ADC Therapeutics SA (ADCT) Earnings Call Transcript & Summary

Good morning, afternoon. It's still morning, right? Good morning, everybody, almost afternoon. Thanks for joining us for the next session. I'm Matthew Harrison, one of the biotech analysts here at Morgan Stanley. Really pleased to have ADC Therapeutics with us for the next session. Quickly before we get started, I just need to read a disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures. So with that, pleased to have Ameet Mallik, who's the CEO at ADC.

Maybe just a nice place to start is you joined a couple of months ago, I guess, at this point. Maybe just talk to us about why you joined? Why you think it's an interesting opportunity and what you're looking forward to?

Okay. Well, thank you so much for hosting me here and thanks for the conversation. Yes, I'm really excited. First and foremost, I just think the antibody drug conjugate space is a really important space, which has the potential to interrogate many more biological targets and to help a lot more diseases. So I think the space itself is getting onto a maturation, which is really attractive. I think ADC Therapeutics is particularly well positioned in this space because we have a validated fully integrated company. We've already had a product that's been approved in the market. The second one is moving towards that stage as well. And we have over a decade of experience, I think, in critical capabilities that are tough to build and take time and experience to develop. So everything from discovery through development and CMC capabilities that are very unique to ADC, we've been able to build up that experience. Beyond our commercial product Zynlonta, we've also have Cami, which will be the next for Hodgkin lymphoma, and then a pipeline of 5 different solid tumor assets that we've disclosed, 3 are in the clinic, 2 more moving into the clinic next year. And in growing array around our pipeline -- earlier pipeline in our platform, which we continue to differentiate with novel antibodies, novel payloads, novel constructs. So I think there's a lot of potential to keep growing and leading in this space.

Great. Great. And I guess the follow-up is I think people are familiar with some ADC platforms, probably very familiar with Daiichi and Seagen platforms. Just compare and contrast in terms of linker in terms of cytotoxic payloads like how to think about your platform versus some of the other platforms that are out there?

Yes. I think the key for a platform is -- over time is really differentiating on the different components. And I think we have a wide variety of antibodies that we use as well as linker technology. The payload that we primarily used up to this point in our commercial product as well as our pipeline has been PBDs. And PBDs are very unique. And I think in some ways, it's probably misunderstood because early on, there wasn't a lot of success with PBDs. They're highly potent. In order of magnitude more potent than many other payloads, and orders of magnitude more potent than chemotherapy. But that also means that having really good linker technology, really making sure that the PBD is internalized, making sure you don't have any leakage in systemic exposure is really, really tough. So I think they're some of the toughest payloads to manage. Most companies have not succeeded. Like we've shown with Zynlonta, and I think we'll continue to show that we can succeed. And when you can deliver a PBD payload particularly to targets that are not as well expressed. So we've seen a lot of great, great news on other payloads for highly expressed targets like HER2. But many targets on cancer cells are differently expressed versus the healthy cell but not highly expressed. And so having a very potent payload like a PBD is really critical. PBDs act in a way that integrate with the minor group of DNA, They create a very stable cross-link and ultimately leads to apoptosis. And because of that very high potency, you need very, very small quantities of it. We believe we've optimized a lot of the components around the PBD like the antibody and the linker. And then beyond our current pipeline, when I look earlier stage, we've also been expanding the other components as well. So I think we're doing a lot to differentiate our platform in ways that we haven't yet disclosed, but I think that will be interesting in the future.

Okay. Great. Great. So I think that sets us up well and then talk about pipeline, the products and sort of how you're thinking about the strategy for the company. So why don't we start on Zynlonta? Obviously, approved product, launched. We're a couple of quarters into the launch. Maybe just give people your perspective on how that launch is going and what you see as the opportunity going forward for the launch?

Yes, I think we can do more. I think the company launch, I would say, predates me. Launched the product in somewhat difficult circumstances. Launching in COVID, where you're not having a lot of face-to-face interaction with physicians and trying to introduce a product in to fill somewhat rare disease areas, especially for community physicians amongst many new entrants coming into the field, it's not the easiest environment to launch in. Nonetheless, I think we see -- I see a lot of opportunity. First and foremost, we're seeing good advocacy and use in the academic centers. These are specialists, obviously, that see a lot more DLBCL patients. I know the field well. And the feedback has been good, and we're growing share in that segment. We've had less success in the community setting where just the exposure and the awareness of the product has actually been relatively low. I think the good news is, starting around that March, April time frame when the country started opening up, the opportunities to engage with physicians start to open up, too. So we saw a marked increase in field force activity, in face-to-face interactions, whether they'd be in the office, at local congresses, doing speaker programs in other different forms. We're seeing a marked increase in that. That's translating in higher awareness. I think ultimately, it's going to translate into higher use I think our compound is a particularly good profile for the community, not only the efficacy, the strong overall response rate and duration, but a manageable side effect profile and very convenient administration with a 30-minute infusion once every 3 weeks. So I think there's more room to grow. I think it's going to be steady growth, but I think we're going to see continued growth in this indication. And then beyond this indication, we have the opportunity in earlier lines of therapy where we have the LOTIS-5 trial where we're looking at earlier indications, second-line plus with rituximab. We're going to be presenting data later this year at a medical congress on some of that data, our safety-related data. And we also have a first-line population and I think sort of an untapped population, the frail and unfit population, in the first-line setting, where patients can't tolerate the full doses of R-CHOP. I think it's a further opportunity for us to grow and expand. And then beyond that, we're looking at novel combinations, where I think a lot of that space may move in DLBCL. So I think there's clearly more room to grow in our current indication and much more opportunities as we add on some of the earlier indications.

Can you talk about some of the work you're doing with community practices to try and drive uptake? And you mentioned a little bit about this, but how do you think about the profile of the molecule being something that's easy for them to use versus maybe some of the more complicated. So when you talk about competition, for example, bispecific are launching. But we know they have some issues with first dose cytokine release syndrome and other things. So maybe just help us think about how you think about the competitive profile and what makes it easy for a community physician to use the drug?

Yes. I think community physicians -- I think the world is sort of split up into 2 things -- 2 ways. One is curative agents and one is kind of noncurative agents. I think the curative agents that doctors would see would be either R-CHOP, stem cell transplant or CAR-T. Everything else is noncurative, including bispecific. I think that's how physicians would see the world today. And then other factors come in because at that point, quality of life comes in how easy is it for them to manage, how easy is for that patient to manage. So we're even seeing even with curative options like CAR-T, it's not even when a patient may be technically eligible, they may not actually get the therapy. They may not be able to wait the time for manufacturing, may not want to travel to the site. They may not want to be away for weeks. So not every patient -- similarly with bispecifics, I think the efficacy data is obviously -- looks good. And I think they're going to get good early uptake in the academic centers and the community centers. There will be a variety of physicians that are going to have a tougher time wanting to deal with some of the CRS and other safety management aspects of the compound. I think we have a good combination of not only is it high response rate, but it's a very fast response. And for patients and physicians who are getting in these later-line settings, they're pretty beat up. I mean, there -- when you get into the third, fourth, five setting and you've gone through a few different curative options, I mean, it's pretty tough at that point. And you're worried about your quality of life. And you also want to know if something is going to work or not. So the fact that on average, we see a response in 6 weeks after 2 cycles. If you're going to respond and get a complete response or a partial response, you're going to know very, very quickly. That's a great attribute. And so in terms of how we're tackling the community, one is engaging directly with the physicians themselves. And as I said, until about March or April, it was very tough to do that. So in some ways, we're actually launching the product right now for the first time to many physicians. The second is dealing at the community network level. We know that although it's important to get payer access, provider access is equally important. And there's formal and informal pathways that often exists within community networks. A lot of education initiatives happen at that community level. And also there's a lot of thought leaders within the community network that can influence prescribing across different community physicians within that network. So we're doing a lot more at that level. And then finally, at the patient level, where we think it's important. Patients tend to play a bigger role in their treatment, especially in the community when they get to the later lines of therapy because they want to play a role, both a patient and the caregiver in terms of what outcomes are important to them and to their life. And so we're doing a lot more in terms of patient education and patient-directed initiatives. I think the combination of those 3 factors will help drive more use in the community.

Okay. Okay. Great. And then you talked about earlier lines. I guess, 2 things. So one, LOTIS-5, just remind people what opportunity that presents? And if that's successful, sort of what you -- how you think about LOTIS-5 versus the competitive setting in terms of expanding your label?

Sure. So LOTIS-5 is a study of Zynlonta in combination with rituximab in second-line plus patients. I think it starts to open up the second-line opportunity, which is roughly double the frontline opportunity. So it's a significantly bigger opportunity. I think the second-line opportunity will split up into -- before CAR-Ts moved in the second line, it was sort of -- everyone thought simplistically, there's 50% that are transplant eligible, 50% that are transplant ineligible. And we're being studied in that transplant ineligible population. I think as CAR-Ts move down, it may become 1/3, 1/3, 1/3. I mean I think that's where the world will move somewhere in that range. In terms of accessibility, now we don't know what the true penetration of CAR-Ts will be because it really depends on which patients can access it. So I think ultimately, transplant and CAR-T will make up somewhere between 1/2 and 2/3 of the second-line population. That still leaves a big opportunity for those that won't get either one of those therapies. So I think certainly bispecifics and some of the other combinations are going to compete there. But I just want to remind you and everyone else, we've been achieving this efficacy data in this profile with a monotherapy. We're the only monotherapy agent that's being tested. So I think a combination of rituximab, we'd be hoping to compete at that level of efficacy with hopefully even a more manageable safety profile. So that's what we're hoping for, and we continue to enroll that study.

And just remind us the time line for that study or what you said in terms of when people might get some data from that?

Yes. So there'll be some data this year on the first 20 patients that were in the safety run-in data. Both safety and efficacy data will be presented. We haven't disclosed where or when yet. But this year at a medical congress. And then beyond that, we continue to enroll the study. We haven't given time lines for the full study yet.

Okay. Perfect. And then frontline, right, you obviously talked about the frail population, which really isn't adequately addressed by anything. Can you help us think about size of that population and then your path towards coming to market for that?

Yes. So we're in a Phase II program right now. We have 80 patients in 2 different cohorts, 40 patients in the frail population, 40 patients in the unfit population. We're looking at both of those populations. I think together, we believe that represents 15-plus percent of the first-line opportunity. Right now, we're in a Phase II program, which is recruiting while we just started in July. Once that reads out, we believe we'd likely have to do a registration study. So that's a little bit of a longer time frame to get your registration, but we think we'll have data from these 80 patients obviously much sooner.

Okay. Okay. Great. Great. I guess just last question here. You had a strategy in follicular, then the comparative agent got removed from the market. That made it much harder to figure out a registration strategy, though. When I think about opportunity, though, follicular represents a pretty substantial opportunity. So what are you doing there? How do you think about the potential to maybe get back in the follicular? How should investors be thinking about that as an opportunity?

Yes, I think -- I mean, as you said, the comparator was taken off the market, so that made us rethink. And I think there's been a lot of evolution in the follicular market. I do think there is an interesting opportunity there. But we sort of felt like after taking a view of where the landscape is going that later line monotherapy isn't the best place to play and that moving the earlier line combinations, represent probably a more compelling opportunity. So that's what we're looking at. We're also balancing the investments we make in Zynlonta versus the whole pipeline. As you know, we have the luxury of having a number of different compounds in our pipeline. And so we're also balancing how we allocate our capital across the whole portfolio and how we make the best investment decisions across the portfolio. So follicular is definitely something we're looking at right now. In terms of potential earlier on combination therapy, but it goes against the other investment parties that we're looking at as well.

Sure. Okay. Great. Why don't we talk about Cami a little bit. Obviously, you have the data now. And you've talked about a potential time line to filing. So just remind people what you need to do to file that agent?

Yes. So we're excited. As you know, we presented the data at EHA in June. And in over 100 patients in our Phase II study, what we showed was a 70% response rate, 33% CR rate and 13.7 months duration, which in the fourth -- I mean, on average, actually patients were getting 6 lines of therapy. So -- which is amazing. I mean, over -- almost every patient had already received brentuximab, transplant, PD-1. So it was a pretty heavily treated patient population. So if you get that level of response, it's pretty compelling. We're meeting with the FDA later this month and for a pre-BLA meeting to discuss the path forward for registration with this study as well as to clarify the requirement for a Phase III confirmatory study. We have sent a proposal, but we'll discuss that and align with the FDA. In terms of timing for registration, we anticipate to file in the second half of next year. The reason for the time lag between this meeting and that is simply because we're waiting on stability data mature. So -- as you are probably aware, the study was paused early on because of GBS. And as we work through the issue and added more interventions to have earlier detection and treatment of the GBS. During that phase, we didn't want to start validation batches, which could be quite expensive. One the study was restarted, we decided as a company to start manufacturing those validation batches. And now it's just a matter of time to wait for stability data to mature. So we think the rest of the file is going to be in good shape well before that time frame, but we have to wait for the final part of the submission, which is the stability data.

Okay. And how do you think about the opportunity in -- I don't want to call it sixth line, I don't know what label you'll get, but in late-line Hodgkin's. What's the size of that opportunity? And -- assuming you can come to the market.

Yes. I think it's more third, fourth line. It's the label we're going to get, I think it will be third line in the transplant ineligible, fourth line in the patients that get transplant. I think it's in the U.S., probably just under 1,000 patients that are in that setting that we could penetrate. There really is nothing else that's there. I mean, everything that's in the guidelines is off-label use and ages that haven't really been well studied and without convincing outcomes. So our belief is we can capture a good chunk of that market. And it's a rare disease. So also from a commercial investment standpoint, because it's in hematology rare disease, we think we can also leverage the infrastructure we've already built.

Solid tumors. Another area you're working on with Cami. What's the update there? What's your thought on or your optimism around being able to see a signal for Cami in solid tumors?

Yes. So Cami in solid tumors, as you're probably aware, is a very different approach than what we're doing with all of our other solid tumor programs because it's more of an immune-based approach. So in this study, we're looking at Cami plus pembro. And the hypothesis here is really in some of the tumors were -- in particular, that are more refractory to PD-1 or tougher-to-treat tumors is that we want to start changing the balance between T-effector cell and T-regulatory cell. And we know that T-effector cells will help to kill the cancer cell and regulatory cells are sort of the brakes. We know CD25 is expressed on the T-regulatory cells. And Cami being a CD25 directed ADC can have the potential to kill and change that balance, leading to more cell killings for the T cells and more enhanced potentially benefit from PD-1. We certainly saw that preclinically. We're in the dose escalation -- we expect to have data next year or by next year on that program. And we'll have to see. I mean, there's been a lot of immune-based approaches, and I think this is a unique 1 for us in the immune-based space to see if we can be an agent that can enhance the benefit of PD-1, particularly in tougher to treat tumors.

Okay. Great. So more to come there. You talked about the rest of the pipeline. Maybe I'll ask you, you've got a variety of targets that you're prosecuting. How would you encourage investors to think about some of those targets? Or which targets do you think have -- are you most excited about?

Yes, I'm excited about another -- I mean I'll call out 3 just as examples of the ones I'm quite excited about. I mean, so KAAG1 is one that we're well into the dose escalation, and we hope to report data next year as well. This is a novel first-in-class agent where we see expression differentially on ovarian cancer, triple negative, and a number of others solid tumors. So we're -- yes, we have to let the dose escalation play out, but that's one we're excited about because if it does, we have a chance to be first-in-class with a novel target. AXL is one we're excited about, too. I think there's data validating the activity in sarcoma and other tumors. So we have 2 different arms right there. We have a sarcoma line where we're combining with gemcitabine. And we've -- we believe there's a real potential sarcoma. We know AXL is over expressed. And then we're doing a basket arm where we're looking at the gene amplified population across a number of different solid tumors. I think that will help to figure out where we want to interrogate and go even deeper in terms of which solid tumors. We've obviously seen competitors, dose signals and AXL. And we think the potency of our ADC, particularly for AXL, which is oftentimes less expressed target on some of these solid tumors, can be really attractive. The other one I'd call it is PSMA, which is going to move into the clinic next year. I mean, I think everyone knows PSMA is a very well-validated target. I feel particularly good about this one because we had our first run at it and we learned a lot in terms of how to optimize the compound. Our first try didn't work. But we've done a lot to optimize both the antibiotic construct, the linker technology and the payload. It's a less potent PBD. And I think the combination, we believe, in a very well-validated target has a good chance. So that's going to move into the clinic next year. We also have other agents like 602 and DLK-1, which we think are interesting. So pretty rich pipeline overall.

Yes. Maybe we can talk about KAAG, right? Target -- people are probably less familiar with than some of the other ones you mentioned. So what's the biology of that target and how did you come about to pick it?

Yes. So I think the good thing about ADC is the biology, in some ways it's kind of simple because you're really using the target as a doorway to get the ADC to internalize and release the toxin. And what we noticed, I think we saw a lot of literature and we noticed preclinically that in certain tumors, like ovarian, triple negative and others, there was a higher level of expression of KAAG on the surface of the cancer cells than on the healthy cell. What we're going to test now, obviously, is in which tumors is that stable? Are there any resistance mechanisms? Can we get to a therapeutic window that's going to matter with our ADC that's what we're testing with a novel platform, but the biology itself not only for that, but for all of our agents, I think it's somewhat simple because you're really using it as a doorway.

Yes. Yes. I think people -- the reason I was asking is some targets we know are active as well, right? So if you think about HER2, right, HER2 ADCs are interesting because you've got both things, this is just purely just a targeting mechanism, though, for you.

Yes. I think there's not as much known about KAAG1, I think, because it is such a novel target. If there's also what the biological effect is and how the tumors respond, I think we'll learn a lot from the Phase I study. But clearly, what we know is that there's an overexpression in cancer cells relative to healthy cells and at least through that mechanism we believe the ADC could work. Whether it has other properties and that could be additive, we'll see.

Okay. And then AXL, I think you addressed this a little bit, but just to follow up. So we've seen signals of activity. Obviously, as you put it, Genmab had a compound, other people have had compounds. But they haven't really moved forward with them. So do you think it's mainly potency that it's going to prove to be the difference here?

I think potent -- AXL, what we've seen particularly outside of sarcoma is the expression levels can be still relatively low in terms of the differentials And you do need potent compound, I think, to get to better outcomes. We've also tried to optimize the other aspects of the ADC as well to fit because when I look at our compounds whether it be the payload or the antibody or the linker, they're not all the same across our pipeline. We really try to optimize the molecule to what that target is and the histology disease. So we'll see as we kind of play this out. But we feel comfortable that potency is going to matter for AXL.

Okay. Okay. And then I guess from investments, you talked about prioritization of investments, et cetera. How are you thinking about further investments in early-stage pipeline versus let's call it label advancing for some of the later-stage programs because as you point out, right, you have a healthy earlier-stage pipeline with, I guess, 2 targets in, third target coming, and a couple of others, so 4 or 5 targets in total. So -- how do you think about further investment there versus some of the other investments that you're making?

Yes. So I think first thing is, as I think about the business, we're not so far away from Zynlonta. Like, if I think of Zynlonta sales and the investment we're putting into Zynlonta, we're not so far away from eventually that becoming breakeven. And that if happens and the investment really is the choice said every incremental dollar is about life cycle management for Zynlonta and Cami versus new pipeline molecules. We look at everything through a lens of what's -- where is the space moving. So what's the scientific and clinical evidence, what's the unmet need, how big do we think the commercial opportunity can be, where else are the competitors going, and we try to weigh these investment decisions off of each other. So when we may have to make trade-off decisions between do we do a study and keep going with a Zynlonta study or keep prosecuting a positive Phase I single in a novel area, I think we look at it as we have to look at the scientific attractors, the clinical unmet need and the commercial business case to sort of rank these ideas. And we also don't have to do everything on our own. I think we would be constraining ourselves to say that we have to do everything on our own. I think the way the amplify opportunity is also -- for some of these opportunities, we may say, partnering or collaborating maybe another way to do it. I mean, we did it in a small way with our life cycle management for LOTIS-5 as an example. When we signed the Sobi deal for Europe and most of the international territories, they're also contributing to our LOTIS-5 development expense. So I think we're also trying to think creatively from a financing standpoint around not trying to do everything on our own, but also collaborating and partnering with other sources.

Can you talk about China? You obviously have, I guess, a JV there. What's the opportunity? How are you thinking about that? How should investors be thinking about China exposure for you?

Yes. So we have a 50-50 JV with Overland, which is the Hillhouse backed company. We're making good progress with Zynlonta. We've already completed the bridging study. They're now enrolling in the LOTIS-5 registrational study. And then we'll see how we keep expanding, things going forward. I mean, we're looking at how we can tackle China in a meaningful way. But I think the joint venture structure is a nice way for us to participate as an investor but also get capital from the outside.

Okay. Great. And maybe, I guess, just last thing. Remind us -- capital structure, where you are in terms of cash and run rate right now?

Sure. So we ended Q2 with $377 million of cash, but that doesn't include the $55 million we received in July from Sobi upon signing the deal. We also anticipate an additional $50 million from Sobi upon European approval of Zynlonta and a potential another milestone from health care royalty of $75 million upon the first commercial sale. So with all those milestones, coupled with what we anticipate the sales trajectory will be and what our burn is going to be for the pipeline programs and investment, we anticipate that our cash runway will go to early 2025.

Okay. Great. Well, perfect. Thanks for being here. Thanks for taking the questions. We appreciate it.

Yes. Thank you so much. Appreciate it.