ADC Therapeutics SA (ADCT) Q1 2022 Earnings Call Transcript

ADC Therapeutics SA (ADCT -0.85%)
Q1 2022 Earnings Call
May 09, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the ADC Therapeutics first quarter 2022 financial results conference call. My name is Michelle, and I will be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

[Operator instruction] I will now turn the call over to Amanda Hamilton, investor relations manager. Amanda, you may begin.

Amanda Hamilton -- Manager, Investor Relations

Thank you, operator. This morning we issued a press release announcing our first quarter 2022 financial results and business update. This release is available on the ADCT website at ir.adctherapeutics.com under the Press Releases section. On today's call, Chris Martin, former chief executive officer; Jennifer Herron, chief commercial officer; Joe Camardo, chief medical officer; and Jenn Creel, chief financial officer, will discuss recent business highlights, and review our first quarter 2022 financial results before opening the call for questions.

We will also have a brief introduction from our new chief executive officer, Ameet Mallik. As a reminder, this conference call may contain forward-looking statements. That statements are subject to risks and uncertainties. For additional information concerning forward-looking statements and factors that could cause actual results to differ materially from those expressed or implied in these statements, we refer you to the section titled Cautionary Statements regarding forward-looking statements in Exhibit 99.2 of our report on Form 10-K filed with the US Securities and Exchange Commission earlier today.

Such statements speak only as of the date of this conference call, and we expressly disclaims any obligation or undertaking to update these forward-looking statements unless required to do so by applicable law. Today's presentation also includes non-IFRS financial measures. These non-IFRS measures have limitations as financial measures and should be considered in addition to, and not in isolation or as a substitute for the information prepared in accordance with IFRS. You should refer to the information contained in the company's first quarter earnings release for definitional information, and reconciliations of historical non-FRS measures to the comparable IFRS financial measures.

It is now my pleasure to pass the call over to Chris Martin. Chris.

Chris Martin -- Former Chief Executive Officer

Thank you, Amanda. And good morning, everyone. Since co-founding ADC Therapeutics in 2011, I've had the privilege of taking our proprietary ADC technology from discovery, to the bench, to the clinic, and then to our first FDA approval of ZYNLONTA. It is extremely rewarding to see ZYNLONTA benefiting patients, and addressing an unmet need in the third line plus DLBCL market.

I've seen the company grow from a private start-up to a New York Stock Exchange-listed company. We now have over 300 employees, a commercial product on the market in ZYNLONTA, ten progressing to a BLA submission, and five promising solid tumor programs in development. The approval of ZYNLONTA was a highlight for me, and since then I've been contemplating my next steps. With the company and the pipeline in such a strong position, I'm delighted to hand the CEO role to Ameet Mallik.

I'm extremely confident that he is the right person to lead the company into its next chapter of growth from here. Logistically, I will serve as an advisor to the company the next three months to ensure a seamless transition. And I'm very happy to be serving as a non-executive member of the Board of Directors, and the Chair of the Science and Technology Committee. Amit has significant experience in oncology and commercialization and a compelling vision for leading ADC Therapeutics in its next phase of growth.

Ameet spent 16-years at Novartis, where he ultimately served as executive vice president, and head of US Oncology, a 6 billion division of Novartis. Prior to that, he held various leadership roles at Novartis Oncology, including head of global marketing, value, and Access, and head of Latin America and Canada. He also served as global head of Biopharmaceuticals and Oncology Injectables at Sandoz, and head of Global Strategic Planning at Novartis Pharmaceuticals. I mean, I was recently served as CEO of Rafael Holdings, a biotech company, focused on developing oncology and immune therapies.

ADCT will benefit greatly from a wide range of operational and strategic experiences, as well as his oncology expertise. I would like to formally welcome Ameet to the ADCT, and invite him to say a few words, Ameet.

Ameet Mallik -- Chief Executive Officer

Thank you, Chris, for the kind introduction, and the warm welcome. I'm thrilled to join the ADC Therapeutics team. I've had the pleasure of meeting the board and many members of the executive team, and I'm impressed by the company's unwavering commitment to developing novel cancer treatments for patients. In addition to the people and culture of the company, I was drawn to the industry-leading ADC platform and cutting-edge technology.

ADCT has an impressive portfolio of pipeline assets and a very productive research team. In addition, I am pleased to join a commercial-stage company with a differentiated product ZYNLONTA, and its potential to move into earlier lines of therapy. I'm excited by the opportunity to build on the solid foundation, to take the company to our next phase of growth, and to create sustainable value for all of our stakeholders. In the coming weeks, I look forward to meeting our employees across sites, understanding the business and portfolio plans at a deeper level, and to engaging with many of you.

I want to thank Chris for his partnership in this transition, and I look forward to continue to work with Chris in the future. With that, I will hand the call back over to Chris for business updates.

Chris Martin -- Former Chief Executive Officer

Thank you, Ameet. Now I'm very pleased to share an update on our progress during the first quarter of 2022. Starting with ZYNLONTA launch, we delivered $16.5 million in net sales in Q1. We are encouraged by the progress of the launch to date, and our ability to provide a truly differentiated treatment option to DLBCL patients.

Sales in the first quarter were unfavorably impacted by our customers' modest inventory build at the end of 2021, and there were fewer new patient starts in DLBCL in Q1, which was exacerbated by the Omicron surge. However, we are pleased to see increasing product awareness, familiarity, trial, and repeat ordering. With face-to-face opportunities trending upwards through Q1, we are confident in our ability to continue to grow ZYNLONTA, as we strive to establish ZYNLONTA as a third-line standard of care for DLBCL. Jennifer Herron, our chief commercial officer, will share more details on the Q1 launch dynamics a bit later in this call.

Moving on to our ZYNLONTA development plan, we are exploring the potential of ZYNLONTA in combination with castuximab in first and second-line DLBCL. We have a Lotis-5 clinical trial, which is the ongoing confirmatory phase three study in second-line patients who are not eligible for stem cell transplant. As you will recall, we successfully completed the safety needed for this study, which also showed additive efficacy, and we continue to enroll patients in the randomized portion of this study. In addition, we also plan to initiate Lotis-9, our first-line study in unfit or frail patients later this year.

[Inaudible] the 12-month patient follow-up in the pivotal phase two trial has been completed. We have submitted that data in an abstract for an upcoming hematology conference, and we are preparing for a pre-BLA meeting with the FDA. We remain excited about our promising pipeline of solid tumor programs, including three clinical programs. These are Cami, targeting CD25, ADCT-901, targeting KAAG-1,and ADCT-601, targeting AXL.

We also have two other solid tumor programs in IND-enabling studies, ADCT-701, Targeting DLK1, and ADCT-212 targeting PSMA. Dr. Joe Comodo, chief medical officer, will elaborate on these and other programs shortly. Finally, we ended the quarter with a strong cash position of $431 million, which gives us a substantial cash runway to continue investing in the ZYNLONTA launch, lifecycle, and our pipeline.

In addition, we have up to $100 million in potential milestones from our Healthcare Royalty Partners agreement. Looking to expand our access to patients globally, we are pleased that the Overland ADCT BioPharma joint venture continues to make good progress with the continued enrollment of the pivotal trial. We are making solid progress in our partnership with Mitsubishi, Tanabe Pharmaceutical Corp. in Japan.

And finally, we continue to advance our regulatory submission in Europe. I would now like to turn the call over to Jennifer to report on us ZYNLONTA launch. Jennifer.

Jenn Creel -- Chief Financial Officer

Thank you, Chris, and good morning, everyone. I am pleased to share an update on the progress of this ZYNLONTA launch and report our Q1 performance with ZYNLONTA the net sales of $16.5 million. As we mentioned on the Q4 earnings call, we did see a modest customer inventory build at the end of the year, which we believe we have worked through during the first quarter. In addition, there was a decrease in DLBCL new patient starts in Q1 2022 versus the prior quarter.

The decrease in new patient starts is largely attributable to insurance benefit reverification, as well as COVID-related impacts. The Omicron surge during the first half of Q1 also Impacted face-to-face interactions, especially with comprehensive cancer centers, academic institutions, and integrated healthcare systems. Regarding ZYNLONTA Q1 launched dynamic, we have made significant progress in terms of increasing product awareness, familiarity, trial, and adoption. We have seen increase in lots of patients share in the third line plus setting, with healthcare professionals confirming that their real-world experience with ZYNLONTA is consistent with our latest two pivotal data.

Importantly, face-to-face engagements increased throughout the quarter and are above the industry benchmark of 50% of total interactions. Since launch, over 75% of accounts that have ordered ZYNLONTA have reordered. Reflecting a positive position and patient experience. Over 96% of our priority accounts have ordered ZYNLONTA with approximately 90% of priority accounts reordering.

Importantly, 94% of NCCN centers have ordered ZYNLONTA. In Q1, we continue to drive account depth and breadth. We grew our ordering account base 40% versus 2021, with two-thirds of Q1 new accounts coming from the community. And we expect continued new community account acquisition with the full execution of our permanent J-code.

With higher volumes of third line plus patients in academic centers, we continue to see about 60% of ZYNLONTA volume through academic accounts. ZYNLONTA differentiated product profile continues to resonate with the [inaudible] community. As you will recall in our pivotal phase two trial, nearly half of all patients receiving ZYNLONTA reached a PR or better. Importantly, 25% of patients treated within ZYNLONTA achieved a CR with a median time to CR of six weeks.

This efficacy, in combination with our tolerable side effect profile and convenient administration, continues to be a very competitive and compelling choice for HCPs and patients. We are pleased to have received the permanent J-code, J9359, which was effective as of April 1st. Since April 1st, we have executed our cross-functional communication plan to our prioritized payors, including revisions of a significant number of major medical policies with our permanent J-code. We have received positive feedback from community practices and importantly, major community oncology networks, representing opportunities for ZYNLONTA growth in the coming quarters.

In summary, despite the Q1 headwinds, we are pleased with the launch progress to date, and more importantly, our opportunities for future growth. We remain confident in the continued successful launch of ZYNLONTA, as well as its long-term value as the standard of care in third line plus, and a cornerstone for DLBCL treatment overall. We look forward to keeping you updated on our progress. Now I'll turn the call over to Joe to provide an update on our clinical development portfolio and research pipeline.

Joe.

Joe Camardo -- Chief Medical Officer

Thank you, Jennifer. I will start with updating you on ZYNLONTA development programs. We continue to direct our efforts to the combination of ZYNLONTA with castuximab in both the second and first-line treatment for DLBCL. This combination offers the opportunity for patients to be treated with a regimen that will be effective, well-tolerated, and straightforward to administer.

This regimen will also address significant unmet needs that persist despite recent advances in other treatments for DLBCL. The phase three [inaudible] in Lotus-5 in second-line DLBCL, is proceeding for patients who are not eligible for stem cell transplant. The safety part of the trial showed good safety and good tolerability, and the data suggest the combination is adequate. Based on this, the randomized phase of the 350 patient trial continues to enroll at sites around the world.

Later this year, we will initiate Lotis-9, a study to evaluate ZYNLONTA in combination with castuximab in first-line DLBCL patients who are unfit or frail. This is a segment of the first -ine DLBCL patient population that is unable to tolerate the full R-CHOP regimen. Our advisors tell us that there is a significant unmet need in these unfit or frail patients. With these patients, there have been no specific advances that take advantage of the new drugs.

Partly because these patients are routinely excluded from clinical trials. We have engaged with physicians and oncology networks who see unfit and frail patients on a regular basis, and there is keen interest to find a new regimen that will be an improvement and an innovation for this population. This quarter, we will also initiate our Lotis-7 umbrella study. Based on strong pre-clinical data, and our interest to develop combinations for ZYNLONTA with new drugs,  this study will allow multiple combination arms.

We will start with the combination of the ZYNLONTA and [inaudible] For a face to load of six trial in relapsed or refractory follicular lymphoma, as a reminder, the comparator ideally served was voluntarily withdrawn from the follicular lymphoma market. The study remains on hold, while we work with our advisors and the FDA on potential next steps. Overall, we remain very excited about the opportunity to expand the uses in ZYNLONTA in first and second lines with DLBCL patients. We are fully focused on the execution of these trials, and we look forward to keeping you updated on their progress.

Turning to Cammy in Hodgkin lymphoma, the 12-month patient follow-up in the pivotal phase two data has been completed. We have submitted the data in an abstract for an upcoming immunology conference. We are in the process of compiling a briefing book in advance of a pre-BLA meeting with the FDA, and we will share our plans for the regulatory submission with you later this year. Now moving on to our solid tumor portfolio.

First, we have our ongoing Cami phase one, the safety and efficacy dose-escalation trial in combination with pembrolizumab in patients with advanced solid tumors. We have completed escalation to 80 micrograms per kg, and are now proceeding to the 100 micrograms per kg dose. While proceeding with escalation, we also started a small dose-expansion cohort at 60 micrograms per kg. This study was designed to allow for expansion and enrollment of a small number of patients at any dose, which activity was observed, so that's what we did.

When we complete the escalation and the optimum dose has been determined, the study will enter a dose-expansion phase. We expect to have data on the safety and tolerability of the combination, as well as signals of efficacy next year. I'm personally very fortunate to be in the position here at ADC, to explore the potential of ADCT-901 targeting KAAG-1. It is a truly novel first-in-class candidate for the treatment of patients with advanced solid tumors.

The dose escalation of the phase one study started at 15 micrograms per kg. We have completed the 30 microgram per kg dose level, and we are now at the flat dose of 4.5 milligrams. We expect to have an initial indication of the safety and tolerability, as well as early signals of anti-tumor activity by 2023. Like any dose escalation program, the exact timing is hard to predict.

Next,we have ADCT-601 [inaudible] our product that it's directed to the surface protein called AXL. This protein is overexpressed in many solid tumors and it's highly prevalent in sarcoma. We expect to initiate the Phase one B in the coming weeks. The study includes a monotherapy arm in patients with whom actual gene amplification is detected and a combination arm with gemcitabine in patients with sarcoma.

In addition to our clinical programs, we have two advanced preclinical solid tumor programs. ADCT-701 targeting DLK-1, which we are developing for neuroendocrine malignancies in collaboration with the National Cancer Institute. Our ADCT-212 program is our optimized second generation, PBD-based ADC, targeting PSMA, validated targets in metastatic prostate cancer. We are currently completing INC-enabling work for both of these programs.

As you can see, we continue to make great progress with our development, and preclinical programs, and we have a robust, and active pipeline. With that, I will turn the call over to Jen to give a financial update. Jen.

Jennifer Herron -- Chief Commercial Officer

Thank you, Joe. And good morning, everyone. As we reported in the press release issued earlier today, ZYNLONTA net sales were $16.5 million for the first quarter, 2022. As of March 31st, we had cash and cash equivalents of $431 million, as compared to $467 million as of December 31st, 2021.

This does not include up to $100 million in potential milestones from our healthcare royalty partners' transaction. During the first quarter, we received the $30 million upfront from Mitsubishi Tanabe for us and launched a Japanese license agreement. We used approximately 34 million in net cash for operating activities in the first quarter of 2022. R&D expenses were $49 million to the first quarter 2022, compared to 39 million for the same quarter 2021.

R&D expense increased for the quarter ended March 31, 2022, as compared to the same quarter in 2021. As a result of our investments in ZYNLONTA trials in earlier lines of treatment and advancing our broad portfolio. Selling and marketing expenses were $18 million for the first quarter of 2022, compared to $14 million for the same quarter 2021. The increase in selling and marketing for the quarter, reflects the expenses for those in ZYNLONTA launch and ongoing commercial efforts, as ZYNLONTA was approved in the second quarter of last year.

G&A expenses were $19 million for the quarter compared to $18 million for the same quarter 2021. G&A expenses increased for the first quarter 2022, as compared to the same quarter in 2021, primarily due to increases in professional fees associated with the Japanese license agreement. That loss was $17 million for the first quarter, compared to a net loss of $52 million for the same quarter 2021. Our diluted net loss per share was $0.22 in the first quarter, compared to a net loss per share of $0.67 for the same quarter 2021.

Adjusted net loss, a measure that excludes certain items, as described in the press release issued earlier today, was $28 million for the first quarter, compared to an adjusted net loss of $57 million in the same quarter 2021. The adjusted diluted net loss per share was $0.36 for the first quarter, compared to an adjusted net loss per share of $0.74 for the same quarter 2021. The decrease in net loss, and adjusted net loss for the first quarter 2022 as compared to the same quarter 2021 was primarily driven by license revenue of $30 million arising from the Mitsubishi Tanabe agreement. These decreases were partially offset by the increase in R&D and selling and marketing expenses I mentioned earlier.

In addition, net loss decreased for the first quarter of 2022, as a result of income arising from a cumulative catch-up adjustment, associated with the valuation of our deferred obligation with healthcare royalty partners. Partially offset by higher interest expense, associated with our Deerfield credit facility and deferred obligations, both of which are excluded from our adjusted net loss. With that, I will turn the call back to Chris for closing remarks. Chris.

Chris Martin -- Former Chief Executive Officer

Thank you, Ameet, Jennifer, Joe, and Jen. To conclude, in the first quarter, we remain focused on executing on all areas of the business, and we are well-positioned to achieve our key objectives going forward. This includes driving the ZYNLONTA launch, working to develop ZYNLONTA in any lines of therapy, continuing to expand our geographic reach, and advancing our pipeline of differentiated ecological and solid tumor programs. I'm looking forward to working with Ameet, and the ADCT-2.

Now the team will be available for questions. Operator?

Questions & Answers:

Operator

Thank you. [Operator instruction] And our first question comes from the line of Matthew Harrison with Morgan Stanley. Your line is open. Please go ahead.

Unknown speaker

Hi, I'm Steve, as  for Matthew. I want to ask for large yield until lunch dynamic. I want to ask about how much impact was for  Omicron versus new patient starts. And have you ever seen inflection in new patient starts in the recent months? Thank you.

Chris Martin -- Former Chief Executive Officer

Thank you. Just Jennifer, do you want to take that?

Jennifer Herron -- Chief Commercial Officer

Yes, certainly. So good morning, and thanks for the question. As we've mentioned, the [inaudible] environment, and both, and the third line plus DLBCL market dynamics have been uniquely challenging. But we're pleased with the progress we've made since the launch of ZYNLONTA through Q1, which is less than a year on the market.

I did mention in my remarks the Q1 headwinds of both the Q4 inventory build and burn, as well as Omicron-related impacts, and it's hard to really separate out the two. We don't get necessarily patient-level data, but we did watch account activity carefully in Q4. I did mention that in Q1, we did not see an inventory build, the inventory levels have normalized. So I think that both those impacts of lower patients, lower level of patients presenting for treatment, as well as inventory build are the result of the Q1 net sales of $16.5 million.

Unknown speaker

I'm sorry. The second part is, have you seen an inflection in your patient starts in recent months.

Jennifer Herron -- Chief Commercial Officer

So at this time, we're not going to comment on Q2. We will be reporting our Q2 results in the August timeframe. We are encouraged, though, by the increased face-to-face interactions that we've seen opening up as we progressed through Q1. We're very excited about the opportunity to fully launch our J-code, which was effective as of April 1st.

Understanding that over time, we'll be able to bring ZYNLONTA to patients in need in the community, as the patient distribution is a little different than in the academic institutions that see a fair number of concentrated saline [inaudible] DLBCL patients. So we're very excited that the ZYNLONTA product profile is holding up in the marketplace as we saw in Lotis-2, and confident that we will be able to establish and launch as a third line standard of care.

Unknown speaker

Got you. Thank you.

Operator

Thank you. [Operator instruction] And our next question comes from the line of Kelly Shi with Jefferies. Your line is open. Please go ahead.

Kelly Shi -- Jefferies -- Analyst

Thank you for taking my questions. My first question is, will they not be able to share information on the breakdown yourselves among the patients who had a prior CAR-T treatment versus like a no prior CAR-T treatment? And my second question is, would you expect the patient to prescribed from community centers, having given a patient a baseline regarding the proportion of patients with prior CAR-T treatment? And if so, should we expect a different the sales ramp up at a community center versus academic centers? Thank you.

Chris Martin -- Former Chief Executive Officer

Jennifer, do you want  to take that? I don't know. Also, Joe might want to comment from the medical side afterwards.

Jennifer Herron -- Chief Commercial Officer

OK. Chris, I'll take the first part, and then I'll ask Joe for his input as well. So Kelly, thanks for your question. We're very excited about the community opportunity.

We do appreciate that on a per physician basis, the concentration of third line plus DLBCL patients is less than we see in the academic centers where we do have concentrated third line plus patients. In terms of your question with regard to prior CAR-T, we don't necessarily have patient-level data so that we could understand their prior therapies or even their future therapies after they received their launch. We have seen a lot of enthusiasm from thought leaders about the post CAR-T setting, because it is an emerging area of high unmet medical need. In the community, what we're excited about is the opportunity to offer our differentiated product profile to patients in the community who perhaps are not CAR-T eligible, or don't want to make the trip to a CAR-T, center because of our differentiate product profile, which has very robust single-agent efficacy, very respectable response rates, including 25% CR with a very fast time to time CR in just six weeks.

And so for patients that want to stay in the community, we do think the latter is the best agent for them in the third line plus setting. So with the J-code, we're excited about bringing ZYNLONTA into the community for patients who need it.

Kelly Shi -- Jefferies -- Analyst

Thank you, super helpful.

Operator

Thank you. [Operator instruction] And I would like to turn the conference back over to Chris Martin for any further remarks.

Chris Martin -- Former Chief Executive Officer

Sorry, operator. I thought you might have someone there. Well, thank you very much for joining our call today. It's been a real pleasure leading ADC Therapeutics over the last 11 years.

And in particular, I would like to thank each, and every one of our employees for their real commitment to the company, and their passion for the science and for serving patients. This has really been at the core of the driving force behind the progress of everything we've done, and will continue to be so, I'm sure. I've also enjoyed working with you and getting to know many of you over the years. I'm delighted to be handing over to Ameet, to lead ADC Therapeutics for the next chapter of our growth, and I'm sure you will enjoy working with him.

So thank you all for your continued support. We look forward to keep you updated on our progress. Have a nice day, everyone. Thank you.

Operator

[Operator signoff]

Duration: 32 minutes

Call participants:

Amanda Hamilton -- Manager, Investor Relations

Chris Martin -- Former Chief Executive Officer

Ameet Mallik -- Chief Executive Officer

Jenn Creel -- Chief Financial Officer

Joe Camardo -- Chief Medical Officer

Jennifer Herron -- Chief Commercial Officer

Unknown speaker

Kelly Shi -- Jefferies -- Analyst

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