Genmab A/S (GMAB) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen. And welcome to today's Genmab conference call. Today's call is being recorded. During this telephone conference, you may be presented with forward-looking statements that include words such as believe, anticipate, plan, or expect. Actual results may differ materially, for example, as a result of delayed or inaccessible development projects. Genmab is not under any obligation to update statements regarding the future, nor to confirm such statements in relation to actual results, unless this is required by law.

At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Lisa Drakeman, Chief Executive Officer. Please go ahead.

Hello and thank you for joining us to discuss the Genmab results for the nine-month period ended on September 30th. If you've seen the results, you know that compared to 2006, Genmab has had a significant increase in revenues and a decrease in operating and net losses for the same nine-month period. We also ended the nine-month period with cash of DKK3.9 billion, approximately $746 million. So the company is in a very strong position.

We are carrying forward multiple development programs. We do have five Phase III programs. And we believe that our research and development and other business efforts are moving forward as planned and as expected. And we also have reiterated our guidance for 2007. Some of you have noticed that the net loss and the cash position are close to the guidance range for the end of the year. We do expect significant revenues before the end of 2007. While we can't give the details of particular milestones, we are eligible for a number of important milestones for more than one partner between now and year end, assuming things go as planned.

I'd also like to point out that this was a very busy quarter for us. We regained the rights to the HuMax-TAC antibody from Merck Serono, which we are very pleased about. And we think that this is an antibody that has very interesting potential in a number of diseases. Roche also filed an investigational new drug application with the FDA for a Genmab antibody. So the pipeline is growing now as our partners move products forward.

We initiated a second Phase III study with HuMax-EGFr to treat front line head and neck cancer. And this is being done in cooperation with the Danish Head and Neck Cancer Group. We're very grateful for their involvement.

We also had an asset exchange agreement with Medarex, so that we gained all rights to HuMax-Inflam, which is now known as HuMax-IL8. Genmab plans to develop the antibody for treatment of glioblastoma. And that's a cancer of the central nervous system.

I have some new information for you today. We do have an update on the accrual in the HuMax-CD20 CLL Phase III study. As many of you may have heard us say on previous calls, we're very close to finishing the accrual for the study. At present, in the two arms of the study, we've actually accrued 67 patients in the Campath-intolerant arm. These are patients who have bulky disease. That means that Campath would potentially not be a good treatment for them.

In the double refractory arm, the patients who have been treated with fludarabine and also with Campath unsatisfactorily, we have 62 patients enrolled. So we only have four patients left to accrue in the double refractory arm to be fully enrolled in this study. We are working very hard, working with all of our centers around the world to find these last few patients.

I'd also like to reiterate that we do expect to begin the Phase III rheumatoid arthritis program with HuMax-CD20 this year. Again, the joint development team is working very hard to have at least one of these Phase III studies under way before year end.

Today, I am joined by the Genmab senior management team. We have Claus Moller, our Chief Operating Officer; Jan van de Winkel, our Chief Scientific Officer; and Bo Kruse, our Chief Financial Officer on the call. And we'd like to open this up for your questions now.

Thank you. (OPERATOR INSTRUCTIONS) And we will take our first question from Richard Parkes from Piper Jaffray.

Good afternoon or good morning if you're in the U.S. Congratulations on the CLL study. And thanks very much for the update. It's very helpful indeed.

I've just got a few questions firstly on HuMax-EGF. I'm trying to understand a little bit more your current partnering strategy for the EGF antibody. It seems to me that more recently maybe you've been playing down somewhat the potential for a near-term deal. And now whilst I understand it's important for you strategically to at least retain the share in the promotional effort, which is clearly quite a competitive space, and given the (inaudible) announcement, they are planning to invest heavily in an expanded development program, I wondered if your views on this have changed at all.

And secondly, just expanding on that, I wondered if you had seen any changes in the level of interest since top line results from the Flex study reported.

And then my final question is a financial one, and just related to the milestone income. And I know that you said you can't give any details. But would you be able to tell us whether those milestones are related to initiation of new studies? Or are they some other events?

Okay. Let me start with HuMax-EGFr briefly. And we may like to have Claus help us here. With HuMax-EGFr's initial Phase III study in refractory head and neck cancer, we have an antibody that we think has the potential to be better than other antibodies. And we have a trial design that we think puts us in place to potentially show that. So as we look forward into next year, we think there's a very good chance that our data will be something that differentiates HuMax-EGFr significantly from the other antibodies in this area.

And I'm going to ask Claus in just a moment to describe the design. But let me then explain why I think that it makes sense to wait. So if you look in this area and you know there are multiple products available with two on the market, when we assess the potential value of the program, we believe that it could be considerably more valuable to us when we have the Phase III data in hand if we are negotiating a partnership. That doesn't mean that we will not negotiate a partnership prior to that data coming available. But because our cash position is so strong, we think it's very sensible to consider carrying the study on ourselves.

We do have two Phase III studies going. We have the head and neck cancer in front line. And we also have a lung cancer study under way.

Now, I think that if we go to the Urbatux data and the BMS data, I think this is all extremely encouraging. Since the Flex data came out, we have noticed in our discussions with investors in particular a tremendous initial interest in HuMax-EGFr, more than we had prior to that data. And I think everyone is starting to see that the market for EGFr inhibitors could grow to be very substantial.

I think we've also seen some partnering interest as a result of that that wasn't there before.

Having said all of that, I'd like to ask Claus to explain why we think our trial design has the potential to really distinguish the antibody, and why it's potentially very worthwhile for us to wait for that data before we enter into a partnering agreement.

Well, there's two things. The first thing is that the endpoint of the study is actual survival. We're randomizing between best supportive care and refractory head and neck in the patients, best supportive care or best supportive care plus the antibody.

But the other thing that we picked for both this study and also for the Phase III part of the lung cancer study that we have initiated is that we use individual dose titration to rash. There's a substantial amount of data available today that clearly indicates that if you do not achieve a level of antibody in your body that causes you to have skin rash, your chances of getting response is basically null. So it seems very important that you dose the individual patients up to at least a grade II rash. And that's what we have planned for.

So all patients start at the same bolus dose. And they get two weeks at one dose level, increase to another level, and they keep increasing for up to four levels until they get grade II rash. So I think that in itself is substantially increasing the patient's chances of responding positively to our therapy. And that hasn't been done before with EGFr inhibitors in a study.

Okay. Great. Thanks.

And then let me just come back to your milestone question, Richard.

Yes.

Again, we can't give specifics. But I think that you are making a good suggestion that there may be some milestones related to initiation of studies. And obviously, those are some of the milestones we expect to reach during the fourth quarter.

Okay. Thank you.

And we'll take our next question from Mark Clark with ING.

Yes, good morning, good afternoon to all. Two questions, please -- although you can't give us an idea of the scale of the milestones, could you perhaps give us some indication as to whether the fourth quarter R&D spend will be higher still than the third quarter, just to give us some sort of flavor there so we can do our extrapolations?

And secondly, I wonder if you could give us some sort of flavor on the recent news by Cephalon, their drug Treanda, or bendamustine, was in a Phase III study in Rituxan refractory follicular NHL and had a pretty decent looking set of results, 75% response for a median duration of response 40 weeks. Do you think this potentially resets the bar for HuMax-CD20? Or do you think the fact this is a chemotherapy means that it will be treated separately from an antibody? Thank you.

Well, let me start by saying we just have not given specific guidance on a portion of our budget in the past, Mark.

Okay.

It's not unreasonable to think that our spending will remain at similar levels. And as we go into 2008 and we continue to expand the program, I don't think our spending is going to look like it did in 2006. Having said that, and we have been looking at the Treanda data. And perhaps Claus could make some comments on it.

Yes, well, the comment I can make is that it's very limited information [as far as] truly efficacy information results. I have been trying to dig into and find out how they defined refractoriness of the patients. And I don't seem to be able to get that information. I hope that will be available at ASH when they present the data. But it is certainly impressive data in the follicular lymphoma patient population.

The other side which also needs more information is the safety side. It's hard to really dig out completely what is the safety profile. But they claim it's acceptable. And of course, we all look forward to seeing this. It's anything that's good for these patients is good. So we are really interested in following what's going on.

Again, I would say that this is an obvious chemotherapy that you (inaudible) could combine with the CD20 antibody. So let's wait and see what the actual result is and see how things develop. I can't say more about it right now.

Okay. Thank you.

We'll take our next question from Brigitte De Lima with Merrill Lynch.

Hello, good morning, and good afternoon. And thanks for taking my questions. I have two sort of broad questions, if I may. The first relates to R-1507 partner with Roche. I was just wondering if the completion of a Phase I trial is associated with a milestone payment to be received in the fourth quarter this year. And also, could you perhaps clarify what the next steps for this antibody are and when we should expect Phase III trials to begin and in what indications specifically will be tested?

And the second question relates to HuMax-CD20. Could you disclose when you expect to start the Japanese development in rheumatoid arthritis and follicular lymphoma, please? Thank you.

I might ask Jan to respond to the questions about the Roche antibody, beyond saying that we don't really have any more information about the milestones.

What I can say about this antibody is it's targeting the insulin-like growth factor receptor, which is a well-validated target now for an antibody therapeutic approach. This is a very important thickening [part A] used by a lot of different solid tumors to become -- in order for these cells to become tumorogenic.

And the data were absolutely spectacular. I think you've seen the press release. Especially in these Ewing sarcoma patients, we have seen very, very dramatic and positive data. And we fully expect that our partner Roche will move this program forward. But I think you need to ask Roche about their plans with relationship to Phase II and possible Phase II-type studies.

But the data are overwhelmingly positive. There's also other companies in this field active, like Pfizer, which unfortunately is working with the gamma II antibody, which is the wrong [isotope,] we believe, for an antibody therapeutic approach of cancer. And Amgen has a Phase I program also targeting the insulin-like growth factor receptor I target. But we may be further ahead than both of these other companies. But I think Roche will have to give you an update on this. And I fully expect them to move into further clinical studies soon.

And then the other question was on HuMax-CD20, when the Japanese development is expected to start.

Well, we really hope we see some Japanese development before the end of this year. That's something that's being handled exclusive by GSK. Genmab is not co-developing in Japan. So we are dependent on them for that. But I believe that they are trying to move ahead as rapidly as possible.

Can I just quickly go back to R1507? I was just wondering, can you just confirm that the end of Phase I trial was not completely conducted in Ewing sarcoma patients, that these were just a subgroup of patients enrolled in this trial?

Yes, that is confirmed. I mean, there's also other solid tumor patients. But in Ewing sarcoma, there was the most, I think, impressive data in this Phase I/II study. But there was also a number of other solid cancer patients, yes.

Okay. Thank you very much.

(OPERATOR INSTRUCTIONS) I will move onto Peter Welford with Lehman Brothers.

Hello. A couple of questions -- firstly, can I just confirm that Merck [TGA] will continue from the HuMax-CD4 until the end of this year? And that will therefore result in material revenues.

Secondly, am I right in saying that the primary endpoint for then release of the HuMax-CD20 CLL data is at 24 weeks? I just wanted to check. I think that's right.

And thirdly, on the expenses, I missed, sorry, this comment you made about whether fourth quarter R&D would be similar to the third quarter or, I guess, more similar to the earlier quarters of this year?

And also, could I just ask why weren't expenses increased significantly in the third quarter and whether that is a run rate we should be using for the future? Thank you.

That was a lot of questions, Peter.

Sorry.

Let's see how many we can remember. I think that the answer in terms of HuMax-CD4 is that, yes, the costs are the responsibility for Merck Serono until the end of the year.

The next question was after the CD4 expense, you wanted to know about -- was there a question in between that and the R&D expense, Peter?

Sorry. Yes, the main question was, am I right in saying that the endpoint for release of the top line data from CLL is 24 weeks?

The last patient's last visit is I think -- is that correct, Claus, 24 weeks?

Yes, correct.

After they start -- that's right.

Okay.

And then, in terms of the expenses, what I said was we haven't really broken out R&D spending. But with all of the Phase II programs, with the development in the pipeline, it's reasonable to think that the R&D spending will continue to be along the lines of the spending that we're starting to see now. It obviously varies from quarter to quarter, depending on the rate at which trials accrue and that kind of thing.

And then the warrant question is for Bo.

Yes, and it's true that the warrant compensation expenses have increased in the third quarter. It's a combination of a number of new employees joining the company. And also, we are having a higher share price than what we had a year ago. So that leads to a higher calculated compensation cost. The warrants are vested over a four-year period. So it will impact the calculated compensation cost going forward as well.

Thank you.

We'll take our next question from Melissa Gallagher with Bear Stearns.

Hello there. Most of my questions have been answered. I just had a question related to the financial income. Obviously, post the deal with GSK, financial income is quite an important attribute to your bottom line now. I just wondered if you could give us any kind of guidance on what we should think about that number, where it's going to go in the future. Is it going to stay around this sort of level? Or do you think it's going to increase or decline? Just any kind of directional guidance there would be useful. Thank you.

Yes, I think if Mr. Bernanke would give us some guidance over what's going to happen to interest rates, it would be easier for us. I think there's an important point, which is that we have some, primarily unrealized losses -- is that right, Bo?

It is correct, yes.

Yes, so part of what's happening is with the fluctuation in interest rates, the value of our securities also fluctuates. And that I think is a little hard for us to predict. Do you have anything to add to that, Bo?

No, actually, I feel it's a pretty precise description.

So basically, you don't have any view on this either, whether it's going to stay at around this sort of level or increase or decrease?

Well, the level of our financial income would be a function of the interest rates we see in the market. And of course, when interest rates go up, the valuation will suffer a little.

Perhaps then the question is do you expect using up your cash pile?

That's a different question.

(inaudible) question, yes.

Yes, I think that's a different question. I think for that, it's important to look at our year-end guidance, which shows you that we expect to have cash approximately in the range that we do now, between DKK3.8 billion and DKK3.9 billion, that we're in fact -- that's why I was saying unrealized losses, that in fact our cash numbers aren't changing so much, except for the small amount that we've used in operations. It's proportionately smaller, the amount we've used in operations.

And going forward, do you think that -- because obviously you're going to get other income coming in through deals and (inaudible) payments. Do you think that will offset you costs? Or will you have to reach into your cash pile?

Well, we haven't actually announced the 2008 budget and guidance yet. We normally would do that when we give year-end results in February. So it's a little hard for me to give you exact numbers for next year, except to say that we expect spending to be significant. Of course, we'll be sharing the cost of the HuMax-CD20 studies with GSK.

Okay. Thanks.

(OPERATOR INSTRUCTIONS) And we'll take our next one from Mattias Haggblom with Danske Bank.

Good morning or good afternoon. Thanks for taking the question. Mattias Haggblom with Danske Bank. Yes, one question on your UniBody programs. I believe one next-generation company is seeking to list on [your next] shortly. And then with Glaxo's acquisition of Domantis last year, I'm just trying to understand what could be the next value-created step for the UniBody platform. If you could give an update on that, I'd be very happy. Thanks.

I think we should ask Jan to discuss the UniBody. It's his invention.

Absolutely. This is a very different platform from the Doman antibodies you were describing, Mattias, like the Domantis platform or the [uplinks] platform you were referring to. This is a very different format. This is essentially a half molecule of IgG4 with a long half-life, which is very different from the short half-life for these other Doman antibody type formats. And we think that these UniBodies are unique and very effective blockers of functions, like inflammatory functions or autoimmune functions.

And we're looking on a number of programs. We will also probably in the near future update you all on which programs we're working on. You already know that we're working on a blocker of the CD4 molecule for HIV approach and that Glaxo has exercised the rights to be able to work on a UniBody targeting CD20. But we have actually a number of other programs active. And there's high interest from a lot of parties for this platform because this is such a unique and I think next stage, truly next stage, platform for making antagonists, true antagonists.

We know there are other companies interested in antagonists, like for instance, you can find on the Genentech website, they are targeting [C-map] which is a molecule of cancer cells which you can target in [monoferally] binding molecule, or one molecule binding with one arm. So they have also realized that these antagonists are important probably also for cancer therapy. I don't think that I can tell you anything more, except that we are highly excited about this platform. And there is an enormous interest for this platform. And we will all have to wait for what the next value-generating step will be there.

Lisa, just coming back to if you can elaborate on the potential outlicensing strategy for the platform, except for the GlaxoSmithKline license. Should we expect you to bring some of these into sort of clinical trials and show proof of concept before licensing? Or should we also expect similar deals, like with Roche, for instance, to occur in the future?

I think that we can probably go in parallel with those ideas. Jan has been very actively presenting and discussing the technology with potential partners. We are also working on a number of programs internally. And it seems to me that given the ease with which UniBodies can be generated, there's no reason why we can't manage both. Do you think that's fair, Jan?

Absolutely. It will be a combination. And I think we can say that we have already identified also with potential partners with programs, which will be amenable to a UniBody approach. And we have discussions ongoing.

Great. Thanks so much.

And we will take a follow-up question from Peter Welford with Lehman Brothers.

Okay. Peter, I have my pen ready this time.

Sorry. I've got just two very quick questions, actually. Firstly, are we still on track, do you think, to get CD38 into the clinic by the end of the year?

And secondly, for Bo, historically, Genmab's always been pretty evenly hedged with the cash versus the R&D being dollar based. Is that still true? Or is the current dollar weakness having a pretty material effect in some way or another on the P&L? Thank you.

To answer the HuMax-CD38 question, let's turn to Claus.

Yes.

Okay.

And then, Bo, would you like to comment?

Yes, we have about 6% of the cash position invested in dollar-denominated securities. So it's a fact that our net financial income will get hit a little bit when the dollar weakens. However, it's also true that we have this dollar position to offset the risks, especially the R&D expenses, denominated in dollars. So it means that the R&D expenses will reduce. And I would kind of follow the reduction of the financial income. And it's close to one to one.

That's great. Thank you.

And a follow-up question from Richard Parkes with Piper Jaffray.

Hi. Thanks. Yes, I've just got a couple of follow-ups. Firstly, on HuMax-EGF, I know you were discussing the program in refractory head and neck cancer having the endpoint of survival. And obviously, that's a moving endpoint in terms of the (inaudible) to see the data. And I've probably asked this every conference call, but I'm just wondering what your current view is as to when we can expect that data and whether there's any options for interim analysis.

My second question was related to plans for HuMax-CD20 and the randomized studies planned for 2008. It's been a few months now since you announced those plans. And I wondered if you've had any more thoughts on what would be the most appropriate patient populations in both CLL and NHL to go up against Rituxan in order to highlight the differentiating characteristics of HuMax-CD20.

Claus, I think these questions are for you.

Well, for the last two ones about the populations that we will pursue with randomized studies next year, that's still something that is indeed based on our partner GSK. And until there's a final agreement, we can't give you details about that. I can just say that there's a commitment from both sides to continue with that next year. And we are getting very close to some good ideas about it. But it's a moving target all the time. And things happen. So we really want to make sure that we're doing it the right way.

In terms of when to expect data, I think your own math is as good as our math is. At the time of follow-up on the patient and then your guess on how long it takes to analyze data is probably as good as my guess is.

(inaudible) I think we have, so we hope to see some data before the end of next year. Haven't we?

Well, I mean, it's still a study recruiting patients.

Okay.

So I think to come with statements about when we have data is still, of course, very open as long as we don't know when the last patient goes in. So I mean, we will inform, of course, when we have the last patient in the study.

But I think we've also said publicly that there is a possibility of an interim analysis. We have said that.

And that's in the protocol, yes.

Yes.

Okay. Thank you.

So the point is that Claus and his team are working hard on this and have plans for an interim analysis. And we're very hopeful that we'll see something next year. But obviously, he's right. We have to wait until all the patients are in.

(OPERATOR INSTRUCTIONS) And it appears we have no further questions. I'd like to turn the call back over to our speakers for any additional or closing remarks.

Well, thank you all for joining us today. We appreciate the opportunity to update you on events at Genmab and your interest in the company. We look forward to talking again in the future. Thank you and goodbye.

That does conclude today's conference. Thank you for your participation. Have a great day.