Legend Biotech Corp

NASDAQ:LEGN

Earnings Call Analysis

Legend Biotech Q3 Growth and Projections

Legend Biotech reported $341 million in net sales for 2023, signaling a 23% quarter-over-quarter increase, driven by CARVYKTI, its collaboration with Janssen. They're scaling production, including launching a facility in Ghent for cilta-cel manufacturing. While R&D expenses dipped to $95.9 million from $104.5 million last year, administrative expenses rose to $28.1 million. Legend holds $1.4 billion for expenditures into 2025, anticipating a 30% growth in assets, guiding towards break-even and profitability by the end of 2025.

Manufacturing Enhancements and Out-of-Spec Rate Improvements

The company is proud to have substantially improved their manufacturing capabilities, which has led to a significant reduction in their out-of-spec rate. These strides underscore their commitment as a fully integrated cell therapy entity that is geared not only towards hematologic malignancies but also solid tumors. The momentum from these advancements is expected to hold as they further invest in expanding their manufacturing capacity, with the objective to make the delivery of their product CARVYKTI both swift and reliable to patients. Moreover, the out-of-spec rate has stabilized in the teens and is currently below the 18% on-label average, which is anticipated to further decrease following FDA approval of second-line indications.

Market Share Stability and Forecasted Growth

The management reported stable market share consisting of a ~30% split between inpatient and outpatient settings. They forecast substantial growth upon the launch of CARTITUDE-4 next year, potentially doubling their market reach as they also focus on expanding the number of treatment sites and maintaining a steady supply.

Production Scale-Up For Future Demands

An approved step up in production will become evident in the first quarter of 2024. This ramp-up is part of a strategic effort to increase manufacturing capacity in anticipation of the launch of support programs like second-line launches. The company is also planning comparability runs in Q4 as part of this preparation.

Competitive Strategy Amidst Bi-Specifics and International Trials

The company is observing a strong demand in later-line settings, expecting this trend to persist with bi-specific therapies. In the competitive landscape, they are mindful of developments from other players like Bristol Myers but feel no need to substantially increase marketing and promotional expenditure for CARVYKTI as a response at this time.

Clinical Trial Progress and U.S. Enrollment Plans

The company is proceeding with CARTITUDE-6 trial enrollments and plans to initiate U.S. patient enrollment soon. This is critical as the U.S.-based patient data is necessary for later submissions to the FDA to ensure a representative cohort is included in these studies.

Expanding Site Reach and Manufacturing Facilities

The end of the year target is to achieve approximately 70 treatment sites, with projections for the end of the following year to expand to between 90 and 100 sites. This expansion is tied closely to the growing manufacturing capacity and the demand within the market. Additionally, a GMP certificate from Belgium authorities facilitates clinical production and will help divert some European and clinical trial demand to that facility, thus freeing up capacity at the New Jersey facility for other demands.

Investment and Spending Trends

Investments in both CARVYKTI programs and the broader pipeline have been consistent, with the expectation that this trend of investment will carry forward into 2024, maintaining alignment with historic spend levels.

Gross Profit Margin Dynamics and Expectations

While there's been a slight decrease in the gross profit margin quarter-over-quarter, the company has observed improvements from a product perspective. They remind investors that gross margin calculations include expenses for facility investments which can distort the impression of underlying performance. As production volumes increase and process improvements are made, they project further margin improvements, not providing specific guidance, but the company’s goal is to decrease the out-of-spec rate by an additional 5 to 10 percentage points, which should favorably impact gross margins.

Backlog and Supply Expansion

The patient backlog has remained consistent from the beginning of the year, indicating steady demand. Given the second FDA approval for increased capacity and plans to expand the New Jersey facility’s capacity, the company is working towards meeting the growing demand. However, they acknowledge that they are currently not equipped to satisfy the entire market demand for CARVYKTI, which is considerable given the addressable patient population for multiple myeloma.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Legend Biotech Reports Third Quarter 2023 Financial Results Conference Call. [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. You may begin.

[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 third quarter 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 will be joined by Guowei Fang, Chief Scientific Officer; and Steve Gavel, Head of Commercial Development for the U.S. and Europe.

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 Investors section of our company website. Thank you. I will now turn the call over to Ying.

[Ying Huang, executive]

Good morning, and thank you for joining us today to discuss third quarter financial and corporate accomplishments of Legend Biotech. We are pleased with the progress we have made over the last quarter to advance our portfolio and pipeline of innovative therapies that are focused on addressing the serious and intractable disease patients face.

Last week, we announced that we have entered into an exclusive global licensing agreement with Novartis, which grants Novartis is the rights to develop, manufacture and commercialize LB2102 and other potential CAR-T therapies, selectively targeting DLL3.

LB2102 is an investigational autologous chimeric antigen receptor T cell therapy for the treatment of adult patients with extensive stage small cell lung cancer. As part of this agreement, we will receive an upfront payment of $100 million and are eligible to receive up to $1.01 billion in milestone payments as well as tiered ROEs on net sales. We will also be reimbursed for development costs for the ongoing Phase I clinical trial, which will evaluate the safety and efficacy in patients with small cell lung cancer and patients with large cell neuroendocrine carcinoma, and to determine the recommended dose for Phase II study. We're excited by this transaction, and we look forward to seeing how this therapy performs in the clinic. CARVYKTI, or cilta-cel continues to drive our revenue and direct our priorities. We have worked tirelessly to bring CARVYKTI to patients who are eligible for treatment and our efforts are reflected in the total net sales of $152 million in third quarter, bringing total net sales for 2023 to $341 million so far this year.

Our third quarter performance was driven by ongoing market launches, expanding market share and capacity improvements as well as the commercial [indiscernible] CARVYKTI in Germany, which contributed to quarter-over-quarter ex U.S. growth of 300%. In the U.S., we experienced growth of 23% quarter-over-quarter. We remain steadfast in our goal to make CARVYKTI available and accessible to patients worldwide, and we look forward to sharing highlights of that journey with you today. We have progressively met strong demand for CARVYKTI in collaboration with Janssen. First, Janssen has scaled the in-house production of [indiscernible] at its factories in Switzerland and has another factory in the Netherlands under construction to complement and support LV supply, which should be online by 2025. LV expansion is crucial because it is often the rate-limiting factor in any CAR-T manufacturing and growing LV supply is an important front in our ramp-up. Second, we're still on track with our preplanned capacity increase at our [indiscernible] side and production from our CDMO is supporting that expansion next year. Third, the first of our state-of-the-art manufacturing facilities in Ghent has received a license from the Federal Agency for Medicines and Health Products in Belgium. This was an important hurdle to clear. And once the investigation of medicinal product dossier is approved by local authorities will begin manufacturing cilta-cel at Ghent for clinical use by end of this year. The Ghent facility will be an important part of the CARVYKTI supply chain network.

We're committed to bring CARVYKTI to more patients who are eligible for this important therapy. Our manufacturing ramp-up supports commercial delivery as well as our ongoing [indiscernible] development program with Janssen. Of the 5 clinical trials evaluating cilta-cel, 3 are ongoing and CARTITUDE-6, our Phase III study for frontline patients enrolled its first patient. The activation of 1 of our Ghent facilities will enable us to continue the commercial ramp we began in the U.S. while onboarding new clinical patients.

In addition to making capacity enhancements, we work with roughly 60 certified treatment centers across the U.S. and are expanding access to CARVYKTI in select European countries, including Germany. Our teams are working hard on multiple fronts to bring this efficacious onetime treatment to patients in need. We are pleased to share that since trials began in 2018, we have treated more than 2,000 people with cilta-cel.

Our pipeline is also robust, and we're exploring the potential of cell therapies in both hematologic malignancies and solid tumors. The funds from our transaction with Novartis will primarily be used to develop other promising pipeline assets such as our allogeneic cell therapies. The [indiscernible] used in [ LG2102 ] can also be deployed in other pipeline programs is validated in the clinic. We continue to explore innovation in our pipeline and are excited about their progression. Now I want to turn it to Lori.

[Lori Macomber, executive]

Thank you, Ying, and good morning, everyone. As Ying mentioned, we are very pleased with the performance of our commercial product CARVYKTI this quarter, which generated approximately $152 million in total sales, an increase of 30% over the previous quarter, driven by ongoing market launches, expanding market share and capacity improvements. That performance also represents 176% year-over-year increase. As a reminder, we share equally in all profits and losses of CARVYKTI ex China with our partner, Janssen.

Starting with cash and cash equivalents, time deposits and short-term investments of $1.4 billion, this will fund our planned operating and capital expenditures into 2025. Starting with revenue. Total revenues for the third quarter were $96 million, consisting of $75.9 million in collaboration revenue from the sale of CARVYKTI and $20.1 million in license revenue for the achievement of a milestone during the quarter as outlined in the global development plan under the Janssen Agreement for cilta-cel.

Net loss for the 3 months ended September 30, 2023, was $62.2 million or a loss of $0.17 per share compared to a net loss of $85 million or $0.26 loss per share for the same period last year. For the 9 months ending September 30, 2023, net loss was $373.4 million or a loss of $1.07 per share compared to a net loss of $310.5 million or a loss of $0.99 per share for the 9 months ended September 30, 2022.

Moving on to expenses. Collaboration cost of revenue for the third quarter 2023 was $43.5 million compared to $25.5 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 expansion.

Research and development expenses for the third quarter 2023 were $95.9 million compared to $104.5 million for the same period last year. The decrease of $8.7 million for the 3 months ended September 30, 2023, compared to the 3 months ended September 30, 2022, was due to timing of expenses incurred in connection with the master technology transfer manufacturing and clinical service agreement for [indiscernible] CAR-T product with Janssen and Novartis Pharmaceuticals Corporation.

Administrative expenses for 3 months ended September 30, 2023, were $28.1 million compared to $23.2 million for the same period last year. The increase of $4.9 million year-over-year is primarily due to the expansion of administrative functions to facilitate continuous business growth and continued investment in building Legend Biotech's global information technology infrastructure.

Selling and distribution expense for the 3 months ended September 30, 2023, was $21.1 million compared to $18.9 million for the same period last year. The increase of $2 million year-over-year due to costs associated with the commercialization of CARVYKTI.

To wrap up, our spending remains on track, and we continue to maintain a strong balance sheet. As of September 30, we had $1.4 billion in cash and equivalents, deposits and investments, which Legend Biotech leaves will fund operating and capital expenditures into 2025. Thank you. I will now pass it back to Ying for closing remarks.

[Ying Huang, executive]

Thank you, Lori. 2023 continues to be another remarkable year for Legend Biotech, and we look forward to closing out the year strong in the fourth quarter. We have made considerable strides in enhancing our manufacturing capabilities and lowering our out of spec rate.

We're proud to be a fully integrated cell therapy company focused on both hematologic, malignancies and solid tumors.

Looking forward, we'll continue to invest in our manufacturing capacity as we work to deliver CARVYKTI to patients expeditiously and responsibly. We'll also continue to expand our pipeline. At Legend Biotech, we strive to deliver long-term value to our shareholders and are encouraged by these developments. Thank you for joining us today. We'll now open the call up for questions.

[Operator]

[Operator Instructions] Our first question is coming from the line of Gena Wang with Barclays.

[Huidong Wang, analyst]

Also congrats on the great quarter. So maybe I have 2 questions. One is regarding I think this morning, we saw the news, the [indiscernible] they will require ADCOM and a PDUFA got pushed out. And maybe based on that news, what is your interaction with the FDA so far? And are you also anticipating an outcome?

And second question is regarding the competitive landscape. In terms of the efficacy profile, we will see some update at ASH? What is your thoughts regarding staying competitive. And the other related question is a commercial strategy in the outpatient setting?

[Ying Huang, executive]

Gena, thanks for the questions. So I'll take the first 1 first, which is regarding the outcome that will be hosted by FDA ODAC for our competition. So I can tell you that given our interactions with the FDA so far on our CAR-T filing, clearly, the agency plays an emphasis on the OS benefit, overall survival benefit. And typically, the agent standard is that you have to demonstrate a significant PFS benefit with an overall encouraging trend in survival. So without disclosing anything further, I can tell you that on August 4 when we received the filing acceptance for CARTITUDE-4 by agency, we were advised that FDA was not planning to hold an AdCom or advisory committee to discuss this supplement. That was as of August.

Secondly, I'm also very pleased to tell you that as part of our so-called 4-month safety update, we did submit to the FDA additional data, and again, we are seeing a stronger trend of overall survival since the last update when the data was presented at [indiscernible] that's what I would say about the overall survival from [indiscernible]. And we remain very confident on the profile for CARVYKTI.

Secondly, on ASH and competition, I'm not to comment into any competitive data, but we stand behind the safety and efficacy of CARVYKTI, which been dosed by more than 2,000 patients already since we started the program, and that includes patients with dose in the commercial setting after FDA approval last year and also patients who were dosed in various CAR-T program and also [indiscernible] in China. So we are very, very happy to see the very deep, consistent, durable response in every setting of multiple myeloma, we have tested so far. With the commercial strategy, I'll ask my colleague, Steve to comment. Steve?

[Steven Gavel, executive]

Yes. Thanks, Ying. Thanks, Gena. I think your question had to do around outpatient and maybe I could just give you an update on what's happening in that particular area. We were holding constant at about 30% share in terms of inpatient versus outpatient. We're also forecasting as we enter in earlier lines with the CARTITUDE-4 launch next year is to exit. We hope to exit next year, I would assume maybe even doubling that. It's really predicated on bringing on board our sites and obviously, getting our consistent supply into market. But right now, from a share perspective, that's how our claims data is measuring up.

[Operator]

And our next question coming from the line of Jessica Fire with JPM Chase.

[Unknown Analyst]

On the heels of the Novartis licensing, can you talk about what the next wave of targets Legend is interested in pursuing might be?

[Guowei Fang, executive]

Thanks, Jessica. This is Guowei. So we have extensive internal pipeline, both in our targets as well as in the [indiscernible] front. In our pocket space, we continue to focus on broad cancer building the momentum franchise at the same time also expand into the solid tumor indications.

In alergenetic space, we have several different platforms, and we have deep investments in [indiscernible] platform in the past several years, to offer on our compound is tested in the communicate setting, and we are waiting to collect clinical response profile and expand [indiscernible] platform as well. Currently, the allogeneic platform is primarily focused on the blood cancer indication.

[Operator]

And our next question coming from the line Kelly Shi with Jefferies.

[Dingding Shi, analyst]

Congrats on the great progress. How should we think about the Q-over-Q growth of CARVYKTI into Q4, considering the J&J and Legend manufacturing capacity increase and also the level of demand in the mainline settings as [indiscernible] experienced a great launch. And also, how do you estimate the seasonality impact from holidays and also have a follow-up.

[Lori Macomber, executive]

Thank you. Kelly, this is Lori. I'm going to give you just overview quarter-over-quarter, and then I'll turn it over to Steve. As you look out going into Q4, as we've talked about before, we are doing a step up. We have gotten that approved. But as we've indicated before, you won't really see the impact of that until Q1 of 2024. And as a reminder, we've also signaled that in Q4, we will be doing some comparability runs as we're getting some of our additional nodes for manufacturing capacity up and running for 2024 to help support these second-line launch. So with that, if you look at Q4, we're not giving specific guidance, but you're not going to see significant growth quarter-over-quarter because of both of those activities. And with that, Steve, I'll turn it over to you.

[Steven Gavel, executive]

Yes. Kelly, it's Steve. I think [indiscernible] to do with the tech launch. So what we're seeing in market research that we're running is where you see market share coming out of market in terms of CAR-T therapies has been that from [indiscernible] to cilta-cel. We're seeing still a robust demand in later line settings. And I think you're going to see that continue in market with the bispecifics, where if you see erosion in terms of share erosion, I see it coming from [indiscernible], that's been the latest data we've seen in our search.

[Dingding Shi, analyst]

Terrific. And also regarding the initiation of CARTITUDE-6 trial in the frontline transplant-eligible patient population. Could you actually share -- should we expect the U.S. enrollment to start in near term? And even majority the enrollment come from Europe, do you consider impact on the enrollment pace compared to CARTITUDE-5 trial?

[Steven Gavel, executive]

Thanks, Kelly. So we're very pleased to announce that the first patient has been enrolled last month in Spain. So we officially have kicked off the initiation of CARTITUDE-6 and we are going to initiate enrollment in the U.S. also very soon. At this point, I can tell you that we will promise to enroll a certain percentage of U.S.-based patients because we have to submit the data to the agency later to make sure that we have a representative U.S. patient population in the overall. Although probably the majority of patients will be enrolled ex U.S. for CARTITUDE-6.

[Operator]

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

[Vikram Purohit, analyst]

We had 2. First, assuming you were to obtain approval for CARVYKTI for the expanded label based on the CARTITUDE-4 data by next April. Could you just walk us through your latest thinking on what you expect the ramp to look like in earlier line use in 2024 onwards.

And then secondly, back to the topic of competition. So Bristol-Myers in [indiscernible] have mentioned that they're making a bigger commercial push for [indiscernible] that includes site expansion to broaden out [indiscernible] therapy. I wanted to see if you've noticed any competitive impact at this point from those efforts. And if you and J&J feel the need to increase your marketing and promotional spend, behind CARVYKTI in response to the efforts from Bristol-Myers and [indiscernible]?

[Steven Gavel, executive]

It's Steve. So let me try to take them. I think the second part of your question had to do with site expansion also promotional spend. We'll continue to expand sites over time. We'll exit this year, we think, right around 70 sites. I will see our site expansion is predicated on delivering in our manufacturing capacity increasing. So we are targeting by the end of next year to be exiting at about between [indiscernible]. So that hopefully answers your question around site expansion.

And as I remember, as I continue to state there, this is more than just site expansion. All these sites are not created equal in terms of the numbers of patients that they treat. Our philosophy is continue to increase our site expansion to ensure that we can accommodate the demand within those sites.

I think your second question had to do with CARTITUDE-4 or can someone help [indiscernible] the ramp. Yes. So thanks.

So how we're planning the CARTITUDE-4 ramp in terms of the forecast perspective, we were initially and we continue to assume a very quick ramp-up, especially in the high-risk population in second line plus. In some of the research that we filled in post ASCO, once we release the CARTITUDE-4 data, we're also seeing high demand also in the standard risk population. So generally speaking, again, we're very excited, as you can imagine, in launching CARTITUDE-4 for our patients. But we see it much broader than we were initially thinking beyond the high-risk group.

[Operator]

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

[Leonid Timashev, analyst]

Congrats on the quarter. I wanted to stick with the competition discussion for just a little bit. We've been hearing that there's actually been capacity constraints in the CAR-T space as a whole was actually BCMA and CD19-directed CAR-Ts competing for beds and infusion capacity. I guess, is this something that you're seeing as you're continuing to launch CARVYKTI? Do you expect any dynamic to lift or continue?

[Steven Gavel, executive]

It's Steve. I'll take that again. I think that's a very, very good point. So that's why it's so important, this is why you're seeing a large percentage now of sites moving to hospital outpatient for cilta-cel. So yes, so to your point, it's a very valid point that you cannot continue to treat CAR-T therapies as just a single inpatient mortality. We knew that leading into launch. And it was the reason why we were continuing to monitor how the market was moving to outpatient to increase capacity to your point.

So you address capacity in essence, 2 ways, right? So you continue to monitor to see how the market is moving in the outpatient setting, and as I stated earlier, running at about 3 out of 10 patients now being treated that way, and we see that continuing to grow significantly over time. So that's the first piece of that of solving that issue.

And then the second way you resolve that is by increasing sites themselves, and we'll continue to do that as well. So it's a combination of a number of different moving parts. So we'll see how the market is moving in the outpatient setting. And then we'll also continue to add more and more sites to accommodate, to your point, the patient [indiscernible] to ensure that we have enough -- or the sites have enough volume to pull through the volume of patients for our indication.

[Ying Huang, executive]

And Leonid, this is Ying. Maybe I want to add that. If you look at the number of transplants that are performed in the setting of myeloma, it's about 9,000 transplants, that's performed every year in the United States market. So we think at this point, at least for multiple myeloma, we're not approaching that limit in terms of yet. As you know, if you look at our supply into the market, right, we're nowhere near that 9,000 number yet. Thank you.

[Operator]

And our next question coming from the line of Yaron Werber with TD Cowen.

[Yaron Werber, analyst]

Great. I just have 2. The first one, can you give us a little bit of a sense, we're hearing that now, but potentially later on, [indiscernible] slots might become more of a bottleneck as you're ramping up capacity. I don't know if you can give us a little bit of a sense of how much capacity there is now? And what can you do to enhance it? And then secondly, it looks like the facility in Europe, in Belgium has now got approved on a local basis, and you're noting that you need to wait for investigation on the [indiscernible] approval and local authorities. Is that not centralized to the EMA? Or is it sort of different done differently in Europe? And I just reaffirm that you're not foreseeing any sort of limitation and how many slots you're going to have in that plant in Europe?

[Steven Gavel, executive]

This is Steve again. Why don't I take a crack at the apheresis question. The [indiscernible] question really varies by site. I know we've been having a number of conversations with our sites as we work collaboratively to onboard them and certify them. So the apheresis question really is being upfront addressed by our sites because what they are doing is forecasting what the volume looks like for them, whether it be for obviously the CARTITUDE-1 launch, but they have a pretty good idea, obviously, by now. But more importantly, CARTITUDE-4. So as I keep mentioning, we are addressing this in a number of different ways, this question around capacity. And right now, like I said, the number that I was guiding earlier in terms of roughly [90 to 100 ] that I gave earlier in terms of number of sites, is in response to a number of these capacity questions to ensure that the marketplace has enough aggregate capacity to pull this indication through. Ying, do you want to take the second question?

[Ying Huang, executive]

I'll take the question about the European facility. So we did receive a GMP certificate issued by the local FAG, which is the counter part of FDA in Belgium. And that is sufficient for us to start the clinical production next month in the U.S. -- sorry, in Belgium. And then specifically on your question about U.S. FDA. So right now, our plan is to start clinical production by end of this year in Belgium for certain clinical trials. And then about mid or next year in 2024, we're planning to seek regulatory approval for our [indiscernible] facility to start producing commercial correct.

Initially, we're planning to supply only the European market. So at this point, we will not need FDA approval. In the future, in the case where we do have excess capacity that we could use from the Ghent facilities, then we plan to come back and ask FDA approval. So you're right, in the case of commercial production for U.S. patients, we would need [indiscernible] approval by the FDA. But right now, in the very near future, we're only designating the Ghent facilities for our European commercial demand and also clinical trial demand. But still, that does help our supply in the U.S. because, as you know, right now, we're only producing both clinical trial materials and commercial CARVYKTI from our New Jersey facility. So whenever we can divert some of the demand from European market and also clinical trials to get, that will free up more slots from our [indiscernible], New Jersey facility. I hope that answers your question.

[Operator]

And our next question coming from the line of Lin Heisel from Goldman Sachs.

[Unknown Analyst]

Two quick questions on the financials. The first 1 is as we are still enrolling for CARTITUDE-5 and now starting to enroll for CARTITUDE-6 and R&D expenses remained flat well over quarter. How should we see the R&D spending in fourth quarter and in 2024? And the second question is it seems that the gross profit margin slightly decreased quarter-over-quarter. And can you share with us any color on potential gross profit margin improvement in the near term?

[Lori Macomber, executive]

This is Lori. In regards to the R&D spend, I think you'll see a consistent quarter-over-quarter. I mean the activities itself have been pretty consistent with our investment in front lines for the CARVYKTI program as well as our pipeline. So we continue going into 2024, we expect to see continual spend consistent with our historic.

I'm sorry, can you repeat the second question?

[Unknown Analyst]

Yes, sure. The second question is about the gross profit margin. When do we expect to see a further increase on the profit margin?

[Lori Macomber, executive]

So from a gross margin perspective, we have been seeing improvements from a product perspective. As a reminder, for gross margins, we have the product gross margin in there as well as the OpEx related to facility investments. So that's why it's hard for you to see the continual improvement in gross margin because as we've talked about, we continue to expand our capacity with manufacturing, so we continue to have expenses hitting in that gross margin line.

But as our volumes have increased and as we've made also some process improvements, our margins are improving from a product perspective, but we don't give specific guidance on those actual percentages.

[Operator]

Our next question coming from the line of Jonathan Miller from Evercore ISI.

[Unknown Analyst]

I'm going to ask about DLL3 actually [indiscernible] solid tumors more broadly. Can you walk us through the dose levels for the DLL3 Phase I versus CARVICTY? And maybe talk a little bit about how that relates to your expectations for dosing in solid tumors more broadly? And I have a follow-up.

[Steven Gavel, executive]

Hi, Jonathan, thanks for the question. This is Steve. So if you look at our disclosure on clinicaltrials.gov, you will see that we're planning to test 4 different doses, ranging from 0.3 million cells per kilogram body weight up until 1 million to 2 million per kilogram body weight. So this is a weight-based dosing plan. And because this is a solid tumor, and we foresee that you may need a little bit bigger dose than in the hematologic cancers. So if you look at our prior dose-ranging finding trials for the hematology such as multiple myeloma indication, this is a little bit higher starting dose given that we probably need a larger amount of T cells.

But on the other hand, we did put an armor namely the dominant negative [ TGFBeta ] armor to help expansion and penetration into the tumor setting. So that is the dose we're looking at for DLL3 and Phase I.

[Unknown Analyst]

And then on the label. Can you remind us how big an impact that will have on out of spec rate when -- assuming it does get approved. And should we expect that out of spec rate change to happen immediately on approval? Or will there be a ramp period or some sort of recertification for that?

[Steven Gavel, executive]

Sure. So part of our sBLA filing submitted to the FDA, we ask the agency to widen the release back based on the clinical data from the Phase III randomized controlled trial in second line beyond population, because we provide a significant amount of so-called sensitivity analysis to the [indiscernible] trying to correlate the release back with the clinical outcomes, such as PFS and survival.

So based on that data, we and our partner at J&J are very confident that we should be able to receive a wider release back. And if we do receive such a wider respect from the agency then eventually, we hope that the auto spec rate can decrease by additional 5 to 10 percentage points from where it is today. That is our expectation of course. We have to wait until we see the label and also the FDA approved the release back next April when the PDUFA date hits. But that is our hope.

And to the second part of your question, let's say, if we do receive a label and a wide release back today, it is going to take a little bit of time because once we start to roll out the second line in the market, and then we start to see more uptake. You will gradually see that lower OS will take place in the manufacturing process.

[Unknown Analyst]

Just to clarify what you just said there, when you say you take a little time to see that out-of-spec benefits come through, is that because you're only going to see that out-of-spec benefit in the second line plus patients? Is it not going to also apply to manufacturing [indiscernible]?

[Steven Gavel, executive]

You raised a very good question, Jonathan. Unfortunately, I don't have an answer to you because we would have wait and see what the agency gives us. It's possible that we'll get a uniform release back from both the first indication and the second indication, but it's also possible that [indiscernible] decide to give us 2 sets of release backs, which happened before. I'm sure you're aware to 1 of the CD19 CAR-Ts in the market.

So at this point, I actually don't know the answer, but it's a very good question. We'll have to wait and see what the FDA says.

[Operator]

And our next question coming from the line of Ash Verma from UBS.

[Ashwani Verma, analyst]

I have 2. So just of your partnership with Novartis, could that eventually allow you to use the [indiscernible] program to further lower the [indiscernible]. And then Second one, just wanted to see where you are on the CARTITUDE-2 study with the cohort E and F, I just wanted to get an idea. Is that something that we could see at the ASH abstracts late breaker tomorrow? Or is this more for ASCO next year?

[Guowei Fang, executive]

So for the tea charger platform, it's a unique manufacturing platform developed by Novartis, and this is only applied for LB2102. Internally, we are also developing local manufacturing process, and we are going to move internal development manufacturing process into other cell therapy product in the future.

[Ying Huang, executive]

Ash, this is Ying. I'll take the second part of your question, which has to do with the CARTITUDE-2 Cohort E and F. So I can tell you that at this point, we have completed enrollment for both quality to Cohort E and F in the newly diagnosed patient cohort. But we're not going to release data at this moment because, as you know, typically in the frontline setting, the PFS is relatively long. So we believe it will be more informative when we present data with a longer follow-up. So you should stay tuned when we present Cohort Eand F in the future.

[Operator]

Our next question coming from Konstantinos Biliouris from BMO Capital Markets.

[Konstantinos Biliouris, analyst]

Hello, everyone, and congrats on the quarter. One question from us on the clinical ongoing trials. Can you comment on whether the enrollment in CARTITUDE-5 is completed, and given that the CARTITUDE-6 tier is slightly larger than CARTITUDE-5, should we expect any impact from this increase on the commercial slots or these 2 are somewhat independent now with the clinical manufacturing support from Novartis and the [indiscernible].

[Steven Gavel, executive]

Thank you, Kostas, for your questions. So on CARTITUDE-5, we're very much on track to complete the ex U.S. enrollment of CARTITUDE-5 end of this year. And now we're looking at potentially over-enrolling CARTITUDE-5 in the U.S. because as I mentioned previously in this call, we would like to have a very representative U.S. patient population in the overall patients enrolled in CARTITUDE-5. So we're going to probably extend the U.S. enrollment by about 1 quarter into the first quarter of next year. But at this point, I can tell you that we're very pleased with the enrollment status. Like I said, we're pretty much down for the ex U.S. portion for CARTITUDE-5 by end of this year. So everything is going according to plan, but we do want to over-enroll up in the U.S. given the demand from patients and also given the fact that we'd like to have a higher percentage of U.S. patients in this trial.

On CARTITUDE-6, we just started our first patient last month in Spain, and it will probably take us about a couple of years while in a row. So regarding to the production, we likely will utilize our Ghent facility that's coming online next month to start production of CARTITUDE-6. We could also use additional capacity from our CDMO to satisfy that demand for CARTITUDE-6 production. That is our current plan now.

[Operator]

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

[Justin Zelin, analyst]

Congrats on the strong quarter. So can you give us an update on the out-of-spec rate for CARVYKTI today, just how things have been trending. And second, just on pipeline strategy. Will you look to continue to seek partnerships for your pipeline assets in the future? Or could you internally develop them and bring them forward?

[Ying Huang, executive]

So Justin, I'll talk about the out-spec rate question. We're very pleased where things have been trending in the last 6 months or so. Our out-of-spec rate has been decreasing and also stabilizing. And it's been consistently in the teens range. And right now, it does stand below the 18% on label out-of-spec rate. Thanks to the very much hard work from the Legend team and J&J team in the New Jersey facility. We have tried very hard to refine our manufacturing product by looking at various reasons for OS and also improving our OS on various work streams. So that's where we are.

I don't think we're very much different from the competition out-of-spec rate at this point. So I think we're seeing a very encouraging trend. And like I mentioned, we do expect this to continue to go down, especially after FDA approved the second line indication.

On the pipeline, the [indiscernible] question, I'm going to refer that to our colleague, Guowei.

[Guowei Fang, executive]

Thanks for the question. In terms of pipeline development strategy, we are open to both internal development as well as seeking out the collaboration partnership. Our goal of pipeline development is to accelerate the development time line and maximize the value for each individual assets so that we can bring differentiated and potentially transformative therapy to patients [indiscernible].

In this particular case for LB2102, we see a unique synergy between ourself and Novartis. We have a unique product design, a unique construct sequence and unique armous mechanism to facilitate the immune cell infiltration and overcome immune suppression in the tumor market environment, whereas Novartis has its unique manufacturing process, which is particularly important for a disease of small cell lung cancer. As you know that disease grows very fast and faster manufacture process would add value to the product profile. So in this case, we see the synergy.

And then in the future, we will continue to value the asset by asset, and try to find synergy and realize the additional value where it's possible. At the same time, if we have asset, we can develop by ourselves. We will also do it in [indiscernible].

[Operator]

And our next question coming from the line of Mitchell Kapoor from H. C. Wainwright.

[Mitchell Kapoor, analyst]

I just wanted to ask a little bit more about the supply constraints. And if you could give kind of a quantitative sense of where we are in terms of meeting demand. I think at 1 point, there was a lot of supply exceeding demand in terms of -- I think there was about 15% being able to be met. Could you just talk about where we're at today? And if you can't give a quantitative number, could you just kind of help us understand the trend?

[Ying Huang, executive]

Mitch, thanks for the question. And I'm going to answer this one. So if you look at the reported revenue last quarter, which was $152 million and $140 million coming from the U.S. you sort of can guesstimate the number of patients we served in the commercial setting last quarter. I cannot give you exactly the percentage of demand. We are satisfying, but I can tell you starting from the beginning of the year, we always track our backlog in terms of patients waiting in the queue every month. And I can tell you from January until now, really essentially we're seeing exactly pretty much the same number of patients in the backlog in the queue.

So we're not seeing any difference in terms of demand for this product at this point. And we're working very hard to initiate robust and reliable supply. So we are going to continue to expand our supply. As you just heard from our colleagues on the call, we did receive the second FDA approval in the increase of our capacity recently. So we're continuing to ramp up given that approval. And then we're planning additional increases in capacity from our New Jersey facility next year as well.

If you look at the number of patients, we think are within the so-called addressable market in the U.S., about 13,000 patients die every year, unfortunately, from multiple myeloma and probably around 8,000 to 9,000 patients are eligible for receiving CAR-T therapy. So at this point, given our supply, we think still we're nowhere near being able to supply or the demand for CARVYKTI at this point.

[Mitchell Kapoor, analyst]

Okay. And could you just kind of help us understand what the launch preparation is looking like for moving into earlier lines? Is it mainly just messaging changes with the sales force? Or what else can you tell us about how you're preparing for [indiscernible] approved?

[Steven Gavel, executive]

Yes, Matt, I'll take that one. It's Steve. So no, it's a bit different, right? So you're moving from a later line population that was largely -- these patients were largely many of our major academic centers. In the earlier lines from the second-line population, this will be a very different type of launch where you're largely reliant on the referral. So what the U.S. team has been working very closely with our partner is working through the models in terms of how to appropriately reach that outpatient clinic to ensure that an appropriate referral is made to 1 of our cilta-cel centers. So it's a bit different. You'll see some increase in FDA expansion on behalf largely of our partner at Janssen because they play largely in that outpatient space.

From the U.S. legend perspective, you'll see some increase as we increase sites, but our commercial footprint for Legend has been largely built around the inpatient setting as opposed to outpatient. I hope that answers your question.

[Operator]

And our next question coming from the line of [indiscernible].

[Unknown Analyst]

Congrats on the results. Well, I just have a follow-up on the gross margin currently at 43%, 44% over the past 2 quarters. So you mentioned about expanding capacity. So what are the other driver on margin on the gross margin given we have multiple facility, both internal and external coming online as well as an improving our spend rate. So what are the key parts actually? And how should we be thinking of the margin profile maybe even in the longer term as well.

[Lori Macomber, executive]

So just on the gross margin, again, as we talked about, there's 2 components in the gross margin. So from your perspective, when you look at quarter-over-quarter, it's a little bit hard for you to model it out. As I mentioned before, we continue to see improvement in the gross margin from a product perspective. Your gross margins are going to improve as your volumes go up, we've also have our out of spec that's gone down based upon also process improvements we've made at the plant. So we are seeing the steady progression of the improvement under the gross margins from a product perspective. But you're going to continually get noise in that number we report externally because we have to report the facilities expansion, the expense side of it that cannot be capitalized.

And as you know, we have expansion going on in [indiscernible]. We have expansion going on in Belgium, and we also have expansion going on with our CMOs. So you're going to continue to see a lot of facilities expense related to those capital investments through the end of 2025. So it's going to create noise. Some quarters are going to be higher than others, just depending upon where we are with some of those capital projects.

But if there's something specific, if you want to talk and submit more question and we can always set up a call with you and try to go over a little bit more detail, but I can't give any granular numbers -- I can't disclose any granular numbers from a product perspective.

[Operator]

And our next question coming from the line of Kelsey Goodwin with Guggenheim.

[Kelsey Goodwin, analyst]

Congrats on the quarter. I guess 2 quick ones for me. I guess, first, do you have any updated view on how we should think about profitability for the joint venture, maybe kind of building on some of these past questions on gross margin. And then kind of following up on that, I guess, how should we think about the longer-term COGS for CARVYKTI kind of once these capital expenses are no longer included in those line items? And yes, maybe kind of what out of spec in manufacturing failure rate do you base in the assumption for longer-term COGS?

[Lori Macomber, executive]

Kelsey. So profitability, the messaging is still consistent with what we signaled before. For the BCMA program, we're looking to have breakeven and profitability by the end of 2025. And from a company perspective, we're striving for profitability by 2026. And I always put a disclaimer in there. It will depend upon what happens with our pipeline development, what we look to do from a business development perspective. But based upon the trajectory of what we know now, that is what we've been signaling.

From a longer-term COGS, as I mentioned earlier, you're going to continue to see noise in that COGS line, all the way through at the end of '25 going into 2026. We're not giving any guidance on our actual COGS. I would say for your modeling purposes, you could probably use what's been the standard in the industry. It would be a good proxy for you for your modeling.

[Kelsey Goodwin, analyst]

Okay. Great. And maybe just 1 quick follow-up then on the profitability. I guess, to what extent is that breakeven profitability by 2025? How much is that reliant on hitting that 10,000 commercial doses by the end of the year?

[Ying Huang, executive]

Kelsey, I hope you understand that we cannot really disclose our internal modeling. But what I can say is that if you look at the COGS for CAR-T as a general modality, the cost of goods is probably somewhat higher than the typical cost goods of monoclonal antibodies. However, the SG&A in terms of selling and distribution costs, it will be much lower. You can tell that from our financials, right? While we almost quadrupling our sales for CARVYKTI this year versus last year, if you look at quarterly spend in sales and marketing, it's actually slightly lower than what we spent last year. So that gives a hint how we think about the profitability of CARVYKTI [indiscernible].

[Operator]

And our next question coming from the line of Sami Corwin with William Blair.

[Samantha Corwin, analyst]

Given you plan on over enrolling CARTITUDE-5 now, will that delay when we should expect data from that trial? And then do you plan on providing any revenue guidance for CARVYKTI beginning of 2024.

[Ying Huang, executive]

Thanks for the question, Sami. So on the first question, no, we don't expect any delay because like I mentioned, we are pretty much on track to close all the ex U.S. enrollment for CARTITUDE-5, which is the majority of the patients by end of this year. That's exactly according to our plan. And then we're only over enrolling in the U.S. next quarter just to make sure that we have a representative percentage of U.S. patients in this trial. So at this point, we do not expect any delay in terms of readout of CARTITUDE-5.

And then on product guidance, we're not really giving product guidance for the year of 2024 because our partner J&J has the policy of not providing [indiscernible] specific guidance. So unfortunately, we will not be in a position to provide you with the guidance for CARVYKTI sales.

[Operator]

And at this time, we have no further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation, and you may now disconnect.