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        ADC Therapeutics | LOTIS-9 Combo Study Takes a Breather on Enrollment

        Value Never Lie wrote a column · 07/17 10:58
        ADCT before market open today announced its voluntary pause in the enrollment of the LOTIS-9 combo trial of Zynlonta and Rituxan (Lonca-R) in front-line unfit/frail DLBCL. We also caught up with the mgmt team this morning for more insights. Briefly, the pause was driven by higher-than-expected respiratory-related TEAEs (incl. 7 Gr 5, 5 Gr 3/4) after a recent data review of 40 pts. Of the 12 TEAEs, 1 Gr 5 case was deemed to be related to Rituxan, while the rest were deemed as unlikely or unrelated to Rituxan or Zynlonta. The exact cause of these events is not yet identified, but we do note that the Gr 5 cases might be driven by underlying co-morbidities.
        From our discussion, the expected duration of the enrollment pause is not entirely clear. The company notified the regulators yesterday, and may receive a request for additional details or a mitigation strategy. That said, we await visibility on the next steps near term. Furthermore, the pause appears to have no direct read-through to the ongoing Ph 3 LOTIS-5 combo trial in ASGCT-ineligible 2L DLBCL. Safety monitoring has not yet observed any similar red flag. Amid sustained competitive headwinds in the approved late-line setting, we believe today’s pause potentially hampers the company’s ability to expand into earlier-line as a combo. We remain on the sidelines as we await more color on the next steps for LOTIS-9 and updates on the rest of the early-stage pipeline. We reiterate our UW on ADCT shares.
        Investment Thesis
        ADCT is a commercial-stage biotech company developing novel antibody-drug conjugates. The key assets are Zynlonta (approved in DLBCL) and camidanlumab (pre-BLA in HL). Sales for Zynlonta have been lackluster. We believe headwinds to drive adoption will continue. Competitors that are well entrenched in the space are rapidly advancing. The market opportunities for Zynlonta to expand beyond the current indication and the rest of the pipeline in heme and solid tumor remain to be seen. Overall, we believe ADCT will underperform its biotech peers given headwinds on Zynlonta sales and lack of thesis-moving catalysts from the rest of the R&D pipeline.
        We value ADCT based on a DCF analysis; however, we do not have a price target for the company. We assume credit for approved Zynlonta in the late-line DLBCL indication. We also assign credit for pipeline assets that are in early-stage development.
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