Arcellx, Inc. (ACLX) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to the session of the Morgan Salary Global Healthcare Conference. I'm excited to welcome the Arcellx team to the stage. Let me just read a quick disclosure before we get into it. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. I'm Judah Frommer, one of the Smid-Biocap analyst here at Morgan Stanley. I'm excited to have Rami, Chris and Michelle representing Arcellx.

So maybe we just start out with a bit of background for those newer to the story, maybe we spend a minute or 2 on an introduction to Arcellx. Some background on the company, your lead asset and maybe also your development partnership.

Great. Thanks so much for having us, Judah. We're excited to be here. So Arcellx was founded about 10 years ago with really the goal of addressing the 3 primary needs in cell therapy, which are safety, efficacy and scale and reliable manufacturability that can drive accessibility. And we've been able to demonstrate that leveraging our core technology, the D-Domain and our lead asset, anito-cel, which we believe represents a best-in-class therapeutic option for patients in multiple myeloma. We're also leveraging this technology in our pipeline. We have active trials currently in AML and myasthenia gravis, where we again believe that core differentiation of this technology can hopefully open up new fields that have been historically with a significant unmet need. And when you pull all of that together, we really believe we're on the road of building a generational company. One of our core goals isn't just to have these incredible assets like a net cell in the myeloma space, but to really show that you can build a scale profitable cell therapy company and hopefully through that avenue attract more investment in the space that we believe can be a forward pillar of medicine. So I'm sure we'll get into anito-cel, and I'll keep it there for now.

Okay. Great. So like you said, your lead asset is a BCMA-directed CAR T anito-cel. You provided an update at EHA. You had at least 4 months of follow-up for all 117 patients that were dosed, median follow-up of nearly 13 months in the iMMagine-1 study that enrolled late line relapsed refractory multiple myeloma patients. So maybe just can you walk us through the efficacy highlights from that update? And then equally important, the safety side of it, but break it up how you see fit.

Chris?

Yes, sure. So I mean the data that we disclosed at EHA was actually mostly an update of data that we disclosed last year at ASH. So in those data, what we're seeing is continued deepening of the complete response rate, now showing over that previous number of in the 60s and now we're seeing in the 70s for the CR rate. The PFS rates are the way we've disclosed the durability of the benefit. And so looking at the 6-, 12- and 18-month PFS rates, you're seeing 92% and then out to -- at 6 months and then out at 18 months, you're still seeing patients without progression 66% of the time. So that was one of the bigger updates because we had heard questions around are we seeing that continued durability and will that tail develop on the curve. We've also reiterated that the MRD negativity rate is in the low 90 percentage range. We do see some of these numbers change just marginally, maybe 1% or 2% up or down as more patients get more visits that have happened and more samples have been taken. So overall, I think we're really happy with where the data are. And iMMagine-1, it looks as Rami said, like in terms of efficacy, it's on par with the best-in-class therapy. But where anito-cel looks to be differentiated and this was also updated at EHA is now all the patients have at least 4 months of follow-up, and we still have not seen a case of delayed neurotoxicity a case of immune-related enterocolitis. And if you look at the data from CAR21 or CAR24 those events have really almost exclusively happened in the first 4 months. There are some outlier cases but most of those events are happening actually closer to 60 or 90 days after treatment. So not having seen any of those types of events is one of the major differentiators we believe, from other therapies available. And then finally, we have mentioned in iMMagine-3, which was not part of this EHA data cut, but it's an important point. iMMagine-3, Kite is manufacturing the product for that clinical trial. And we're seeing turnaround times that are actually pretty similar to what you expect with Kite's commercial CAR-T cells, which is really, we think, exceptional for the BCMA CAR T space.

Okay. Great. And maybe just a follow-up on the evolving safety profile, right? It's certainly something we get inbounds on. I guess maybe just kind of KOL and clinician perspective, once you did share the EHA update obviously, the efficacy profile is very important, and you expanded that with extended PFS with your second quarter earnings. But on the safety side of things, I think how have folks in the industry and experts come around in terms of their view that the safety profile is fully formed versus what they might be waiting for?

Yes. I mean I think I can maybe jump in and answer that in a couple of different ways. I think one, we shared market research at EHA, which represented a fairly low sample of physicians around 150 physicians, both across '24 and '25 and you can see the increase in assumed share for anito-cel. And that's primarily, I think, an increase in the confidence of the profile as we've continued to share more data. As well as the experience for these physicians with the available therapies right now and some of the challenges that you see with safety. I think it's clear that there's more of a debate, I think, in investor circles around this topic than there is in the hearts and minds of physicians. I think a plurality of physicians see who are aware of this data, see it as clearly differentiated. Again, as Chris said, when you have a minimum follow-up of 4 months and the overwhelming majority of these cases happen within the first 1 or 2 months, it's clear that this is not something that we expect to be related to this particular agent.

Okay. And then maybe less of a focus now as you continue to generate data. But I guess kind of the D-Domains potential contribution to the safety profile is a question we get less, but still get. So what are your thoughts there?

Yes. I mean, look, I think that's also fairly clear. If you look at the real-world incidence of these delayed neurotoxicities, it's very clear that they're related to 1 product. And so I think there's been this debate around is this a class effect or whatnot. But it's very evident that when you have quarter-over-quarter of 6% rates of -- Parkinson's is 6% on rates of CPs and combined with the clinical data that we've seen, it's very clear that it's binder related to us, in our opinion. And certainly, when you conversely don't see any of those cases with 155 patients with the kind of minimum follow-up that we've seen, you also feel very strongly that it's not related to anito-cel. But I think it's clear, at least in our view, based on the evidence available that it's specific to the binder. And I think more and more information, hopefully, will come out that mechanistically explains why that is.

Okay. And speaking of more information, what can we expect in terms of subsequent updates for iMMagine-1, I guess, internally, what are the focus points that you're looking for as again, you do balance that safety and efficacy profile kind of which is more interesting to you at this point?

Yes. Look, we're excited for ASH coming up here in December in Orlando, and we expect to share more data at ASH. I think you should expect we had but a minimum -- sorry, a medium follow-up with 12 months at EHA you should expect another in or so months of additional median follow-ups around 17, 18 months of median follow-up. And what I would look for there is I think we -- obviously, the constellation of all of these different efficacy markers have trended very well. But when you look at MRD negativity again in that low 90s rate, around 93%, that Chris mentioned, when you look at an 18-month PFS rate of 66%, I think suffice it to say, we're very confident in the profile and the durability of this therapy certainly stands out on the efficacy side. And then on the safety side, you're going to get an even higher sort of floor in terms of that minimum follow-up, and we feel like that can continue to reinforce the safety differentiation.

Okay. That makes sense. And I would argue that more and more, we're getting questions on the regulatory path in multiple myeloma generally, obviously, given changes at FDA, there have been some CRLs across the broader space. So can you talk to the regulatory path in multiple myeloma, both late line and early line, some folks point to imagine one being a single-arm study, should that be a concern at this point?

We feel very confident in the regulatory path. It's very well established. I had a chance to attend the FDA CEO Forum with Dr. Makary and other staff from FDA. I feel really confident in what they're trying to do at FDA, which is actually reduced regulation, improve the competitiveness of American companies and help these life-saving therapies get to market even faster. They were very confident and very reinforcing in terms of the established regulatory paths and choosing the right endpoints and the right approach for the right disease state. We've since seen Regeneron being an approval with a single-arm study in a setting that I think is analogous for us very recently. So we feel very confident in the regulatory path. We feel obviously very confident in the differentiation and the unmet need that anito-cel can bring to the market and our positioning. And I would also say that one thing that has given us increased confidence is that we haven't seen any turnover in FDA staff. Our continuity is actually really, really important. And we have the leadership that again, we feel committed to advancing these types of therapies and is aware of the unmet needs that exist in myeloma that anito-cel can address.

I guess, specifically on unmet need, is -- do you feel confident there's ability to demonstrate unmet need in late line where you have CAR-Ts approved? And is that unmet need tied more to safety or efficacy?

Yes. So first, let's start with precedent. Breyanzi was approved as a third to market CAR-T very recently in the last couple of years here and with a much narrower differentiation than what anito-cel brings to market. And when you look at myeloma, it poses 2 actually opportunities for differentiation that didn't exist in that case study. The first one is the safety issue that we talked about a lot. When you have the best agent in class, have a safety issue that is rounding up to about double digits, call it, 10% or in the low double digits. That certainly presents a significant unmet need. And again, our market research really enforce that and showed that there is an attenuation and desire to prescribe these therapies, particularly by referring physicians in the face of these safety issues. And then the other opportunity is access. One of the things, again, we showed at EHA is that despite these 2 additional agents being on the market for so many years, they're still not covering the majority of the market. There's still an access issue. And again, that really highlights one of the advantages of anito-cel is both due to the properties of the D-Domain as well as the best-in-class capabilities of Kite we believe we're in a position to be able to deliver anito-cel at a scale and an accessibility that has not been the case in the myeloma field. So certainly, those 2 are very clear unmet needs in the myeloma space and are foreign and above what was even demonstrated in the lymphoma space with Breyanzi, which was able to secure approval.

Okay. That makes a lot of sense. And I think the latest you've said is potential for a launch in 2026 in the fourth line plus setting. So I guess what's latest communication on time lines for BLA submission? How do you anticipate communicating submission or FDA receiving submission? How are you thinking about just communication around that?

Yes. So we don't have an answer for you guys on communication yet. That's something we have to talk to our partners at Kite more and align on the communication plan. But in terms of the time line itself, I'm happy to reiterate our guidance, which is we expect to be on the market in mid- to late 2026. We feel like operationally, we're certainly marching towards that. Chris and his team have done a phenomenal job working alongside their -- his partners and their partners at Kite to make sure that we're advancing the BLA filing to our expectation, and that's gone very well. And again, we haven't given specific BLA guidance, but in order to enable that mid- to late 2026 commercial launch, we would expect the BLA to be filed sometime late this year into early next year, and we'll certainly have a more affirmed communication plan as we work that through with our partners at Kite.

All right. I figured we try. Also, I think you also talked about the opportunity for CAR-T across treatment lines in multiple myeloma. So in your view and given the recent commercial trajectory for the commercial asset, where do you think CAR-T is headed generally in multiple myeloma as you move into earlier lines.

So maybe I'll start and I'll pass it over to Chris to comment as well. I mean, look, I think we've seen incredible -- I know we talk a lot about sometimes the challenges and the deficits with some of the available CAR-Ts. But I think you have to apply J&J and Legend. They've gotten the Carvykti up to, $1.6-ish billion, $1.7 billion run rate here despite a lot of those challenges. I think that's a great thing for the market. It's a great thing for patients. And we've always been on the record of saying this is obviously a huge unmet need and there is an opportunity for multiple CAR-Ts, and we're happy to play that role and present an option that can help more patients gain access. So we have said historically, this is a -- second line plus is a $12 billion market or thereabouts. We shared actually our class share assumptions at EHA, which hopefully are really instructive about where CAR-T fits relative to bispecifics and some other modalities. And what we've said is that second line is about half of that market. So when you're thinking about us launching anito-cel next year, you should really think about us certainly launching in that fourth line plus setting, which is what we expect, which is a $3.5 billion market. But certainly, as we've seen with the Carvykti launch, there are always patients who will opt to go through one more treatment regimen, get the fourth line and get the CAR-T in. So it's going to be a fairly expensive opportunity. We're excited about it. I think I'll pass it over to Chris, and he can talk about from a physician perspective, how they're thinking about the adoption of CAR-Ts into earlier lines.

Yes. Rami made a number of great points there, but I think one of the things that we also see as a real value of coming behind Carvykti is that the data with longer follow-up with all the same indicators of CR rate, MRD negativity, PFS rates, showing the tail of that curve with CAR21 actually puts physicians into -- or they can actually assess now what is the trade-off of not giving a CAR-T and they can see that they might be giving up a long-term durable benefit for 30-plus percent of the patients, whether that's fourth line, fifth line or all the way up to second line. So it becomes a very different question for a physician when you know that there is something somewhat approximating cure. I know we're all a little hesitant to say cure yet, but that certainly feels for a patient a lot like a cure. If you can go 5 years, not needing any other therapy, not needing to check in with your physician every month or 2, getting labs, et cetera, waiting in the parking lot to be able to come in and do your infusion. Those things matter quite a bit in what I believe will happen is that not only will we see relatively rapid adoption of anito-cel because of the safety benefit that you're going to see pretty quickly. But when it comes to them thinking about, can I adopt in earlier lines, there's going to be more of an urgency to do that. And the academic institutions that are going to have success doing that. I think will become a model for community oncology centers, now not single doctors in a stand-alone building or something. But when we say community now, we really mean these multi-physician conglomerates, right, that are operating outside of an academic institution, but they work like a business. And those businesses are going to see an opportunity where I can give this therapy and I can take care of my patients well. And you don't want to be the one that doesn't have it. And we think that day is coming sooner than later. So overall, I mean, the feedback we get from our physicians that we work with who've used anito-cel is, this is the product I would use as soon as I can get my hands on it as an approved product.

Okay. Yes. So it's pretty consistent. That's what we hear. Maybe just a follow-up on the initial market opportunities. So one question we get is how do you anticipate kind of commercial dynamics shaping up when you're launching with a fourth line-plus label against the products that has a second line-plus label. I know you touched on it a bit in terms of potentially waiting for a CAR-T later line. But anything you've heard, I guess, in your preparations for commercialization?

Yes. No, actually, it's a good opportunity to highlight one other thing that I think conceptually is really important to take in, which is that this is an incident market. It is not a market where we have to go in and change scripts and make that sort of conversion. There is a certain number of patients. And unfortunately, given the incurability of myeloma,it's so a very large number of patients that is presenting with the need for these therapeutic options every single year and providing anito-cel in a number of centers that don't currently have it, access to CAR-T and b, with what we believe is a safer profile, I think, certainly will allow us to garner a significant portion of share. I think if you saw again, our EHA presentation, our market research indicates that we would expect somewhere in the range of 80% share. I don't know that I'm going to certainly commit to that guidance. But I think directionally, it tells you that there's a high favorability for this therapeutic option relative to the existing class of therapies. And it's one that we would expect and we're planning for from a demand perspective, hence, why we shared, we expect to have significant coverage of that market right at launch and into the second year of launch into 2027. So I think that's a really important thing to remember, again, the incidence of the market, the fact that there are a lot of patients the preference that we've seen for anito-cel in our research and in our conversations with physicians and our ability to actually deliver on that, both through our launch plan and our capacity availability.

Okay. So to that point, and Chris touched on this a bit. But I guess, in terms of segments of the market or sites of care, as like you said, I think we would bucket them as kind of academic versus community versus smaller which areas might be earlier to adopt? Is there this unmet demand, particularly in the community and how do safety and manufacturing turnaround time factor into that.

Yes. The best way to really think about this is that you really need the community engagement as you're pushing into the second line. If you're talking about like third line-plus, I think you're largely able to access that market without a ton of effort or push in the community setting. And so it's something that, certainly, I think we benefit from the fact that we have 2 of the largest, most successful health care companies in the world in BMS and J&J, already working to kind of make those inroads in the community. I can tell you that Kite being the leader that they are. I've already been in the room through meetings they have facilitated and Chris has as well with some of these leading community centers around the country. So it's not that we haven't -- ourselves started to have those conversations that from an understanding of like what it's going to take and what their interest level is in adopting CAR-T more broadly. But I think that ultimately, in the third line-plus setting, I think you're going to see a lot of adoption for a needle cell my guess would be almost right out of the gate. And then I think over time, as we get our earlier line label as some of this progress is made by some of the incumbents in the space, I think you'll see a bigger pull into second line. And again, what we saw in our research is that what's actually really hurting right now particularly among referrers is that second line access because of some of the challenges that exist with the incumbents that we're optimistic and believe we can address.

Okay. Great. And you -- in partnership with Kite, you're executing on the iMMagine-3 trial in earlier line patients. So how does that trial expand the opportunity? And maybe you can talk a bit about trial design and how that will factor into an opportunity for you versus the incumbents?

Great. I'll pass it back to Chris.

Some important distinctions from prior clinical trials in the same space. So one of the advantages, again, of being a couple of years behind in development is that you can look and see how the landscape has changed and what the questions -- what questions were raised from prior studies. So -- as we compare iMMagine-3, for instance, to CARTITUDE-4, probably the biggest distinction is that the patient population isn't defined by lenalidomide refractoriness. That definition is per IMWG and so patients have to be -- they have to have progressed within 60 days of the last dose of lenalidomide. Well, it turns out that really only about 40% of patients in second line technically meet that definition. Most of them are functionally equivalent to lenalidomide refractory, but don't meet the definition. So we wanted to remove that from the definition. And so instead, we used exposure to therapeutics as a way to define the population. Now like I said, most of the patients are not going to stop a therapy that they're still responding to. So functionally, they end up being refractory but they don't have to meet the definition. And that means that instead of 40% of the patients in second line, that's access to about 80% of patients in second line. So that's a remarkable difference. The other thing that's really important is that at the time that CARTITUDE-4 was initiated, there was not yet approval of KdD as a second-line regimen. And KdD really is the best second-line regimen available. So we were able to include that in our standard of care options for patients. And that's something we've heard from clinicians that one of the ongoing questions they have is, well, is this therapy really better than the therapy I have right here in my clinic right now. And we expect to be able to demonstrate that a Metacell is better than KdD definitively in second line and beyond. So it helps us to answer some of those questions. Now the other big change that we made to the trial design after the study had actually already initiated was to add MRD-negative CR as a co-primary endpoint. And the reason for that is after we saw the FDA ODAC on MRD-negative CRs. We felt like it was something that FDA will be willing to consider as a primary endpoint for approval. And that may end up shaving some time off of when we can get the initial readout of the trial. So we do think that the field is changing quite a bit and being able to read those changes and then anticipate them as part of how the study was designed.

Okay. Great. And maybe just for iMMagine-3, if you could lay out kind of base case and kind of best case time line scenarios for data?

You want to take that?

Yes, sure. So the way we look at it is that the enrollment time line is probably really similar to CARTITUDE-4. It's a similar size trial. It's a similar population that should take about the same amount of time. The median PFS expectation we have always said for the control arm should be somewhere around a year, plus or minus 10%-or-so. But -- and we think that the way the study is designed, that is still the expectation in that study. So we haven't guided specifically when you would expect data readout, but you can kind of take all of those pieces of information and make a pretty reasonable estimate of when we should have a good inference on PFS or MRD-negative CR.

Okay. Super helpful. And then maybe just moving into a couple of other programs toward the end of the conversation here. You're enrolling a Phase I study in myasthenia gravis like you mentioned. What's the latest on enrollment for that study? And what can you tell us in terms of anticipated updates there?

Yes. So the study is enrolling, and it's something we think mechanistically makes a lot of sense. This is a disease that's driven by antibodies that cause damage to the neuromuscular junction by binding to the receptor there. And so eliminating plasma cells is a really good way to eliminate antibodies. The vast majority of antibodies in a person are going to come from plasma cells. We know that. And so it's something we feel made a lot of sense from a mechanistic standpoint. Study is ongoing, so we can't really say much about anything we've learned so far other than we continue to push forward to enroll more patients. And our long-term look at this is that this has to be a therapeutic that allows patients to remain treatment-free for a prolonged period of time. Again, we think there's a lot of mechanistic reason for that to be true, and we'll just need to dose enough patients and follow them to be able to give something meaningful.

Okay. Great. And just touching on the ARC-SparX platform. It probably doesn't get talked about a ton, but maybe it's worth reminding us the potential and differentiation of that platform and what we can expect that will come out of there?

Sure. So ARC-SparX, just for anyone who hasn't followed our story is the idea that we can make a universal CAR-T cell and the CAR on that CAR-T cell actually binds to a tag on the back of a protein that we call that SparX, that SparX protein also has binding domains that target the antigen on the surface of the cell. So we take the ARC-T cell and when it combines with the sparks and then binds to its target antigen will kill the target. If you take any piece of that apart, if you remove any part of it, then nothing functionally happens. So the CAR-T cells are essentially inert absent the SparX. The SparX are inert absent the CAR-T cell. And so we've had a program open in Phase I and AML now for about 2 years. The study is, as you can imagine, mainly challenging as a result of the disease. AML is a really challenging disease because of how rapidly patients disease progresses. And so over the last few years, what we've been working on is dialing in dosing strategy as well as the patient population where we could see the most benefit. That's where we are in development now. What we like to tell people is we wouldn't still be doing this if we didn't think it worked. But whether something works and whether something is a product are 2 completely different things. So we are currently in the process of trying to demonstrate that this could be a real product to help patients. And again, we don't really have a time line on when that will happen because of the complexities of the disease and trying to optimize dosing.

Okay. Great. And maybe last company specific one before we get into a mini survey we're asking all of our companies. But maybe just remind us of cash runway and what catalysts and milestones will be funded with that runway?

Yes. So we ended Q2 with $538 million in cash, which gets us into 2028. So of course, that funds us through launch and substantially in terms of our path beyond launch as well.

Okay. Great. Like I said, we're going to spend the last couple of minutes on a mini survey. We've asked all our management team, so we're not singling you guys out. Biotech seems to be more exposed to external and macro factors of late. So we're asking these 3 questions to all the biotech companies at the conference. The first is on China with China's rise in biotech innovation. How are you thinking about Arcellxs' competitive position? And will this influence R&D or business development in U.S.?

I'll start on the R&D front. Arcellx is certainly an American-made story, and we've found a lot of success running our studies here and executing here. I'll say also broadly, we have not seen a consistent enough level, in my opinion, of translation from clinical data generated in China to the United States. And I think for a lot of American companies like us, the idea of sort of jumping into the [ foray ] accelerator program were not knowing that sometimes the patient populations are different or there other factors that may impact the translatability of that data. It doesn't seem like a straightforward path for us. I'm also really encouraged, again, I mentioned earlier, attending the CEO Forum, the FDA CEO Forum with Dr. Makary and the approach of trying to lower the regulatory burdens and increase sort of the acceleration of innovation in the United States. So I'm encouraged by that. So for us, I think on the R&D front, nothing really changes. I think on the BD front, notwithstanding what I said, I think you can't be blind to innovation wherever it comes from. We generally at Arcellx from a culture perspective, talk about a company about where ideas win, not people. And so if the best idea happens to be in China or Germany or the Netherlands or whatever, we want to be able to find that idea and get access to it. Obviously, I know there were some negative results this past week. But Summit is a good example of having capitalized on an asset from -- that happens to be China. So I think from a BD perspective, we're certainly open to it, R&D, I'm still a little bit hesitant.

Okay. Great. And the next theme is AI. How are you currently leveraging AI or thinking about AI's future disruption potential, I'd say both positively and negatively for the space?

Well, don't get me started on my views of AI's disruption to society as a whole. But putting that aside, I don't know if a lot of people know this when I'm actually an electrical engineer. And so one of the very first things I did when I joined Arcellx is talk about how we're going to leverage AI. So we actually are leveraging AI. We've got a great program. We're generating binders. We're optimizing D-Domains using AI, generating new scaffold. Actually, we're at a point now where we are able to solve problems we couldn't previously solve. Like sometimes it's hard to find a D-Domain for a particular indication, but leveraging AI we've been able to crack through there. So that's an easy one for us because we've been working on it now for about 4 years, and we feel like we've got actually a pretty good capability.

All right. Excellent. And last one, we touched on it during the conversation, but just on the regulatory side, anything that's generating internal conversations, changes at FDA, pricing debate, tariffs, anything you'd highlight? I know you touched on FDA, but anything else?

No. Actually, what I will say that is related, but maybe not direct is that I think there's an underappreciation of the value in cell therapy in that there aren't patent cliff issues, there aren't IRA issues. There's actually a lot of value in what we're doing and in the approaches that we're taking. And we haven't found that any of these regulatory or tariff-related things have been really impactful aside from volatility in the markets from an operational perspective, it really hasn't had any impact.

Great. I think we are just about out of time. So once again, thank you for participating and good to have you guys here.

Thanks, Judah. It's been a pleasure. Thanks, everybody.