2023-12-01 17:42:45 ET
Summary
- ADC Therapeutics (ADCT) is trading well below its cash on hand, underlying its severely poor sentiment from investors.
- ADCT's main molecule, loncastuximab tesirine, has shown positive results in the relapse/refractory setting.
- ADCT has other pipeline projects in development, with data from phase 1 studies expected in the first half of 2024.
Topline Summary and Update
ADC Therapeutics ( ADCT ) is an embattled commercial-stage biotech, dropping well below $1 per share over the past several months based on reports that they would not meet financial guidance coupled with ongoing challenges moving their flagship molecule forward. Considering ADCT continues to trade well below their total cash on hand, they remain at a price level that reduces risk, although this very much depends on how well they're able to continue executing, and that's been a huge question mark for the company.
Pipeline Updates
Loncastuximab tesirine
ADCT's main molecule is loncastuximab tesirine, an anti-CD19 antibody-drug conjugate that is approved in the setting of diffuse large B-cell lymphoma that is relapsed or refractory to prior therapies. I've reported previously about the setback ADCT faced back in July with respect to the LOTIS-9 trial, which was attempting to move the agent into the frontline setting, which would have formed a major pillar of their growth strategy.
Back early September, ADCT gave a look at the findings from the safety run-in portion of the LOTIS-5 study , the confirmatory trial of loncastuximab tesirine in the relapse/refractory setting. In total, 16 of 20 patients treated so far have had an objective response, with 10 of these patients having a complete response.
ADCT is also continuing to enroll patients into LOTIS-7, an early trial combining loncastuximab tesirine with other agents in patients with various forms of non-Hodgkin lymphoma. No results have been disclosed from this trial so far.
Other Pipeline Projects
ADCT has a number of early-stage entities in development, including antibody-drug conjugates targeting AXL, KAAG1, and CD22. These are potentially important for the future pipeline, but at this time they're not at the top of mind when it comes to evaluating ADCT's near-term prospects. The company guides that data from phase 1 studies are expected in the first half of 2024.
Financial Overview
In Q3 2023, ADCT held $310.4 million in cash and equivalents, with other assets adding up to $375.6 million. Net product revenues were $14.3 million for the quarter, down from the $19.3 million in the previous quarter. Total operating expenses were $51.9 million, for a $37.4 million loss from operations for the quarter. The net loss was $47.8 million, which was similar from Q2 2023.
Given this cash and expenses, ADCT has around 6-7 quarters of cash on hand to fund operations as they continue to try ramping up their operations, in line with my previous analysis .
Strengths and Risks
Of course, having an approved drug is the first step toward getting to profitability. However, it's very concerning that the sales volume has dropped so much. ADCT cited competition among other forces driving down the revenue they realized, but it's difficult to discern which of these is the most important. Perhaps it's mostly their refocus of their commercialization strategy, which will resolve itself, and perhaps it's mostly from competition, which will not resolve itself.
On top of that, ADCT announced that they had received notice of non-compliance with NYSE listing standards, threatening their ongoing presence trading on major markets. It's easy to see why there's so little confidence in this equity at this time.
That said, there are things to look forward to. Potential catalysts for the next 6 months could include a turnaround towards sales growth (unclear whether this will happen, so it seems to be priced in that sales will continue to fall), as well as any promising data for their other projects. If ADCT is able to bring their expenses more under control, they have a lot of cash on hand to fund operations until they can hit a significant milestone.
There are also potential surprises if the company decides that it is worthwhile to carry on with development of camidanlumab testirine, which has demonstrated encouraging efficacy in a phase 2 trial that were nevertheless not enough to pursue accelerated approval.
Bottom-Line Summary
In my first article on ADCT, I had a long discourse on what was at significant risk, in my view. Nevertheless, I recommended a tentative buy on the stock based on the fact that they have a good bit of time to right the ship and continue generating catalysts to improve investor sentiment. Sitting at just about $1, this remains true, at least for now. From where they're priced, they continue to be trading at just 30% of their cash on hand.
With a bit of good news, there is a lot of potential fuel for a rally. I don't think ADCT is quite on its last legs, but they do need to provide some kind of guidance on their future direction. There are chances we'll see that in early 2024, and I reiterate my "tentative buy," while encouraging everyone to keep in mind the risks to the loncastuximab tesirine franchise.
For further details see:
ADC Therapeutics: Navigating A Swirling Drain