for the ex-US portion for CARTITUDE-5 by end of this year. So everything is going according to plan, but we do want to over-enroll in the US, given the demand from patients and also given the fact that we would like to have a higher percentage of US patients in this trial. On CARTITUDE-6, we just started our first patient last month in Spain and it will probably take us about a couple of years while we enroll. So regarding to the production, we likely will utilize our Ghent facility that's coming online next month to start production of CARTITUDE-6. We could also use additional capacity from our CDMO to satisfy that demand for CARTITUDE-6 production. That is our current plan now.

Thank you. One moment for our next question. And our next question coming from the line of Justin Zelin with BTIG. Your line is open.

Thanks for taking the questions and congrats on the strong quarter. So can you give us an update on the out-of-spec rate for CARVYKTI today? Just how things have been trending? And second, just on pipeline strategy, will you look to continue to seek partnerships for your pipeline assets in the future or could you internally develop them and bring them forward? Thank you.

So, Justin, I'll talk about the out-of-spec rate question. We're very pleased where things have been trending in the last six months or so. Our out-of-spec rate has been decreasing and also stabilizing and it's been consistently in the teens range and right now, it does stand below the 18% on-label out-of-spec rate, thanks to the very hard -- very much hard work from the Legend team and J&J team in the New Jersey facility. We have really tried very hard to refine our manufacturing protocol by looking at various reasons for OS and also improving OS on various work streams. So that's where we are. I don't think we're very much different from the competitions out-of-spec rate at this point. So I think, you know, we're seeing a very encouraging trend. And like I mentioned, we do expect this to continue to go down, especially after FDA approves the second line indication. On the pipeline, the BD question, I'm going to refer that to our colleague, Guowei.

Yeah, thanks for the question. In terms of pipeline development strategy, we are open to both internal development, as well as seeking out the collaboration partnership. Our goal of pipeline development is to accelerate the development timeline and maximize the value for each individual asset so that we can bring differentiated and potentially transformative therapy to patients sooner. In this particular case, for LB2102, we see a unique synergy between ourselves and Novartis. We have a unique product design, a unique CAR construct sequence, and a unique armor mechanism to facilitate the immune cell infiltration and overcome the immune suppression in the tumor microenvironment. Whereas, Novartis has its unique manufacturing process, which is particularly important for a disease of small cell lung cancer. As you know that disease progress very fast and faster manufacture process would add value to the product profile. So in this case, we see the synergy, and then in the future, we will continue to evaluate the asset by asset and try to find the synergy and realize the additional value where it's possible. At the same time, if we have asset we can develop by ourselves, we will also do it in that way. Thank you.

Thanks for taking my questions.

Thank you. One moment for our next question. And our next question coming from the line of Mitchell Kapoor from H.C. Wainwright. Your line is open.

Hi, everyone. Thanks for taking the questions. I just wanted to ask a little bit more about the supply constraints and if you could give kind of a quantitative sense of where we are in terms of meeting demand. I think at one point, there was a lot of supply exceeding demand in terms of, you know, I think there was about 15% being able to be met. Could you just talk about where we're at today? And if you can't, you know, give a quantitative number, could you just kind of help us understand the trend?

Good morning, Mitch. Thanks for the question. And I'm going to answer this one. So, if you look at the reported revenue last quarter, which was $152 million and $140 million coming from the US, you sort of can guesstimate the number of patients we served in the commercial setting last quarter. I cannot give you exactly the percentage of demand we are satisfying, but I can tell you, starting from the beginning of the year, we always track our backlog in terms of patients waiting in the queue every month. And I can tell you from January until now, really, essentially, we're seeing exactly pretty much the same number of patients in the backlog in the queue. So we're not seeing any difference in terms of demand for this product at this point. And we're working very hard to ensure a robust and reliable supply. So we are going to continue to expand our supply. As you just heard from our colleagues on the call, we did receive the second FDA approval in the increase of our capacity recently. So we're continuing to ramp up, given that approval, and then we're planning additional increases in capacity from our New Jersey facility next year as well. If you look at the number of patients we think are within the so-called addressable market in the US, about 13,000 patients die every year, unfortunately, from multiple myeloma and probably around 8,000 to 9,000 patients are eligible for receiving CAR-T therapy. So at this point, given our supply, we think still we're nowhere near being able to supply all the demand for our CARVYKTI at this point.

Okay. Thank you very much. And could you just kind of help us understand what the launch preparation is looking like for moving into earlier lines? Is it mainly just messaging changes with the salesforce or what else can you tell us about how you're preparing for [Technical Difficulty] approved?

Yeah. Hey, Mitch. I'll take that one. It's Steve. So, no, it's a bit different, right? So you're moving from a later line population that was largely -- these patients were largely in many of our major academic centers. In the earlier lines from the second line population, this will be a very different type of launch where you're largely reliant on the referral. So what the US team has been working very closely with their partner is working through the models in terms of how to appropriately reach that outpatient clinic to ensure that an appropriate referral is made to one of our cilta-cel centers. So it's a bit different. You'll see some increase in FTE expansion on behalf largely of our partner at Janssen because they play largely in that outpatient space. From the US Legend perspective, you'll see some increase as we increase sites, but our commercial footprint for Legend has been largely built around the inpatient setting as opposed to outpatient. I hope that answers your question.

It does. Thank you all very much for taking the questions.

Thank you.

Thank you.

Thank you. And our next question coming from the line of Wilfred Yuen from Daiwa. Your line is open.

Hello. Well, congrats on the result and thank you for taking my questions. Well, I just have a follow-up on the gross margin currently at 43%, 44% over the past two quarter. So and you mentioned about the expanding capacity. So what are the other driver on margin -- on the gross margin, given we have multiple facilities, both internal and external, coming online, as well as an improving out-of-spec rate? So what are the key moving part actually? And how should we be thinking of the margin profile, maybe even in a longer term as well? Thank you.

So just on the gross margin, again, as we talked about, there's two components in the gross margin. So from your perspective, when you look at quarter-over-quarter, it's a little bit hard for you to model it out. As I mentioned before, we continue to see improvement in the gross margin from a product perspective. Your gross margins are going to improve as your volumes go up. We've also have our out-of-spec that's gone down based upon also process improvements we've made at the plant. So we are seeing the steady progression of the improvement under the gross margins from product perspective. But you're going to continually get noise in that number we report externally because we have to report the facilities expansion, the expense side of it that cannot be capitalized. And as you know, we have expansion going on in Raritan, we have expansion going on in Belgium, and we also have expansion going on with our CMOs. So you're going to continue to see a lot of facilities expense related to those capital investments through the end of 2025. So it's going to create noise. Some quarters are going to be higher than others, just depending upon where we are with some of those capital projects. But if there's something specific, if you want to talk and submit more question and we can always set up a call with you and try to go over a little bit more detail, but I can't give any granular numbers, I can't disclose any granular numbers from a product perspective.

Understood. That's helpful. Thank you.

Thank you. One moment for our next question. And our next question coming from the line of Kelsey Goodwin with Guggenheim. Your line is open.

Hey. Good morning. Thanks for taking my question and congrats on the quarter. I guess two quick ones from me, I guess. First, do you have any updated view on how we should think about profitability for the joint venture, maybe kind of building on some of these past questions on gross margin. And then kind of following up on that, I guess, how should we think about the longer-term COGS for CARVYKTI kind of once these capital expenses are no longer included in those line items? And, yeah, maybe kind of what out-of-spec in manufacturing failure rate do you base in the assumption for longer-term COGS? Thank you.

Hey, Kelsey. So, profitability, the messaging is still consistent with what we've signaled before. For the BCMA program, we're looking to have break-even and profitability by the end of 2025. And from a company perspective, we're striving for profitability by 2026. And I always just put a disclaimer in there, it will depend upon what happens with our pipeline development, what we look to do from a business development perspective, but based upon the trajectory of what we know now, that is what we've been signaling. From a longer-term COGS, as I mentioned earlier, you're going to continue to see noise in that COGS line all the way through, at the end of '25 going into 2026. We're not giving any guidance on our actual COGS. I would say, for your modeling purposes, you could probably use what's been the standard in the industry. It would be a good proxy for your modeling.

Okay, great. Thanks. And maybe just one quick follow up then, on the profitability. I guess, to what extent is that break-even profitability by 2025? How much is that reliant on hitting that 10,000 commercial doses by the end of the year?

Hey, Kelsey. I hope you understand that we cannot really disclose our internal modeling. But you know, what I can say is that if you look at the COGS for CAR-T as a general modality, the cost of goods is probably somewhat higher than the typical cost of goods of monoclonal antibodies. However, the SG&A, in terms of selling and distribution costs, it will be much lower. You can tell that from our financials, right? While we almost quadrupling our sales for CARVYKTI this year versus last year. If you look at quarter -- quarterly spend in sales and marketing, it's actually slightly lower than what we spent last year. So that gives a hint how we think about the profitability of CARVYKTI overall. Thank you.

Got it. Okay. Thank you so much.

Thank you. One moment for our next question. And our next question coming from the line of Sami Corwin with William Blair. Your line is open.

Good morning. Thanks for taking my question. Given you plan on over-enrolling CARTITUDE-5 now, will that delay when we should expect data from that trial? And then do you plan on providing any revenue guidance for CARVYKTI at the beginning of 2024? Thanks.

Thanks for the question, Sami. So on the first question, no, we don't expect any delay, because like I mentioned, we are pretty much on track to close all the ex-US enrollment for CARTITUDE-5, which is the majority of the patients by end of this year. That's exactly according to our plan. And then we're only over-enrolling in the US next quarter just to make sure that we have a representative percentage of US patients in this trial. So at this point, we do not expect any delay in terms of readout of CARTITUDE-5. And then on product guidance, we're not really giving product guidance for the year of 2024 because our partner, J&J, has this policy of not providing product-specific guidance. So, unfortunately, we will not be in a position to provide you with guidance for CARVYKTI sales.

Got you. Thank you.

Thank you.

Thank you. And at this time, we have no further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation and you may now disconnect.