Legend Biotech Corp

NASDAQ:LEGN

Earnings Call Transcript 2024-Q1

[Operator]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Legend Biotech First Quarter 2024 Financial Results Conference Call. After the speaker's presentation, there will be a question-and-answer session.

[Operator Instructions]

Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Jessie Yeung, Head of Investor Relations and Public Relations. Please go ahead.

[Jessie Yeung, executive]

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 first quarter 2024 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 Steven 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 with in. These forward-looking statements are discussed in greater detail in our SEC filings, which we encourage you to read and [indiscernible] under the Investors section of our company website.

[Unknown Executive]

Hello, everyone, and welcome to our first quarter earnings call. I am pleased that you could join us. As many of you on this call know, 2024 has been an eventful year for us. Obviously, our major news was the approval of CARVYKTI by the FDA and European Commission for second-line relapsed or refractory [ mole myeloma ]. These approvals have the potential to change the treatment paradigm for tens of thousands of patients in the United States and Europe. The feedback from key opinion leaders, oncologists, advocates, patients and caregivers has been tremendous.

On March 15, we received international media attention when the FDA's Oncologic Drug Advisory Committee, or ODAC, meeting raised awareness about [ monitor myeloma ] and the positive benefit-risk profile of CARVYKTI.

ODAC's unanimous 110 recommendation in favor of CARVYKTI was independent and objective validation of its value proposition. We also added another noteworthy approval to our growing list. The Brazilian health regulatory agency has approved CARVYKTI for second-line [ motor myeloma ].

I am pleased to report that CARVYKTI is now available by prescription in Brazil. Our patient-facing colleagues and those who work in manufacturing are energized and eager to share our transformative therapy with more patients around the world. As you will see on our addressable market slide, our second-line indication translates to an addressable patient population of 80,000 across 3 major markets.

Turning to financial development. CARVYKTI net trade sales for the first quarter were $157 million, which is a 100% increase year-over-year. Sequentially, net sales decreased by $2 million from $159 million in the fourth quarter of last year. This was a result of phasing due to the timing of orders and when they were delivered and built for as well as manufacturing testing needed for the upcoming expansion.

Importantly, there was growth in patient demand and obviously, that was before the [ recent neckline ] approvals. So we do anticipate continued growth for CARVYKTI, particularly in the second half of the year as we continue to add more swaps and expand our capacity. Right now, there's no higher priority in the company than making more supply available to the market and reducing the [ ventantime ].

We're working to expand production from every angle. We're continually increasing production at our Riverton, New Jersey facility, where we have doubled sale processing capacity since the beginning of 2023. We're laser focused on completing physical expansion of our [ Raritan ] site this year. We plan to double CARVYKTI capacity by the end of 2024 compared to the end of 2023.

Our production capacity will be augmented later in the year when our [ oblisk ] facility in Gent Belgium is approved for commercial production. Clinical production already started back in January. With the second-line FDA approval, the specifications for manufacturing CARVYKTI were widened, which should give us greater yield going forward.

Finally, Legend and J&J expanded a previous agreement with Novartis to perform commercial manufacturing for CARVYKTI through the end of 2029. The increases to our production capacity will help ensure we meet our target of annualized capacity of 10,000 patient slots by the end of 2025.

Our cash balance now stands at $1.3 billion, which [indiscernible] provide us the resources needed to increase production and gives us financial runway into 2026 when we expect to begin to achieve an operating profit. In other developments, we continue to bring more hospitals online as authorized treatment centers. We have now a total of 72 U.S. hospitals certified to treat CARVYKTI patients.

So our reach in the community is growing in parallel with the increase in eligible patients. Outpatient treatment comprises approximately 1/3 of our volume and remains an important differentiator for us. Due to the longer onset of CRS for CARVYKTI patients, this side effect can particularly be managed in the [ outpatient setting ], which allows those hospital beds to be utilized for other patients who need them.

Finally, since our last earnings call in March, we put our first ESG report. Not only does it summarize our achievements as a responsible corporate citizen. The report provides a great overview of the company and transparency into how we conduct our business.

To sum up, so far in 2024, we have achieved our significant regulatory goals and are working to execute with excellence to meet the growing demand for CARVYKTI.

Now I would like to turn the call over to Lori to walk you through the financials for the first quarter.

[Lori Macomber, executive]

Good morning, everyone. As Ying mentioned, we generated approximately $157 million in net sales for CARVYKTI during the first quarter, an increase of 118% year-over-year. Sequential growth was roughly flat due to the timing of orders and when they were delivered and billed for as well as manufacturing testing needed for the upcoming expansions. As a reminder, we show equally in all profits and losses for CARVYKTI ex China with our partner, [ Janssen ].

Turning to revenue. Total revenues for the first quarter were $94 million, consisting of $78.5 million of collaboration revenue from the sale of CARVYKTI and [ length ] revenue of $12.2 million from the recognition of deferred revenue in connection with our agreement with Novartis to develop manufacture and commercialize LB2102 and other potential [ CAR-T ] therapies selectively targeting DL3.

Net loss for the quarter ended March 31, 2024, was $59.8 million or a loss of $0.16 per share compared to a net loss of $112.1 million or a loss of $0.34 per share for the same period last year.

Moving on to expenses. Collaboration cost of revenue for the first quarter of 2024 was $49.1 million compared to $35.6 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 [ Janssen ] agreement, along with expenditures to support the manufacturing capacity expansions.

Additionally, cost of license and other revenue for the first quarter of 2024 was $5.6 million compared to no cost of license and other revenue for the first quarter of 2023. These costs are in connection with our agreement with Novartis, to develop, manufacture and commercialize LB2102 and other potential [ CAR-T ] therapies selectively targeting [DLT].

Research and development expenses for the first quarter 2024 were $101 million compared to $84.9 million for the same period last year. The increase of $16.1 million for the 3 months ended March 31, 2024, compared to 3 months ended March 31, 2023, was due primarily to research and development activities in cilta-cel, including higher patient enrollment for Phase III clinical trials and continued investment as well in our solid tumor programs, which includes 2 IND approvals that advanced into Phase I development.

Administrative expenses for 3 months ended March 31, 2024, were $31.9 million compared to $22.2 million for the same period last year. The increase of $9.7 million year-over-year is primarily due to the expansion of administrative functions and infrastructure to increase manufacturing capacity. Selling and distribution expense for 3 months ending March 31, 2024, was $4.2 million compared to $18 million for the same period last year.

The increase of $6.3 million year-over-year due to the costs associated with the commercialization of cilta-cel, including the expansion of the sales force and second line indication and launch preparations.

To summarize, our spending remains on track, and we continue to maintain a strong balance sheet. As of March 31, we have $1.3 billion in cash and equipment deposits and investments. Additionally, we earned in April a milestone payment of $45 million in connection with the FDA's approval of CARVYKTI's label expansion to treat second-line multiple myeloma in accordance with the [ Jansen ] name. Thus, we believe we have sufficient capital to fund our operating and capital expenditures into 2026 when we expect to begin to achieve an operating profit.

I will now pass it back to Ying for closing remarks.

[Ying Huang, executive]

To sum up, 2024 has already been a monumental year for Legend with a string of regulatory successes. CARVYKTI continues to be the fastest launched CAR-T therapy, and now we have new opportunities to serve even more patients. I want to thank each of our 1,900 employees for their commitment and dedication that will ensure patients who need cavity are able to access it.

And with that, we'd like to take your questions.

[Operator]

[Operator Instructions]

Our first question comes from the line of Jessica Fye with JPMorgan.

[Jessica Fye, analyst]

I have two, please, sort of related. First, I know 1Q was impacted by a number of nonrevenue batches for comparability work. How should we think about the scale of that work in 2Q and on? And then second, when you talk about doubling capacity from the end of '23 to the end of '24, but I think you mentioned that the [ Ables ] commercial production was going to be kind of back-half weighted or back-end plated. What does that mean for how we should think about revenue year-over-year in '24 relative to '23?

I'm just trying to figure out kind of is it on 1 on that doubling year-end from your end to your end of capacity? Or are there other factors we should think about when we're thinking about revenue this year?

[Ying Huang, executive]

This is Ying. I'll help answer those two. So first on the manufacturing investments. I would tell you that qualitatively in first quarter this year, we did have a number of nonrevenue-generating rounds. And that includes bringing up the CMO from Novartis and also bring up a couple of other additional notes, including our facilities in [indiscernible] up for production, including clinical and in the future also for commercial production.

So I cannot disclose exactly the number of the non-revenue-generating rounds, but it is on a similar order of magnitude compared to, for example, clinical runs. And we do expect that for the rest of the year, in the next 3 quarters, that number will come down. The reason is we are pretty much complete in terms of the work we're doing with Novartis.

So we believe that Novartis is in a position to file IND very soon. And assuming the IND is cleared by the FDA, we expect Novartis to start clinical trial production in the third quarter and then followed by commercial production first quarter of next year.

And then, of course, we also have 2 other facilities in [ Gent ]. The first one, Phase I is called [ Oblisk ], and [ Oblisk ] is already producing for [indiscernible] 6 as we speak, and we expect pending regulatory approval probably around late third quarter or early fourth quarter this year [ oblisjk ] will started commercial production.

And then followed by our much larger facility in Belgium called [ Techland ], [ Techland ] right now is on track to complete [indiscernible] construction and validation by end of this year. So we expect that facility to start clinical trial production early next year, followed by commercial production in the second half of 2025. So that's kind of like the cadence.

And then to address your second question, as I just mentioned, [ oblisk ] is expected to start commercial production late 3Q or early 4Q this year. So in general, I think we have said that we are looking at a roughly doubling of our capacity from 2023 to 2024. We don't provide guidance for the product sales. But I think the capacity expansion gives you a good idea of where the revenue would like, consistent with our policy to have similar or same closure disclosure from J&J, which does not provide product-specific guidance, we cannot guide the product sell.

But I think that doubling of expansion gives you confidence that where the revenue would be in terms of growth year-over-year.

[Jessica Fye, analyst]

Can I just clarify, when you say doubling of capacity there's other factors as it relates to revenue, whether it's kind of like in spec out of spec, the amount going to clinical trials, the amount going to these comparability [ batches ] or what have you. So when you say doubling of capacity, that's just like total capacity inclusive of all these other things that may not generate revenue? Or is that commercial capacity?

[Ying Huang, executive]

That is correct. When we talk about capacity, that includes the number of total slots from all nodes of production. That includes clinical production that includes non-revenue [ managing ] investment runs, that includes commercial production. And then when you think about commercial production, yes, of course, you have to make assumption of the [ Inspec ] success rate, right? I mean we're encouraged by the trend so far this year because given what we're seeing in Q1 and now in Q2, that continues to improve.

So then there's, of course, the net pricing. So audits will figure into the revenues. But when we talk about total capacity, we're talking about order capacity, all the [ floods ] from different nodes, and that includes everything.

[Operator]

And our next question coming from the line of [ Gena Wang ] with Barclays.

[Unknown Analyst]

Maybe I'll just follow Jessica's questions. So should we still expect revenue growth in second quarter, '24 or should we wait into second half '24 when a bliss commercial production on board in 3Q, 4Q?

And another related question is regarding [indiscernible] now only 6, but you still have maybe roughly 700 patients that need to be enrolled. Where do you expect these 700 patient enrollment mainly at? Would that be in New Jersey side? Or would that be in Belgin site?

[Lori Macomber, executive]

This is Lori. I'll take your first question on revenue. We do expect to see some growth in Q2. But as we've talked about, we expect pronounced growth in the second half of the year. As Ying mentioned, we have different factors coming into play in the second half of the year.

With the [ Raritan ] ramp, we expect a second capacity ramp coming on there. Again facility is the largest driver with that coming online in order to do some commercial production. And then we do have a CMO that we anticipate clinical production can shift there that will free up some commercial capacity at [ Raton ].

So in addition to that, as we start to get these additional notes that come online, we will have some multiple country launches we anticipate in the back half of the year. And as you know, with the complexity of all therapy, some of the achieving those sales will depend upon how those launches go. And you've seen in prior launches, we tend to get a lot of the acute pace first.

So we want to be conservative, but we do anticipate a more pronounced growth in the second half of the year. [indiscernible] do you want to take the corner, 5 and 6 questions?

[Unknown Executive]

Yes, so on [ Cart ] 5, we have completed all international enrollment already for [indiscernible] 5 and that's actually above our preplanned number. Right now, we're just enrolling additional U.S.-based patients, so that we satisfy the minimum of the U.S. patient representation by the FDA. So by now, we have manufactured a significant portion of [ CRD ]5 patients.

Now on car Q6, since we opened enrollment in October last year. Right now, it's enrolling really fast. It's actually faster than our plan. So in terms of where we're manufactured for those trials, I can tell you that, right now, [ Barito], New Jersey is the main side [indiscernible] 2 manufacturing. For [indiscernible] 6 right now actually, again, our first facility called [ oblisk ] is the man side for that trial now, and will shift to other sources.

But we're trying to really save the [ Raritan ] facility for commercial production for the rest of '24. So that's where we're manufacturing for [indiscernible] and [indiscernible] 6 now.

[Operator]

And our next question coming from the line of [ Kelly ] with Jefferies.

[Unknown Analyst]

Congrats on achieving a great milestone in early approval. So for the launch in the U.S., could you talk about the current launch activities? Have you started treating patients in second to fourth line? And do you see a switch from lifeline? And I also have a follow-up.

[Steven Gavel, executive]

Yes, why don't I take that question. This is Steve Gavel. I think the question had to do with part of for the status of it and patients and so forth and so on. One of the things I do want to just piggyback a little bit to Lori's response earlier concerning the second half component of this year, even though the product was approved in earlier lines in April, there's just a natural lag in the market, especially with a [indiscernible] launch where we are looking for getting patients referred into our institutions.

So I think this is some differences with the CARTITUDE-1 launch versus 4, that there will be a natural lag in it just because of the referral piece of this. Now -- also to Lori's point, there are a number of patients that meet the eligibility criteria today in our hospitals that are moving very quickly through the approval processes and so forth.

So again, we continue to do very quickly in terms of patient identification and apheresis, but I did want to caution you all that it's just a natural phenomenon of of referrals and manufacturing and ultimately to revenue recognition. That's why we're basing our assumption on a really strong second half.

[Unknown Analyst]

And also to reach the goal of 10,000 doses by year-end for 2025. Would you need to consider the sign up for additional CDMO contract? Also what percentage of the patients would be needed to treated in all patient settings to reach 10,000 doses go if we're assuming like on the hospital side, there's also capacity constraints.

[Unknown Executive]

So [ Kelly ], let me take the first half of the question, and then I'll ask Steve to talk about the outpatient administration of CARVYKTI. So when we look at the goal of reaching 10,000 annualized capacity by end of 2025, we believe that with existing nodes are for notes, right, that includes our own site in [ Rare ] New Jersey, our 2 sites in Gent, [ Oblisk Taken ] plus on the Novartis side here, that should be pretty much give us the reach to that number.

Of course, we're continuing to evaluate the [indiscernible] other companies that could potentially give us a boost as well. So stay tuned on that front. And then I'll ask Steve to talk about the patient illustration of CARVYKTI

[Steven Gavel, executive]

So you're hearing at the top, talking about roughly about 1/3 of all patients now being treated in the outpatient setting. That's grown quite a bit. I mean that's to give you a comparator versus other CAR-Ts in the market that we compete with is they're right around 15%. So I think the question was what -- from an outpatient perspective, what would we need to see in order to achieve the target doses that you referenced earlier.

We expect by the end of 2025 to be at least double to where we are today. And it's reflected in the growth in the outpatient sector that we are seeing today. So we are relatively confident that we are going to be there. I think the one wrinkle and you're seeing now a number of our sites investigating this today is the partnerships that they are going to be and they're currently embarking with other outpace players, whether it be in the community setting, I'm talking about pure community retail setting.

And actually, if you haven't seen a good example of that ACA Healthcare announced a partnership with McKesson, which is U.S. oncology. And I know that they are very interested in leveraging outside of their own hospitals, to bring these therapies out to as many patients that are eligible to receive them.

So you'll see the definition of outpatient will change quite a bit over the next couple of years, not just hospital outpatient, but in the next few years, you will start to see community administration of our program.

[Operator]

Our next question coming from the line of Jon Miller with Evercore.

[Jonathan Miller, analyst]

This is [ Omar ] filling in for John. Ying, I don't have any single question on CARVYKTI today. And instead, I want to focus on a very important area in CAR-T space, which I don't think has come up in legend conversations. So you have this triple targeted CAR-T ongoing in China since March 22. I think it's wrapping up now. That's [indiscernible] CD20, CD22 on autologous. And separately, you have this [ LukarG39P ], which is the dual targeting CD19, CD20 [indiscernible] that I think you just started Phase I, both are these in China. My question is, shouldn't those trials have been an autoimmune? And/or is that a plan that intending to do near term?

[Unknown Executive]

This is an important question. And our disease-focused area both oncology and autoimmune diseases. For both assets we have banked to develop those in autoimmune disease indication as well, and it's in process.

[Jonathan Miller, analyst]

And when would that start Ying? And would it be a U.S. trial? I think that's the other very important question, obviously.

[Ying Huang, executive]

Currently, [indiscernible] 1 is in the process of initiating the autoimmune IT study in China across multiple disease indications. For the U.S. autoimmune diseases asset. Our current strategy is focusing on the [indiscernible] approach given some of the key challenges associated with the target treatment options. So for example, the requirement of [ lymphodepletion ] and the requirement of manufactured at the individual patient level high cost, et cetera. We have assets in the process of initiating the U.S. [ IND enabling study ] we will get those additional information in the future.

[Jonathan Miller, analyst]

Sorry, 1 last one. If I may just clarify, in that [ ALLO ] trial for U.S., I'm assuming that's your CD19, CD20 dual targeting. Is it safe to assume that you would not need the flu say loading the preconditioning for autoimmune?

[Ying Huang, executive]

That's an open question. And I think we will make a decision based on the clinical data we are collecting. In terms of targeting mechanisms, we think that auto immune disease I'll cover a very broad spectrum of different diseases, and we want to have options and choice for patients.

In terms of targeting mechanism CD90 certainly [indiscernible] also play a major component in BCD disease pathology. So we are also considering the BCMA as additional type opportunities.

[Unknown Executive]

And [ Omer ], I know you had mentioned about the disclosure and also moving to U.S. science. So I will just add that -- you see that we already initiated the triple specific [indiscernible] program, and it will probably start dosing for automine by end of this year. So based on that clinical data, we will make the decision when and how to move assets into the U.S. IND process.

And of course, like Dr. [indiscernible] just mentioned, we are very interested in whether we can either bypass or lower the dose intensity for fluid [ lymphodepletion ] regimen. That is 1 go of our IIT trials in China. So is also the trial we're conducting for the dual targeting allo [ CD9TCD20mDLT ] program.

[Jonathan Miller, analyst]

Sounds great. So it sounds like you could have sort of immune data next year. Is that a reasonable conclusion from all of this?

[Unknown Executive]

Without officially guiding, yes, that's possibility.

[Operator]

And our next question is coming from the line of [ Yaron Weber ] with [ Colony].

[Unknown Analyst]

Great. Let me maybe just follow Umer's last question and then I have a question on CARVYKTI. Can you just discuss a little bit the concept of autologous with the triple CD19/CD20 and CD22 versus with [ allo ], it looks like you're doing dual targeting. Can you just help us understand kind of your thoughts, why not do triple in both? And then I have a follow-up on CARVYKTI.

[Unknown Executive]

So for tumor targeting, it's the design principle is to drive the deep response by targeting multiple B-cell biomarkers. And so for that, we are currently initiating the IT study and the clinical data. For the anode, we are going to have different targeting mechanism. And based on the IT study, we will have additional insight in terms of which disease we should target among different autoimmune indications.

[Unknown Analyst]

Okay. With the dual, but you'll keep that as a dual '19, '20 only because you don't need to drive deeper responses. Is that the thinking? You just need to reset the immune system?

[Unknown Executive]

Yes. So we are taking both CD19 and CD20 as well as with different assets talking CD19 and a different aspect.

[Unknown Analyst]

Okay. Got it. Okay. Maybe just to move back. I have a quick question on CARVYKTI. Can you give us a little bit of a sense now that second line is approved is the [ auto specs ] now different pretty much and easier across the board? Or is the FDA still keeping a certain bar sort of on fourth line onwards and a different bar in the second line?

[Unknown Executive]

I'll answer your question. So the answer is that when we received FDA approval on April 5 for 2nd line, we did receive 1 label with 1 spec. So as of today, right, if we treat any patient on label, the release back is the same for second-line patients versus a fifth line and beyond. And also, by the way, it is a wider release back.

So I know it's early days, but based on the data from the full month of March production, which we test in April., So far, we're seeing encouraging trends in OS so far based on either probably the wide release back approved by the FDA and also potentially once we start to see more second-line patients rolling in, the natural evolution of better baseline for those patients.

[Unknown Analyst]

And those release [ packs ], how do they compare with [indiscernible] and maybe [indiscernible] as far as you can tell?

[Unknown Executive]

Without disclosing the number. I can tell you that based on latest data we have out of spec, I think our success rate is approaching that of our competition at this point. Of course, like it's very early days, we have only March production data, we have only a little bit partial of the April production data.

[Unknown Analyst]

Okay. And maybe just final, I think you talked about 100 ATC target for the year. What's the gating kind of rate to open all of those? Is it capacity? Or are there other factors as well?

[Steven Gavel, executive]

Yes. No, it's Steven Gavel. I mean, the gating element is really the site certification process. One thing to take note and I've talked about this on previous calls, is as we add more and more sites you don't see nearly the volume that you see in our initial, our Phase I site. So -- but we will continue to certify sites and our tenants to get between 90 to 100 this year. The key metric, just so you know what we had is because there's so much outpatient now administration in our facilities on a per site basis, we're seeing much more throughput per site versus what you would see, for example, with [ Abema ]. So I just want to make sure we're kind of viewing this the same way.

[Operator]

And our next question coming from the line of [ Chen ] with Goldman.

[Unknown Analyst]

Just 2 questions. One is on the EU launch Well, I think the U.S. has been down quarter-over-quarter, but you has been increased to 23%, which is still growing nicely. So could you share a bit more color on the Europe pricing? And also, how is the reimbursement coverage in your countries? And also, any updates on the commercial launch in U.K. and in Japan?

And a small financial question is really regarding the DILI partnerships. So we understand that upfront payment. You just recognize about 12 million in the first quarter out of the 100 million upfront payment. So is that the specific accounting [ timing ] for that. So it's going to be spread out over the next few quarters?

And secondly, there is a cost of license related in connection to that. So could you help -- helping us to understand a bit more about where does this cost coming from?

[Unknown Executive]

Yes. We're going to try to unpack this. A lot of things from that. I [indiscernible] take the first European question. So I think folks on the line are aware of [indiscernible] is responsible for all ex U.S. promotional activity, specifically in Europe. I can tell you, I think you're aware of this already, if you're into a partner in Germany, Austria, both CARTITUDE-1 and 4.

The other thing to take note from a global allocation even though we are in those countries, the majority of the global slot allocation is coming into the United States. I think you had a question around pricing. Pricing has not been disclosed as of yet in Europe. So we can't unfortunately provide information around that until it becomes publicly disclosed. I'm trying to think of the other European questions that were out there. Let's see here. on the pricing and reimbursement piece.

Again, we aren't commenting yet -- we have received approvals, obviously, in Japan, but we have yet to launch there. And again, I'm going to defer to my partner on that 1 because they have not disclosed their intention on timing there nor as far as in the U.K. as well.

[Lori Macomber, executive]

So for DL3, as you guys saw on the -- how we recognize that in the P&L, there's actually 3 different locations of what we're recognizing there and then on our balance sheet. As you guys remember, and we disclosed, we received 100 million upfront payment. However, we have to defer the recognition of that 100 million over time for the activities that we're performing. That were obligated to perform as part of the collaboration agreement.

So to your question of how will that spread out? Yes, that will spread out over various quarters in the future as we continue to do our activities that were obligated to perform for that study. Now we do have a pass-through. There are certain material costs that we will pass through those costs to our collaboration partner.

So we recognize that as other income. So that is actually separated out. And then the cost of the license is the actual -- what triggers that revenue recognition is the cost that we've incurred based upon those obligations that we have to perform. So that's the actual cost that we're incurring for the clinical study.

[Operator]

And our next question coming from the line of Leonid Timashey with RBC Capital Markets.

[Leonid Timashev, analyst]

Wanted to maybe talk -- ask on sort of the cadence of data that we should expect for the rest of the year? And specifically, I'm curious on cohorts ENF, when we might see that data? What level of follow-up and what sort of efficacy measures we should be focusing on. And then I guess what in your mind is the PFS benchmark that we should be looking for there and for CARTITUDE-5 as a whole?

[Ying Huang, executive]

No, this is Ying. So first, maybe I can just give you a quick review of ASCO. We expect to present some data from 1 cohort, Cohort D. These are the patients who did not achieve optimal response to the standard care regimen in the front line. And then for Cohort E and F, we enrolled and dosed a total of roughly 60 patients in new diagnosed [ smart pole ] myeloma.

So right now, we're expecting to release and publish the data at a major medical meeting towards the end of the year. So that's roughly the timing for cohorts and. And in terms of the level of follow-up, you should expect to see a year of follow-up or maybe even longer than that. If you talk about the PFS benchmark.

So for CARTITUDE-5, as you know, the standard of care regimen we use here is [ RVD or REVLIMID, VELCADE ] and dexamethasone. If you look at the registration study for that regimen in FLY, the median PFS is about 34 35 months. and that is the benchmark we're looking at to beat, right? I just want to remind you that this is a superiority trial.

And then for CARTITUDE-6, I think you got the answer from the [ PSUs ] trial that was presented at ASH last year. That is a RVD regimen in combination of stem cell transplant. So there, you're looking at the 4-year PFS rate of 84%, and that's the benchmark we're looking at, right?

Again, we are looking at a superiority in PFS as a primary endpoint. Now given the recent ODAC vote, we will be engaging with the agency to talk about potential of using MRD as an endpoint to accelerate the approval time line. So if you look at CARTITUDE-5, [indiscernible] activity is already a secondary endpoint.

And then for CARTITUDE-6, if you look at our clinicaltrials.gov, Actually, the co-prime endpoint is PFS and [indiscernible] activity. So we will follow all the patients with [indiscernible] activity. And at the same time, we plan to engage the FDA and the EMA to talk about the potential of using MRD as endpoint as well.

[Operator]

And our next question comes from the line of Vikram Purohit from Morgan Stanley.

[Vikram Purohit, analyst]

We just had 2 on CARVYKTI. The topic of future disclosures, Ying and team, do you anticipate providing kind of a split of patients by line of therapy or any directional sense of how kind of patients used in the quarter has trended between earlier line versus later lines in the coming quarters of performance data.

And then secondly, I know you don't provide long-term guidance, but looking at a couple of years out, how do you expect the CARVYKTI sales base to kind of trend U.S. versus [indiscernible]?

[Steven Gavel, executive]

It's an important metric because it's your question around looking at line of therapy use. It's an important question. It's a very difficult question to track from. So just because of the [indiscernible] data that's in the public domain right now around that.

So let me give you away how we're thinking about this. So we're assuming in a year, year plus time, about 70% of our product use is going to be an earlier line of therapies, early line treatments, I should say. And that's going to increase over time. It's because the market is so large and obviously, there's high demand to use this in patients that are doing quite well. but we will not be, per se, teasing that out by line of therapy, not because we don't want to, but like I said, you get that data through different sources.

One of the big sources is claims data, but the source information is a bit choppy. So to answer your question directly, we will not be disclosing that by line. Things are second follow-up.

[Unknown Executive]

Yes. So Vikram, on your second question, I mean, again, we're not in a position to provide guidance for CARVYKTI. But as you know, typically, when you launch a new indication, it takes about 3 years to get to that peak sales.

And as of now, we are not changing the projection that CARVYKTI had 5 billion plus. And by the way, that is really on stipulation that we'll have a healthy market share in second line for which we already have received official approval from both in the U.S. and EMA in Europe. So we feel confident about the growth potential for cavity in the second line in the next few years.

[Operator]

And our next question coming from the line [ Kostas Biliouris ] from BMO Capital Markets.

[Unknown Analyst]

SP-5 Question. One question from us on the guidance around the MXN 10,000 lot production by year-end 2025. Can you maybe provide some color around the number of FDA approvals on manufacturing copies, you will need to be able to manufacture this launch by year-end 2025?

[Unknown Executive]

So let me just give you a little bit more details about how we think about all the different nodes, right? So obviously, right now, the only commercial production side is rather to New Jersey facility. And we are implementing an FDA-approved increase as of now.

And then we expect to have another increase towards the second half of the year. So that's what we're doing with [ Raritan ] then. Meanwhile, we and our partner, [ Jonathan Johnson ], are conducting a physical expansion of the [ Raritan ] facility. So that is progression should complete by end of this year. So over the course of next year, we are going to validate the equipment and then bring all the fees up to the GMP facility standards.

So sometime next year, towards the second half, we expect that doubling of the manufacturing area in [ Raritan ] to start to contribute to additional capacity. So that's what we're doing for [ Ryerson ].

And then for the 2 facilities in Gent, the first one, list right now is already manufacturing for clinical trial. And I just said in the call that towards probably late 3Q or early 4Q, we expect that facility to receive the regulatory approval for commercial production. The much larger tech land facility in Gent.

Right now, we're on track to complete all the validation work by end of this year. So that we expect clinical trial production to start early next year in 2025. And in the second half of next year, that facility will also come online pending regulatory approval for commercial production.

And then we talked about Novartis as [indiscernible]. Again, we expect the commercial production to start early next year. So if you look at those 4 notes, right, we're adding 3 additional for commercial production starting second half of this year and then throughout 2025. That's how we can achieve the 10,000 dose capacity by end of next year, all these 4 notes together.

And I can tell you that without disclosing all the technical details, if we track as of last Friday, we're on track to achieve that 10,000 total capacity by end of next year, given where we are in [ Raritan ], where we are in the game facilities and where we are with Novartis.

[Operator]

And our next question coming from the line of George Farmer with Scotiabank.

[George Farmer, analyst]

Can you comment a little bit about how this wider release spec approval translates may translate into top line sales. Number one. Number two, also recognizing that CARVYKTI is moving into second line primarily, at least in the relapsed/refractory [indiscernible] plus. Can you talk a little bit about dynamics between how CARVYKTI is being positioned against bispecifics. It looked like that there was a bit of a surprise number from J&J when they reported.

And then also finally, can you go into a little bit more detail on how you get to your cash you should use spend out to 2026.

[Unknown Executive]

George, I'll take the first question and then ask Steve and Lori to provide answers for the second and third one. So on a wider release spec granted by the FDA in April, I think what we have said previously is that based on our modeling and also the data from CARTITUDE clinical program, we believe this widened spec should result in additionally 5 to 10 percentage points lower OS compared to before the wider release that was approved by the FDA.

So right now, like I said, it's still very early days. But based on what we are seeing so far, the OS is already coming down by roughly 5% last month. So that is very encouraging, and we're going to have to have a little bit longer follow-up data to provide you with better confidence about where exactly the OS will be. But so far, things are trending very positively. Steve?

[Steven Gavel, executive]

Yes. So why don't I take the question around how we're positioning the assets specifically for the CARTITUDE-4 launch in second line and then I'll get into a little bit around later lines in bispecifics. So it is our #1 promotional focus to launch CARTITUDE-4 in the second line plus setting. There's clearly a clear differential there versus standard of care, and it's going to be basically a single-minded focus for my team.

The other thing, though, in terms of the bispecific question because it's the appropriate 1 in later lines of therapy, you heard in the opening talk about speed. One of the things that is clearly apparent to us, and you mentioned, I think, a [ Janssen ] [ surprise ] or other bispecific. What's happening there, and this is honestly something that we could foresee coming, is that one of the things that's a key focus for us or heard in talking about it is not only generate more slots in the market but get faster into the market.

And that's extremely important in later-line disease, where patients are progressing very rapidly. So that's where you saw the growth happening with the bispecifics at [indiscernible] hit the market and then was followed by [ Tal ].

One of the things I do want to point out too is something we talk to our partner quite a bit about is as now [indiscernible] has entered into the market in fifth line plus in the U.S. What you're starting to see is a shift in the dynamic in terms of what bispecific is used in front of one another.

What we're seeing, and it makes sense is with -- to coming on board now, you're seeing a shift where talc is actually being used first in front of tech. And the reason for that, and this is bearing out a research. This is a very effective bridging strategy to also get the cilta-cel.

So in the past, with [indiscernible] being around, obviously, the market had no other option but to use teclistamab if they needed it to bridge a patient. The challenge there is you're also targeting the same BCMA target. We know there's efficacy there. But by using talk instead, you're obviously targeting a different target.

So they want to preserve the BCMA target to get the CARVYKTI. So maybe it's a little bit more than you had asked for, but I did want to just point that out to you that even though in this case, [ Tau ] might be used with some of these quicker progressing patients, we anticipate them to get to solace at a later point in time. Lori?

[Lori Macomber, executive]

I'll take the question on cash and the runway into 2026. As you guys know, we ended Q1 with $1.3 billion in cash. If we take a look over the next 2 to 3 years, that will be adequate cash to bridge us until we get to profitability from the BCMA program. But what I do want to say is that doesn't prohibit us from potentially looking at additional at raises. And that's really going to be dependent upon pipeline advancement. If there's something that we want to do on a business development perspective, and also if there's a certain level of working capital that we want to maintain.

So yes, we do see us having adequate cash to get to profitability, but there are other factors that will come into play if we decide that we do on the raise of [indiscernible] capital.

[Operator]

And our next question coming from the line of Justin Zelin with BTIG.

[Justin Zelin, analyst]

And it's great to see the [ Alcon ] administration usage here to pick up. Steve, can you talk about some of the factors that or constraining outpatient administration and just the dynamic that centers decide on whether to offer outpatient administration.

[Steven Gavel, executive]

Yes, sure. Thanks for that question. There's a number of different factors. The challenge in later-line disease is the fact that you're dealing with a very difficult to treat patient to begin with, right? So I think just from a patient perspective, it's a challenge. However, as we see in our trends we're seeing almost 30% of the time, our facilities are working quite effectively to treat those very difficult to treat patients.

What you're going to see, though, in an earlier line more mobile patient, [indiscernible] these patients are often working is it becomes much easier for the sites. And that's what we are projecting as well, right? So from a pin selection, these are more mobile patients and some of the patient-related issues that the sites were challenged with, we'll get a bit easier for them.

So that's the first thing. And the other thing that we keep an eye on is their intent to move forward. The question was asked earlier around capacity, right? So the sites recognize this, and they also want to use outpatient CAR-T administration as a strategy to reduce the amount of resources to treat the numbers of patients that are eligible for this therapy.

So just from a resource perspective, sites also look at this as a very effective strategy to do to do so. So we're very excited about this, and you've heard me talk about a little bit on the back end and one of the questions around outpatient you will see with this program a very different type of migration to full outpatient use.

Our strategy, we've been very deliberate on how we went to market with this program. And I think I'm proud in terms of what's going on in the marketplace, in terms of introducing this into the hospitals, having the hospitals move into their [ outing ] clinics. And like I said, over time, our hospitals are looking at other third-party partners on how to take this even further out to the community, to ensure that these numbers that we talked about earlier 10,000 doses, et cetera, we can meet that potential. So it's a very exciting step.

[Operator]

Our next question coming from the line of Ms. [ Verma ] with UBS.

[Unknown Analyst]

So in terms of this like double the capacity by year '24 versus '23. Like what is the respective annualized dose goal for this, just to make sure we understand the apples-to-apple comparison to your year-end '25 goal of 10,000 doses capacity.

And then second, I wanted to ask is [indiscernible] regimen adoption in the first-line setting, eventually, do you think that these delays are shrinks the second-line pool of patient for carbon long run effectively? These patients can have several years of progression-free survival, which could arguably impact the downstream market opportunity for CARVYKTI.

[Unknown Executive]

Yes. So, let me help with your first question. So yes, by end of 2025, we have this goal of reaching 10,000 annualized dose capacity, right? But that is when we exit 2025. So I just want to remind you that when we go into 2025, right, we are not going to be at the 10,000 but then because of the introduction of additional sites into the commercial production mode, we'll be able to end the year in 2025 with that capacity and it doesn't stop there because we'll continue to maximize the capacity from each of those notes I mentioned.

So we believe that we'll be able to actually get to a much higher number than that 10,000 dose. Once we complete all the expansion from the additional notes with the investment here. So it's going to be hard for me to give you any quantitative distribution among the 3 -- I mean, sorry, the 4 different notes we mentioned. But I can tell you that [1Raritan], New Jersey remains our biggest facility and in the foreseeable future, rather will be the most productive side insto total output, probably followed by our sites in Techland.

So that is how we think about the total peak capacity and then how we would plan to distribute the capacity among the different nodes. With regarding your second question, how the getting into the front line would potentially affect the second opportunity. I'll ask Steve to answer.

[Steven Gavel, executive]

Yes. So thanks for the question. So we -- just so you know, we've been -- we've modeled certain assumptions in terms of how -- in terms of eligible patient populations progressing on the quad. So I guess from an eligible patient population, has been accounted for in our forecast. And that forecast then we've obviously communicated that with the manufacturing counterpart. So I guess from my perspective, again, we've accounted for that and we began for it in our supply plan.

[Unknown Executive]

And then, maybe I'll just add to Steve to answer that. Number one, you do have this 20%, 25% so-called patients with high-risk cytogenetics mutation, and those patients unfortunately do not respond well. So they'll relapse. And that is why we are releasing the data at ASCO for Cohort D.

These pay do not achieve optimal or a complete response from DRVD. They need a second-line therapy, right? That is your early adoption market. And then obviously, we are conducting CARTITUDE-5 trial. If you look at clinicaltrials.gov disclosure, we expect the primary position in the year 2026.

So hopefully, within a couple of years, we'll have first-line label. And then obviously, we are going to pivot from second line to frontline when that happens.

[Operator]

Our next question coming from the line of Sean McCutcheon with Raymond James.

[Sean McCutcheon, analyst]

Maybe to put a finer point on that MRD negativity at FAM outcome. What do you think are the implications here for, I guess, CARTITUDE-5, CARTITUDE-6 timelines? And do you suppose the official CAP guidelines will come in, in time to be impactful there or a bit too late? And what's your view on what the details for that MRD negativity requirement could be in part of the 12-month sustained MRD-negative CR. Do you think that's likely to be the bar? Or do you think maybe an earlier landmark could be informed or acceptable.

And then just as a follow-on to that, what do you think is the impact on the competitive dynamic for your earlier competitors if they're able to utilize MRD in across different lines of therapy?

[Unknown Executive]

So first of all, we have all along worked through the MRD endpoint, right? If you look at all the CAR-T program trials, everyone has MRD measurement in the trial [indiscernible]. Like I mentioned just on the call today, in CARTITUDE-6, we actually have already designed the trial with margin activity as a co-primary endpoint with all this in our mind.

So if you look at all that recommendation, right, the [indiscernible] to recommend a 12-month margin activity as a potential endpoint. Right now, we don't expect FDA to publish the [indiscernible] guidance documents, but we do plan to engage with the agency to talk about the endpoint for CARTITUDE-5 and 6. And for CARTITUDE-5, it probably would make a small difference because anyway, we expect the readout to be in 2026.

Now for a CARTITUDE-6, it could make a big difference because if you look at our disclosure on clinical.gov, primary completion is estimated at 2033. Now if FDA does agree upon the 12-month marketing activity in combination, for example, with CR or any other endpoint as a potential endpoint for accelerated approval. Then we can make that much, much faster in terms of the process, right? Because if we can complete all the enrollments for CARTITUDE-6 by end of next year, which is end of '25 then if the 12-month margin activity is amenable at the endpoint, that means potentially by end of 2026, we could have that kind of read out, right? So it does help a lot for frontline trials.

Now if you look at competition, I mean, I think in second line from our experience, it doesn't change too much, right? Because the median PFS for our control was about 12 months. So I want to complete enrollment, the readout shouldn't take that much longer. So I don't think there's a huge difference if you look at the second line or third line. But for [indiscernible], it does make a significant difference here.

In terms of the bar, I don't think there is a quantitative bar here that the regulators have already determined at this point. but you can follow our disclosure from CARTITUDE-4, CARTITUDE-2, CARTITUDE-1 trial, right? In general, we achieved a very high MRD activity rate. In fact, at [ ASH ] last year, we even published the data from 21. If you look at patients who achieved 6, 12 months or even longer than 12 months margin activity in combination of CR.

Those patients tend to have a very good prognosis in terms of longer-term PFS and survival. So we do have data from the CARTITUDE program to show that if a patient can achieve complete response in combination with some sort of longer-term margin activity, that is a very good predictive marker for a long-term outcome here.

[Operator]

And our next question coming from the line of Mitchel Kapoor with H. C. Wenig.

[Mitchell Kapoor, analyst]

I have two, the first one I wanted to ask a bit on the second-line launch and the payer discussions. Can you just talk about kind of the color of payer discussions in the second-line population. And how did those second-line reimbursement discussions compare to those that you have had previously for later line reimbursement discussions?

And then the second question is on COGS. Could you just talk about the trend in COGS, and any impacting factors or levers that could influence the COGS in the future?

[Steven Gavel, executive]

Why don't I take the first question around payer and contrast CARTITUDE-4 versus 1. So it all comes down with these payer conversations around the value proposition associated with treatment-free interval obviously the CARTITUDE-4 data is significant in terms of our PFS improvement.

Payers the net of this in an earlier line setting, payers love a product like cilta-cel, in terms of the benefit that we are able to give not only from a financial perspective, but also from a patient perspective in terms of the patient-related metrics.

So all systems are go in terms of early line approvals in terms of -- from a reimbursement perspective, we have had no issues at all. As a matter of fact, the payers, the privates in particular, are 1 of our biggest advocates out there.

[Lori Macomber, executive]

I'll take the COGS actually. So as you move into the second line and the payer structure changes, to your question, where you're going to see that is in the gross to net adjustment. On the COGS line, the reason that you see variability actually has to do with the manufacturing capacity investments that we're making.

So you will continue to see the COGS variability as we start to bring these -- finalize the capital investments and bring these nodes online in '24 and actually '25. So you always -- it's the revenue line and the gross to net where you'll see the impact for the second line launch.

[Unknown Executive]

So if I come back to that first point because it just occurred to me one more thing around the payers piece of this, [indiscernible] the issue around outpatient administration as well. I mean other than the treatment-free interval component of this, as you can imagine, private insurers love the fact of a now a CAR-T therapy that can be given by hospitals very safely in the outpatient setting just purely from a cost reduction as opposed to admitting these patients, keeping them in some time for weeks to reduce costs and continue to maintain these patients safely and then also benefit from that long-term treatment-free interval is a very compelling story to private insurers.

[Operator]

Our next question coming from the line of Rick Bienkowski with CancerCare.

[Rick Bienkowski, analyst]

For the CARVYKTI launch in Europe, could you comment on the number of certified treatment centers that are open in Germany and Austria? And how many are expected to be certified by the end of the year? And as a second question, Ying, I was hoping you could expand on the prepared comments around reducing the CARVYKTI [indiscernible] of in time. Could you talk about the work that's being done here and if there are any internal targets for how much this could be improved?

[Unknown Executive]

Why don't I take the first question around Germany around sites. Unfortunately, I cannot get into the details around sites and the rollout plan in Germany. I know it's -- I can tell you this. It's very robust. And I could also tell you the fact that in any country, the site certification process is often somewhat lengthy.

So I'm bringing that up because I know our partners working very hard to bring more and more sites on board, but I can't unfortunately get into specifics around numbers of sites.

[Ying Huang, executive]

Okay. So on the question about [ went to van ], I can tell you that our goal is to get to a median of less than 4 weeks by the end of this year. And also, we have a new metric to measure, which is P90. That means 90% of all the sellback we shipped out will fall into the what we call APIs to receipt to less than 5 weeks. So that is our goal by end of this year. That means average what we saw [indiscernible] and then pretty much all the patients will be able to receive that within 5 weeks. That is our goal here.

[Operator]

I'm showing no further questions at this time. Ladies and gentlemen, this concludes today's teleconference. Thank you for participation, and you may now disconnect.