Legend Biotech - Q4 2023

Transcript

Operator (participant)

Good day and welcome to the Legend Biotech Report's fourth quarter earnings call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this call is being recorded. I'm now going to hand the call over to Jessie Yeung, Head of Investor Relations and Public Relations. You may begin.

Jessie Yeung (Head of Investor Relations and Public Relations)

Good morning. This is Jessie Yeung, Head of Investor Relations and Public Relations at Legend Biotech. Thank you for joining our conference call today to review our fourth quarter and full year 2023 performance. Joining me on today's call are Ying Huang, the company's Chief Executive Officer, and Lori Macomber, the company's Chief Financial Officer. Following the prepared remarks, we will open up the call for a Q&A. We have Guowei Fang, Chief Scientific Officer, and Steve Gavel, Head of Commercial Development for the U.S. and Europe, joining the Q&A session.

During today's call, we will be making forward-looking statements, which are subject to risks and uncertainties that may cause our actual results to differ materially from those expressed or implied here within. These forward-looking statements are discussed in greater detail in our SEC filings, which we encourage you to read and can be found under the investor section of our company website. Thank you. I will now turn the call over to Ying.

Ying Huang (CEO)

Good morning, everyone. We're glad you could join us today because a lot has happened since our last earnings call. First, we're excited at the prospect of bringing our lead therapy, CARVYKTI, to more multiple myeloma patients in Europe. As many of you have heard, CARVYKTI received a positive opinion from the Committee for Medicinal Products for Human Use to expand into earlier lines of treatment. CARVYKTI is the first CAR-T therapy to receive a positive CHMP opinion in the second-line setting for patients with relapse and lenalidomide refractory multiple myeloma. The formal European Commission decision is expected in April. As for the approval of CARVYKTI in the United States in the second-line, we are scheduled to meet with the FDA's Oncologic Drugs Advisory Committee this Friday, the 15th, to answer any outstanding questions they have.

We are preparing for a potential launch in this expanded indication on the PDUFA date of April 5th, and we will, of course, keep you posted. Now, I'd like to turn to other achievements and activities since our last earnings call. Our work to bring CARVYKTI to more patients globally resulted in total net sales for the fourth quarter of 2023 of $159 million. For the full year, total sales for CARVYKTI were $500 million. The increase in our fourth quarter performance versus the third quarter was the result of the ongoing launch of CARVYKTI and share gains from capacity expansion and manufacturing efficiencies. We have now been in the market for seven full quarters, and we are the fastest-launched CAR-T therapy. We anticipate continued quarter-over-quarter growth throughout 2024 as well.

We believe our cash balance of $1.3 billion provides us with financial runway through the end of 2025. In order to serve more patients and meet our revenue targets, we have expanded our supply of lentiviral vectors significantly through a large reactor in Switzerland operated by our partner, Johnson & Johnson. In addition, Johnson & Johnson has another factory under construction in the Netherlands. We also continued to expand our internal manufacturing capacity in partnership with Janssen. Our cell processing site in Ghent, Belgium, called Obelisk, produced the first batches of CARVYKTI for clinical use in January 2024. We hope to start commercial production in the second half of the year. Construction progressed on our second manufacturing site, Tech Lane, in Belgium, and is expected to be complete at the end of the year.

We have increased capacity at our Raritan, New Jersey, facility, doubling cell processing capacity since the beginning of 2023. The increases to our production capacity will help ensure we meet our target of supplying CARVYKTI to 10,000 patients by the end of 2025. I am excited to announce we have a new veteran leader with more than 25 years of experience now overseeing our manufacturing sites.

Our own Birk Vanderweeen has been promoted to Senior Vice President, Global Manufacturing and Technical Operations. Our previous Head of Global Tech Ops, Liz Gosen, has stepped aside from full-time work for personal reasons and is now serving as a senior advisor for us. Birk joined us in 2021 to start our European organization and the manufacturing facilities I just mentioned, the site in Ghent that has just came online and second one under construction.

Before joining Legend, he served at Janssen, Teva, and AstraZeneca. Birk has earned the trust and respect of our global manufacturing teams, and he's already made a big impact. The increase in production capacity enabling us to meet growing patient demand comes in parallel with new data we presented at the American Society of Hematology meeting in December. In an oral presentation, we unveiled data showing improvements in patient outcomes as early as second-line treatment in our pivotal Phase III CARTITUDE-4 study.

The results demonstrated clinically meaningful improvements in health-related quality of life measures and reductions in symptoms following treatment with CARVYKTI compared to standard of care. In other news from the fourth quarter, we continue to bring more hospitals online, and we now have a total of 65 U.S. hospitals certified to treat with CARVYKTI patients. Additionally, about 30% of patients are now administered in the outpatient setting.

Turning to the pipeline, we're investigating the potential of our cell therapies in blood cancers beyond multiple myeloma and also in solid tumors. We have started dosing patients in our DLL3 targeted program, the phase I clinical trial of LB2102 in lung cancer. The armoring used in LB2102 can also be deployed in other pipeline programs if validated in the clinic. After Phase I, Novartis will take over and conduct any further development, including manufacturing and commercial activities. To sum up 2023, we closed the year with accomplishments on several fronts. Now, I'd like to turn the call over to Lori to walk you through the financials for 2023. Lori?

Lori Macomber (CFO)

Thank you, Ying, and good morning, everyone. As Ying mentioned, we generated approximately $159 million in total net sales for CARVYKTI during the fourth quarter, an increase of 189% year-over-year, driven by the progress we have made with ongoing market launches, expanding market share, and capacity improvements. As a reminder, we share equally in all profits and losses of CARVYKTI ex-China with our partner, Johnson. Turning to our revenue, total revenues for the fourth quarter were $79.5 million, consisting almost entirely of collaboration revenue from the sale of CARVYKTI. Net loss for the quarter ended December 31st, 2023, was $144.8 million or a loss of $0.40 per share, compared to a net loss of $135.9 million or a loss of $0.41 per share for the same period last year.

For the year ended December 31st, 2023, net loss was $518.3 million or a loss of $1.47 per share, compared to a net loss of $446.3 million or a loss of $1.40 per share for the year ended December 31st, 2022. Moving on to expenses, collaboration cost of revenue for the fourth quarter 2023 was $32.5 million, compared to $23 million for the same period last year. These are Legend's portion of collaboration cost of sales in connection with the collaboration revenue under the Johnson agreement, along with expenditures to support the manufacturing capacity expansion. Research and development expenses for the fourth quarter 2023 were $105.7 million, compared to $80.8 million for the same period last year.

The increase of $24.9 million for the three months ended December 31st, 2023, compared to three months ended December 31st, 2022, was primarily due to continuous research and development activities in cilta-cel, including higher patient enrollment for Phase III clinical trials for cilta-cel and an increase in research and development activities for other pipeline items. Administrative expenses for three months ended December 31st, 2023, were $28.7 million, compared to $26.7 million for the same period last year. The increase of $2 million year-over-year is primarily due to the expansion of administrative functions to facilitate continuous business growth and continuing investment in building Legend Biotech's global information technology infrastructure. Selling and distribution expense for three months ended December 31st, 2023, was $33.7 million, compared to $25.8 million for the same period last year.

The increase was $7.9 million year-over-year due to costs associated with the commercialization of CARVYKTI. To summarize, our spending remains on track, and we continue to maintain a strong balance sheet. As of December 31st, we had $1.3 billion in cash and equivalents, deposits, and investments. Additionally, as we enter the new year, we received $100 million upfront payment in early January in connection with our global license agreement with Novartis for certain CAR-T therapies targeting DLL3. Thus, we believe we have sufficient capital to fund our operating and capital expenditures through the end of 2025. Thank you. I now pass it back to Ying for closing remarks.

Ying Huang (CEO)

Thank you, Lori. 2023 was an impressive year for Legend. CARVYKTI has proven to be the fastest-launched CAR-T therapy. The achievements of our global teams have set us up for great success in 2024, and we're poised to provide more therapy to even more patients around the world. I want to thank each of our 1,900 employees for their commitment and dedication to Legend. And with that, we'd like to take your questions. Operator, we're ready for the first question.

Operator (participant)

Thank you. If you'd like to ask a question, please press star one one. If your question hasn't answered and you'd like to remove yourself from the queue, please press star one one again. Our first question comes from Jessica Fye with J.P. Morgan. Your line is open.

Jessica Fye (Managing Director and Equity Research Analyst)

Great. Good morning. Thanks for taking my questions. Question on supply, and I appreciate the color and prepared remarks. I know you put the year-end 2025 target out there for, I think, 10,000 doses. Do you have a year-end 2024 target you could share? And if not, I guess, just what's the right way to think about, for example, the manufacturing step-ups you're going to ask the FDA to grant this year? Thank you.

Ying Huang (CEO)

Hey, Jess. This is Ying. Thank you for the question about manufacturing. So I'll take that one. We did mention in the beginning of last year that our goal is to provide a combined global supply of 10,000 doses per year when we exit 2025. Beyond that, we're not providing any guidance on 2024 manufacturing scale-up. But I can tell you that, Jess, if you look at last year, we applied for FDA approval for two capacity increases in our site in Raritan, New Jersey, and we did successfully achieve both approvals from FDA. This year, our plan is the same. That is, we are planning additional two capacity increases that we plan to request FDA. So that's the same cadence as last year. That's the plan for 2024.

Jessica Fye (Managing Director and Equity Research Analyst)

Thanks.

Operator (participant)

Thank you. Our next question comes from Jonathan Miller with Evercore ISI. Your line is open.

Jonathan Miller (Equity Research Analyst)

Hi, guys. Thanks so much for taking the question. I'd like to ask about your early pipeline, both beyond DLL3 and that armored CAR. What can investors look forward to? And even if you're not specifying targets, can you give us a little bit of color about whether your choices are likely to be familiar to folks, will be familiar targets, or if these are new places to go looking for CAR? And then separately, do you have any plans to get into the autoimmune space, like so many of your peers?

Guowei Fang (Chief Scientific Officer)

Thanks, Jonathan. This is an important question. Yeah. So on the target front, some of our pipeline targets are known ones. Others are novel ones. I probably can provide some high-level thinking about where we're heading towards for our internal pipeline. We have a few priorities. First is to really try to build the multiple myeloma franchise, especially for patients post-CARVYKTI treatment. So in that space, we are targeting some of the known targets as well as novel targets currently under research and development.

We're using a fairly diverse platform, both autologous as well as allogeneic approach. Second priority we have is really focusing on the autoimmune disease indication. We see this is an emerging area with great opportunities. In this space, I think a differentiated approach is critical. Our internal focus at this point primarily is on the allogeneic approach, and we also have a program in autologous space, but really focusing on the differentiation, focusing on the value. Those differentiated approaches can bring to the patient, bring to the treatment setting.

We also have some investment in the solid tumor space where we are focusing on some of the key hurdles associated with disease states, disease pathology, for example, target expression, heterogeneity, normally commonly associated with solid tumor disease indication, which is the major limitation of the duration of therapy from the current format. So there we are investing on the key technological innovation to address the solid tumor target expression heterogeneity and hope to generate a bystander cytotoxicity effect and therefore be able to extend the PFS, the benefit of the treatment. So those probably would be just a high-level summary. Thank you for the question.

Jonathan Miller (Equity Research Analyst)

Thanks so much. And then one follow-up, if I may. I noticed your burn here at about $103 million a quarter. Looks like you're not, and your runway guidance to end of 2025. It seems like you're not guiding for a lot of improvement in burn rate or any improvement in revenue is offset by corresponding increases in spend. Is that a fair way to think about it?

Lori Macomber (CFO)

That's correct. If you take a look, being conservative, saying cash can runway through the end of 2025, it's really going to be dependent upon our pipeline and how our pipeline advances. But we do believe, as it stands today, we're comfortable with our cash balance. We'll bridge with profitability for the BCMA program.

Jonathan Miller (Equity Research Analyst)

All right. Thank you so much.

Operator (participant)

Thank you. Our next question comes from Ziyi Chen with Goldman Sachs. Your line is open.

Ziyi Chen (Managing Director and Equity Research Analyst)

Thank you for taking my questions. For the upcoming ODAC meeting on Friday, so could you share a bit more about the cut-off day for those data to potentially share with the committee? And also for the OOS data for the as-treated group which was shared in 2023-ish, which showed a very strong OS benefit compared to ITT group. So we'll discuss including as-treated group as well. So which group would like to be more important per your previous communication with the regulators? And also, we're trying to understand about your initial thoughts on the European countries' launches. So any incremental updates on the launch and any preliminary strategy on that? Thank you.

Ying Huang (CEO)

Hey, Ziyi. This is Ying. I'll take your first question around ODAC. So at this point, I can tell you we submitted three data cuts to the FDA and also EMA on overall survival because we were told by the FDA that the focus of the upcoming ODAC on March 15th will be overall survival. So as you mentioned, the first data cut was submitted in the BLA in June of last year, and that was part of the first pre-specified interim analysis with a data cut on November 1st, 2022. And then as part of the day 120 safety update we submitted to the FDA in October of last year, we put in another update on survival from CARTITUDE-4. That was with a data cut of April of last year.

And then most recently, on January 7th, we submitted the latest survival data from CARTITUDE-4 with a data cut of December 13th of 2023. So those are the three different overall survival analyses we provided to the FDA. And those are three data cuts that will be discussed on Friday by ODAC as well. In terms of ITT versus as-treated, I can tell you that all our data analysis on the survival benefit was provided on the basis of intention to treat, ITT, and that is the all-cause mortality analysis, which is the most conservative scenario here. We do not plan to submit to the agency the data of survival on the basis of as-treated. So that answers your question about ODAC. And then I'll ask my colleague Steve to comment on the European launch given the most recent CHMP opinion.

Steve Gavel (Head of Commercial Development for the U.S. and Europe)

Yeah. Thanks. Thanks, Ying. A couple of things just to remind the listeners that our partner is responsible for CARVYKTI's launch planning outside the United States, and with the exception of China. As far as Europe goes, as Ying mentioned and maybe I don't think you did mention. We are currently in Germany with CARVYKTI as well as Austria, and Austria came on board in December of last year. The intention - and this is through our partner - I know our partner is in active negotiations currently around our new CARTITUDE-4 data. So in terms of guiding in terms of the country launch planning, we don't have anything yet to guide because I know this is a pretty fluid environment right now with the agencies in Europe and our partners. So unfortunately, I can't guide you at this point in time.

Ziyi Chen (Managing Director and Equity Research Analyst)

Got it. Thank you, Ying and Steve.

Operator (participant)

Thank you. Our next question comes from Yaron Werber with TD Cowen. Your line is open.

Jana Zinn (Managing Director and Head of Corporate Access and Advisory)

Hi. This is Jana on for Yaron. Thanks for taking our question. I kind of wanted to ask about Parkinsonism, which is seen more with CARVYKTI than other CAR-Ts. Why do you think CARVYKTI uniquely produces Parkinsonism? And also, we spoke to KOL, who said that it can have pretty irreversible effects. So do you think that this is going to deter use in earlier line settings, especially if competing CAR-Ts don't show this? Thanks.

Ying Huang (CEO)

Hey, Jana. This is Ying. I'll take your question on Parkinsonism. Well, first of all, if you look at the data that's both in clinical trials and also from the FDA AERS database, this phenomenon of Parkinsonism is not unique on CARVYKTI. In fact, it was reported from patients who were taking YESCARTA, KYMRIAH and also ABECMA. And so far, as of end of last year, we could see about seven cases reported in the FDA database from the U.S. patients. So that's the number. That's actually the fact. With regard to why we're seeing this kind of delayed Parkinsonism, I would say there's a couple of hypotheses out there.

For example, it could be because of the T-cell trafficking into the CNS or in the brain when the patient has a leaky blood-brain barrier after years of therapy or if the patient already had preexisting neurologic situations such as neuropathy. So that could be one of the hypotheses. Although at this point, I don't think there's any solid clinical evidence to show which is the root cause of our Parkinsonism.

Regarding your question on Parkinsonism in the earlier lines, as we reported at ASCO, given the risk mitigation strategies we implemented following the six cases reported from CARTITUDE-1, we were able to show that the incidence of Parkinsonism was going down from about 6% in CARTITUDE-1 to about 0.5% in CARTITUDE-4. And that was a Grade 1 case we reported at ASCO. We believe that if you look at the earlier-line patient population, because of the risk mitigation and also potentially because of the patient baseline difference, we think that is an entirely manageable phenomenon here. Thank you.

Operator (participant)

Thank you. Our next question comes from Kelly Shi with Jefferies. Your line is open.

Dave Windley (Managing Director and senior Equity Research Analyst)

Hi. This is Dave on for Kelly Shi. Congrats on the progress. I have a couple of questions. One is, as multiple BCMA agents are available now, have you received any feedback from physicians on how does they position CARVYKTI versus other treatments? Also, on sales, when do you expect to provide sales guidance? Although you mentioned J&J will be responsible for outside U.S., any color on when should we expect to record the first revenue in other countries in the E.U. and Japan? Thank you.

Steve Gavel (Head of Commercial Development for the U.S. and Europe)

Why don't I take the last question around sales? So as far as the EU and Japan, I mentioned that we're already in Austria and Germany. And unfortunately, because of negotiations being ongoing, we can't comment on what country may be up next in Europe. And that includes Japan, for that matter. I think your other question had to do with selection of CARVYKTI in terms of patient type.

What we're seeing, obviously, right now within the U.S. and in Europe in the fifth-line plus setting here in the states I mean, as Ying mentioned in his opening remarks, we're running about an 80% market share in sites where we are basically competing against Abecma. So I think that speaks volumes in terms of preference, in terms of positions. And it's in all risk categories, whether it be standard risk or in high risk.

I think where you see some other product use around bispecific use is when potentially CARVYKTI may not be available or if a physician wants to bridge to a CAR-T therapy, you're seeing some uptick for sure in the bispecific space. I think that has in terms of market erosion, where you've seen it, at least in the research that we're doing, is you're seeing the market erosion occurring with the Abecma when a bispecific is used in front of a CAR-T therapy as opposed to cilta-cel.

Ying Huang (CEO)

Hey, Dave. I'll take your first question. I think it was on label update. So I'll provide answers in two respects. Number one is that you're all aware that in late last year, we did receive an official label update that includes the two-year minimum follow-up of the CARTITUDE-1 in late-line multiple myeloma. And with that, FDA also included label update on AML and also MDS. So I want to provide a little bit of clarification on this. So if you look at the total of 97 patients from CARTITUDE-1, we saw nine patients with 10 cases. If you look at the cumulative rate of AML/MDS, it's roughly 10%. But recall, this trial was started back in 2019. So essentially, in the last five years, the cumulative rate of AML/MDS is roughly 10%.

Now, there was a paper that was published in ASH December of last year, which looked at insurance claims database over 1,000 patients who were triple-exposed, which means these patients have been treated with triple classes, including one drug from IMID class, one drug from proteasome inhibitor, and then one drug from CD38 antibody. So if you look at that patient population, even without any treatment, the background rate of developing MDS or AML is roughly 3% each year.

Therefore, if you look at the data from CARTITUDE-1, we don't believe that is actually higher than the background rate. We already got the label update on AML and MDS. Now, regarding the second one, as you guys all saw from the public communication from the FDA, all six brands of CAR-T therapies will receive a label update on T-cell lymphoma.

FDA believes this is a class effect, so everyone will get similar or the same language. Right now, we and J&J are in discussion with the FDA about exact language of the label update. Suffice to say that given the 23 cases reported from the FDA and also the denominator is over 27,000 patients who were treated with those six brands and some clinical trial patients, it is a small and rare risk. We think we'll get the label update in the near future. You also have a question about feedback from physicians on how they think about CARVYKTI versus other novel therapies. I think we have been in touch with physicians and KOLs since ASH. At this point, we have not seen any prescription behavior that's changed based on either T-cell lymphoma or AML/MDS label change.

If you look at efficacy, physicians continue to believe that CARVYKTI provides best-in-class efficacy with nearly three years of PFS in late-line. Then also, again, if you saw the results from CARTITUDE-4 compared to standard of care such as DPd or daratumumab, pomalidomide and dexamethasone, we saw a 74% risk reduction in progression of that. And you will see on Friday how CARVYKTI has helped those patients in survival as well. So at this point, I think it's still positioned as best-in-class efficacy with the one-time injection convenience. That is how physicians view CARVYKTI. Thank you.

Dave Windley (Managing Director and senior Equity Research Analyst)

Thank you.

Operator (participant)

Thank you. Our next question comes from Leonid Timashev with RBC Capital Markets. Your line is open.

Leonid Timashev (Equity Research Analyst)

Hi. Yeah. Thanks for taking my question. I also wanted to ask on the ODAC, and I guess specifically, how are you thinking about competitive implications coming out of that meeting? I guess with regards to the drug you're going to be sharing the committee with, do you think any setbacks for them are going to be a positive for you as there's less market splitting, potentially less competition? Or do you think if they succeed, that's going to be helpful given that they can drive greater awareness? And I guess, is there any risk of the CAR-T space broadly being painted with the same brush depending on what the competitor presents? Thanks.

Ying Huang (CEO)

Thanks, Leo, for the question. So I think if you look at the Federal Register of publications, you will see even though it's the same roster of ODAC, but it's actually two different panels. On the morning of March 15th, ODAC will discuss the application from us on the second-line indication for CARVYKTI. And then in the afternoon, same ODAC roster of KOLs and experts will discuss the application from our competition in the third-line application.

So I think it is a separate panel. It's not necessarily a panel on the CAR-T class. And I believe each application will be discussed and also debated by the KOLs and also the agency on its merit. So I can't comment on our competition's application and also the data, but we firmly believe that CARVYKTI provides overwhelming benefit in the PFS and also overall survival endpoints here.

So that's what we can say about this. And if you look at CAR-T as a class in general in late-line multiple myeloma, clearly, the class of therapy has provided a new option for patients who have been treated and also failed all major classes, including an IMID, a proteasome inhibitor, and also a CD38 antibody. At that point, these patients really did not have much choice besides the BCMA-directed agents. So we firmly believe that there's a very important place for BCMA-directed CAR-T in the treatment of multiple myeloma here. Thank you.

Operator (participant)

Thank you. Our next question comes from Vikram Purohit with Morgan Stanley. Your line is open.

Vikram Purohit (Equity Research Analyst)

Hi. Good morning. Thank you for taking our questions. We had two, one on the pipeline and one on commercialization. So on the pipeline, for the CARTITUDE study, we were just curious what your latest thoughts were on timing for data from cohorts E and F. And then on commercialization, you mentioned that around 30% of patients are administered CARVYKTI in the outpatient setting. How high do you think that could go kind of in the near to mid-term? And what do you think facilitates greater use in the outpatient setting if you think that's a number that can move up significantly in the near term? Thanks.

Ying Huang (CEO)

Hey. Good morning, Vikram. So I'll take the first question on CARTITUDE cohort E and F question, and then my colleague, Steve, will probably answer on the second. So on CARTITUDE cohort E and F, as a reminder, we enrolled a total of roughly 60 patients in cohort E and F, and these are newly diagnosed multiple myeloma patients. So we're not providing any guidance. But at this point, I think the earliest timing when we can report data probably will be towards the end of this year. And as you know, Vikram, we always report data at major medical conferences. So that's what we can say about timing for cohort E and F. Steve?

Steve Gavel (Head of Commercial Development for the U.S. and Europe)

Yeah. Thanks, Steve. Yeah. The outpatient metric is an important metric, especially as we stand into earlier lines with much larger patient populations. So to the question about what's causing the increase, I mean, there's a number of things that are driving outpatient use in the United States. One, as I mentioned, just around volume itself, our sites are recognizing the fact that they need to look at other options other than admitting all these CAR-T patients into their hospitals. In terms of what are we assuming I mean, like you said, we are at a 30% share today, roughly. I think we could easily double that. I think the issue or rate limit around the doubling of the outpatient metric would be largely on our ability to get product into market. It's very clear with our sites.

Our sites that have been with us since the very beginning. They have much higher outpatient uses or rates than 30%. As new sites come on board, and we're hoping to get pushing to around 100 this year, sites just need to have patient reps, quite frankly, to ensure that what they're seeing in the global setting from a safety perspective is consistent to that of the label. So it's really right now just a matter of getting product into the hands of physicians and allowing them to use this drug to get comfortable with it and then also put the necessary infrastructure that they need to put in place for outpatient use.

Vikram Purohit (Equity Research Analyst)

Very helpful. Thank you.

Steve Gavel (Head of Commercial Development for the U.S. and Europe)

Sure.

Operator (participant)

Thank you. Our next question comes from Kostas Biliouris with BMO Capital Markets. Your line is open.

Kostas Biliouris (Senior Equity Research Analyst)

Thanks for taking our questions and congrats on the progress. A couple of questions from us. So the first one is around the 10,000 slots by year-end 2025, which is great to see again. I'm wondering, how should we be thinking beyond 2026? Is there any saturation of the slots you can produce, or you can potentially even double these 10,000 slots that you are guiding in the future if there is enough supply?

And the second question is on CARTITUDE-4 data. If I recall correctly, last year, you showed that during the bridging phase, the CARVYKTI arm had more events than the standard of care arm, although both arms were under standard of care. I recall that there was not really any characteristic between the two populations that could explain this difference. I'm wondering if there is any update on this front. Thank you.

Ying Huang (CEO)

Hey. Good morning, Kostas. This is Ying. I'll take your question. So on the first one regarding the 10,000 slots by end of 2025, obviously, we and our partner, J&J, have plans to extend beyond that 10,000 capacity because we do see that there will be quite significant demand once the drug is approved in the second line and beyond. So I would say we cannot provide any specific guidance on which year. But I can tell you, given the roughly $1 billion CapEx program we are conducting now, we think with certain incremental investment, we can actually get to a larger number in the near future after 2026. Now, of course, there's a limit of what we can do with this current round of CapEx. So we and our partner already are thinking about the next step.

In fact, a decision could potentially be made this year in 2024 whether we need to conduct another round of CapEx or not. It all depends on, obviously, regulatory approvals and also the market assessment based on the feedback from physicians. So we do surveys of physicians from time to time based on latest clinical data and also the competitive landscape. And you guys can stay tuned on our CapEx plan here. On your second question on the initial imbalance of PFS events in the first couple of months when both arms of the CARTITUDE-4 patients are receiving exactly the same, either bridging therapy on the CARVYKTI arm or the standard of care in the control arm, we and our partner have tried exhaustively to look at all these subgroup analyses and also baseline characteristics.

In fact, Kostas, I can assure you that that was a question from regulators because we did have the SAGO meeting in February when EMA conducted that committee to look at CARTITUDE-4 data. That was a key question. I can tell you that after the exhaustive analysis, the only thing we found was that there's a slight imbalance on the dosing density for a couple of standard of care regimens, including some dose difference in Pomalyst and then some dose difference in Velcade. You guys will see that on the briefing book. I believe that will be published on Wednesday. That's the only difference we could have seen. Now, does that difference in dosing density of Pomalyst or Velcade account for the imbalance in the first couple of months? Unfortunately, it's a post-hoc analysis. It's difficult to conclude that.

But that's pretty much the only thing we could find out. And that is also why after looking at all the data, as you see, Kostas, we did receive a very clean label from CHMP recommendation, right? If you look at the document, it says that CARVYKTI is recommended for second-line treatment of multiple myeloma after the patient has received one line of treatment. That includes an IMID and also a proteasome inhibitor. And also the patients are refractory to Revlimid. That's exactly the enrollment criteria for CARTITUDE-4. And that's a clean label we got from Europe. So that hopefully gives you a hint. Thank you.

Kostas Biliouris (Senior Equity Research Analyst)

Super helpful. Thank you.

Operator (participant)

Thank you. Our next question comes from Ashwani Verma with UBS. Your line is open.

Ashwani Verma (Equity Research Analyst)

Hi. Thanks for taking our question. So in terms of the build to get to 10,000 annual doses exiting 2025, by our math, you'll need slot expansion of roughly 30% every six months to get to those levels. Does that align with your thinking? And then how much of the 10,000 doses are you expecting Europe to contribute? So that's one. And then secondly, can you comment on the European pricing in the long run? Would it trend more towards where U.S. pricing is, or is there any different dynamic at play there? Thanks.

Steve Gavel (Head of Commercial Development for the U.S. and Europe)

Yeah. Maybe I'll take the last question first, and I'll turn it over to Ying to talk about some of the manufacturing questions you had. Yeah. In terms of the European pricing, you're going to see some guidance coming out shortly related to Germany pricing. So I would expect to see that by the end of the month, possibly filling into the early part of April. So stay tuned on that. Ying, do you want to talk about the manufacturing questions?

Ying Huang (CEO)

Yeah. So Ash, let me talk about how we plan to get to that 10,000 number by end of 2025. So first of all, we have three internal notes, right? In Raritan, like I mentioned earlier in this call, we already got two increases in capacity last year, and we're planning something similar this year. And we'll continue to do that in the year of 2025 as well. So that's part of that. But beyond that, we and J&J are doing actually the physical expansion of the Raritan site. So essentially, after this physical construction is done this year in 2024, we're doubling our effective area of manufacturing in the Raritan site.

So that will also figure into the capacity increase in the year of 2025 because once the physical construction is done this year, we'll spend months installing the equipment, training the staff, and then get all the suites validated on the current GMP standard. So that's an important part of the Raritan increase, right? And then let's talk about the two other sites in Belgium.

So the first one, it's called Obelisk, which is a standalone building released. That started clinical batch production in January, and our plan is to bring that site to commercial production for European demand by end of this year. So towards the end of this year, we'll have another commercial site at Ghent. And then the much larger facility called Tech Lane, which is roughly 240,000 sq ft by design, the physical construction will be done by end of this year.

So our plan is to bring that Tech Lane facility to clinical production early next year. And again, in the second half of 2025, that Tech Lane facility will enter into commercial production mode. So those are the three internal notes. And those are very important cornerstone strategies, how we can get to that 10,000. Now, beyond that, you guys all know we executed a three-way agreement with Novartis last year.

It was for three-year clinical supply. Right now, we're expecting Novartis to file for IND potentially first half of this year. And after that, pending the FDA approval of the IND, Novartis will start to produce clinical trial material for us. So that external CMO strategy is also an important pillar of our strategy to get to that 10,000. So all this combined, by end of 2025, we're on track at this point to get to that 10,000-dose annual capacity.

Ashwani Verma (Equity Research Analyst)

Thank you.

Ying Huang (CEO)

Oh, and last, I think, Ash, you asked about the revenue split. Obviously, it's way too early for us to comment because right now, whatever revenue we generate for CARVYKTI from Europe, it's all really by allocation because there's only so much capacity we could allocate to Europe. But in the future, once we have enough capacity to satisfy demand from both U.S. and European demand, then if you look at some of the prior CAR-T revenue split, it's usually roughly maybe 50/50, slightly favoring the U.S. And then the ex-U.S., especially European revenue, is just shy of 50%. So we think that should be the same dynamic for BCMA CAR-T in myeloma.

Operator (participant)

Thank you. Our next question comes from Edward Tenthoff with Piper Sandler. Your line is open.

Edward Tenthoff (Managing Director and Senior Biotechnology Research Analyst)

Great. Thank you very much for taking my question. And I appreciate all the good color and the update today. Congrats on all the progress. So my question really has to do with kind of second-line plus utilization. How do you envision physicians prioritizing patients assuming label expansion? Do you think that we'll see CARVYKTI use move earlier line, as evidenced by the kind of superior results that we saw from CARTITUDE-4? Is it really going to be up to the sites, how they're allocating CARVYKTI? Any color on your early thoughts on that would be appreciated. Thank you.

Steve Gavel (Head of Commercial Development for the U.S. and Europe)

Yeah. Why don't I take that since we just had some data readout specific to that question? So if you step back and look at the myeloma population segmented by standard risk versus high risk, that's how we do it. And if you assume that of that high-risk population, they represent about 25% of the total. And that's pretty consistent across all lines of therapy. What our data is showing and we ran some research right after last year's ASCO when we released this data, and we actually just reran it recently. And it's been fairly consistent. So based upon the results that Ying was sharing earlier in terms of our CARTITUDE-4 data, we're seeing for sure that 20%-25% high-risk group moving over or physicians going very quickly with CAR-T therapy like cilta-cel up front in second line.

And then we're also seeing, and this was a bit of a change, which was a positive change for patients, is yes, even within the standard risk population, physicians have said that they see them moving forward with CARVYKTI in standard risk in second line plus that population as well. So that's quite exciting. Now, as you know, that's quite a sizable patient population for us. But that data, like I said, is fairly fresh now. We just had that readout here in the first quarter. I guess the last maybe tidbit of information, just real quickly, is the new dynamic that this launch represents is the referral dynamic, especially in the standard risk group.

So, as opposed to our CARTITUDE-1 launch, which was pretty much most of those fifth-line plus patients were already within our hospitals, through our partner, and our partner is fully staffed, trained, up, and ready to go, they'll be pushing from a referral front in the outpatient setting, where most of these standard risk patients are today, to refer those patients that are CAR-T eligible to our site. So that's the only, I would say, added wrinkle to the second-line plus indication, is really this active engagement in terms of referral from the outpatient clinics into our hospitals.

Edward Tenthoff (Managing Director and Senior Biotechnology Research Analyst)

Great. Super helpful call. I appreciate it. Good luck this week.

Steve Gavel (Head of Commercial Development for the U.S. and Europe)

Thank you.

Operator (participant)

Thank you. Our next question comes from Justin Zelin with BTIG. Your line is open.

Justin Zelin (Director and Senior Biotechnology Analyst)

Thanks for taking the question, and congrats on the progress. Ying, I wanted to ask if you could give us an update on the out-of-spec rate that you're seeing and your confidence on the FDA's widening of the out-of-spec window with the most recent submission? Thanks.

Ying Huang (CEO)

Hey, Justin. Thanks for the question. So I think what I can say is that in the last nine months or three quarters also, the Out-of-Spec rate has been quite stable. Like we mentioned, it's in the teens range. So at this point, we are seeing a very stable trend of OS. And the next leg up would be pending the FDA approval. We hope we'll get a wider release back. And then we hope to have another significant reduction in the Out-of-Spec rate.

Now, regarding the FDA approval, so as you know, Justin, we did submit it in the supplemental BLA in June of last year, asking the FDA to widen our release back based on the clinical data we received from CARTITUDE-4 data. So we provided a wealth of what I call the sensitivity analysis by correlating the release spec with the clinical outcome. At this point, we are still confident that we should be able to receive the wider spec. But we don't comment on detailed interaction with the agency. You're going to have to wait and see when we receive the FDA approval. Then we'll let you guys know what kind of the regulatory action the agency has taken. Thank you.

Justin Zelin (Director and Senior Biotechnology Analyst)

Thanks for taking my question.

Operator (participant)

Thank you. Our next question comes from Mitchell Kapoor with H.C. Wainwright. Your line is open.

Mitchell Kapoor (Director and Senior Biotechnology Analyst)

Hey, everyone. Thanks for taking the questions. I have two. The first one is kind of on the strategy of moving into earlier lines. Knowing that you'll undoubtedly treat patients who would have otherwise been treated in the later line setting, can you kind of help us contextualize the true additional expansion opportunity of moving into earlier lines? And then the second is on the strategy of the sales force messaging, assuming a new approval in the earlier line setting. With new accounts, do you expect to ask the physician to potentially put patients on CARVYKTI in later lines first and then move to earlier lines? Or would you initially ask them to begin their patients in earlier line setting? Thank you.

Steve Gavel (Head of Commercial Development for the U.S. and Europe)

Yeah. Thank you, Steve. Thanks for that question. That's a good one. So we will be obviously, we'll be in launch mode with CARTITUDE-4. So we will be messaging hard, obviously, the new indication, the second-line plus nature of it, and all the patients that meet that eligibility criteria. So we will be, really, from a messaging perspective, really dominating our message here on CARTITUDE-4 and second-line plus. As far as the eligible patient population, I could actually give you some numbers here that may help you.

And these are patients, these are global numbers that meet the eligibility criteria, not necessarily a treated population, but at least the patients that are eligible. This may help with some of your math in your modeling. So in the front-line setting, this is a global number. We foresee about a 22,000 patient opportunity globally. CARTITUDE-4, there's about a tripling of that, moving to 60,000 by 2026, around the same number, 20,000-28,000. So hopefully, that'll give you some perspective in terms of an incremental impact as we go into earlier lines.

Mitchell Kapoor (Director and Senior Biotechnology Analyst)

Great. Thank you. You got it.

Operator (participant)

Thank you. Our next question comes from George Farmer with Scotiabank. Your line is open.

George Farmer (Equity Research Analyst)

Hi. Good morning. Thanks for taking my questions. You guys mentioned 80% market share of CARVYKTI in multiple myeloma versus Abecma. Can you comment on what's driving that decision for physicians to use Abecma even in the first place? And do you think that can improve? And then second question, maybe I missed this. Are you still guiding for profitability in 2026?

Steve Gavel (Head of Commercial Development for the U.S. and Europe)

Hi. This is Steve again. We had a little mechanical difficulty on our end. Could you repeat that first question? I think the question was related to an Abecma and an Abecma use.

George Farmer (Equity Research Analyst)

Yeah. So you guys said you had 80% market share, right? And just wondering what's driving that decision to even use an Abecma, do you think, and over CARVYKTI? And can you improve upon that? And then the second question had to do with profitability in 2026. Is that still a message you guys are communicating?

Steve Gavel (Head of Commercial Development for the U.S. and Europe)

Sure. I'll take the first one. Are we connected now, guys? Sorry, guys. We're having some Wi-Fi problems, I think, on our end here. Can you guys hear me okay on your end?

George Farmer (Equity Research Analyst)

Yes.

Steve Gavel (Head of Commercial Development for the U.S. and Europe)

Okay. Good. Okay. I think the first question had to do with, once again, a Abecma use and why even bother using a Abecma. I think what's happening here - and this is the research now speaking - is there's still a large number of patients in the fifth-line setting that we just, quite frankly, can't satisfy yet. So therefore, thankfully, there's another CAR-T therapy available, and you're seeing a Abecma use in that setting. It's that simple.

The other thing to think about, and in the United States, we don't have mirroring territories or commercial maps, so to speak. We're not all in identical centers. So in some centers where Abecma is, obviously, they're the only CAR-T in town that are going to get a Abecma. But that doesn't happen very frequently. So that is the other area where you might see some of Abecma use just in terms of their commercial footprint being a bit different than us. Or you want to talk about profitability?

Lori Macomber (CFO)

Sure. So the messaging is still consistent with profitability to 2026. We've talked about bridging to profitability for the BCMA program. What's going to be critical there is our penetration into earlier lines of therapy and kind of our uptake down to revenues and continuing to drive our COGS down. And then the other component of that is really I talked about earlier is our pipeline advancement. So by 2026, we are projecting that we can break even or be profitable from an overall company perspective.

George Farmer (Equity Research Analyst)

Great. Thanks very much.

Operator (participant)

Thank you. Our next question comes from Gena Wang with Barclays. Your line is open.

Gena Wang (Managing Director and Senior Equity Research Analyst)

Thank you for taking my questions. Sorry, I'm dialing late, so apologize if those questions are already being asked. So our first question is regarding I think you mentioned that in the past, by the end of 2025, your capacity can reach 10,000 doses. And what would take for you to reach 20,000-25,000 doses, and how long would that take? And then second question is regarding ODAC later this week. So maybe if you can share what kind of data you submit to the FDA, and do you expect some discussion regarding the toxicity profile, such as a neurotox?

Ying Huang (CEO)

Hey. Good morning, Gena. This is Ying. I'll take your question. So on the first one, I think I've commented previously that with this current round of very extensive capital investment between us and our partner, J&J, we think we can go beyond that 10,000 and potentially go to a number as you quoted. It'll take some incremental investment, and it'll take probably another couple of years to get there. But at this point, I would rather not share any details around that. Just suffice to say that, yes, we'll go beyond 10,000 with this current round of CapEx and also potentially help from our external partners on the CMO side. So that's the answer for your question, the first question.

And then the second one regarding ODAC, I can tell you that it's very clear from the FDA communication in writing and also verbally that the focus of the ODAC will be discussing the overall survival benefit CARVYKTI provides in this patient population evaluated in the CARTITUDE-4 study and in the context of some early imbalance, which you have seen from the PFS curve, right? So that's really the focus of the ODAC here in terms of what they're focusing on.

Now, I'm sure it's a 4-hour ODAC session. And in any ODAC meeting, they always talk about the overall risk-benefit. And that probably will touch upon also some of the adverse events, including CRS, neurotox, second primary malignancies. But like I mentioned again, the survival is the focus. The survival benefit is the focus, not the SPM issue or the neurotox issue at this point based on what we heard from FDA. Thank you.

Operator (participant)

Thank you. Our next question comes from Kelsey Goodwin with Guggenheim. Your line is open.

Kelsey Goodwin (VP and Senior Equity Research Analyst)

Oh, hey. Good morning. Thanks for taking my questions. First, I guess, how should we think about the first quarter 2024 sales given kind of the step-up in the back half of 2023 and likely not being fully recognized given the fourth quarter sales that we saw? And then secondly, on the ad comms. So given both are on the same day and crossover is obviously a main focus, could you remind us the rationale for not allowing crossover in CARTITUDE-4? And do you think that that might be a hang-up for the FDA in any way? Thank you.

Lori Macomber (CFO)

For quarter-over-quarter growth, we're not giving specific guidance, but I can tell you we do anticipate quarter-over-quarter growth with more pronounced growth in the second half of the year with the anticipated launch into the second-line setting. Ying, I don't know if you want to talk about crossover?

Ying Huang (CEO)

Sure. So thank you for the question, Kelsey. As you know, there's some difference between the two trials. And in the CARTITUDE-4 study, we did not allow crossover, which means we did not provide the patients who progressed on the standard of care to crossover to cilta-cel once they progressed. However, once the patient progresses on the standard of care, they can actually get any commercially available therapy, including the two commercially available CAR-T therapies and also the commercially available bispecifics. And also, they can enroll into clinical trials.

So you will see some of the details on Wednesday when the briefing book comes out, what those subsequent therapies those patients received. But I can tell you, yes, there are patients who did receive CAR-T therapies after progression. So that's the fact. Now, on the other hand, even though we did not allow the crossover, but before we started enrolling patients, we actually had very frequent communication with both FDA and also EMA as global regulators to talk about the protocol of CARTITUDE-4, including the not allowing the crossover design. So at this point, I don't think that will be a big focus of debate here at ODAC.

Kelsey Goodwin (VP and Senior Equity Research Analyst)

Perfect. Okay. Thank you so much.