Genmab A/S (GMAB) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to the Genmab conference call. Today's call is being recorded.

During this conference you may be presented with forward-looking statements that include words such as believes, anticipates, plans or expects. Actual results may differ materially, for example, as a result of delayed or unsuccessful 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 required by law.

At this time, I'd like to turn the call over to Dr. Lisa Drakeman, Chief Executive Officer of Genmab. Please go ahead.

Hello and thank you all for joining us today on the Genmab first quarter results conference call.

This has been an eventful quarter for Genmab, as we move toward a commercial future based on our broad portfolio of products. Of course, the key event of the quarter was the acquisition of our beautiful new state of the art antibody manufacturing facility. We have a dedicated special team running that facility. I'm very happy to say that all former protein design lab employees who worked there joined Genmab. The transition is going smoothly and at present we are actually under budget, things are going so well. We continue to believe that the facility has the potential to provide significant cost savings during the next four years, as well as the strategic advantages that we expect, such as reduced timeline and development flexibility. So we're very pleased with the way this purchase has gone so far.

I'd also like to provide an update, as some of you have seen in our press release, on some of our Phase III studies. As you know, we expect data shortly from two key value drivers, Ofatumumab, also known as HuMax-CD20, and that data's coming from the refractory chronic lymphocytic leukemia study. We also expect data from Zalutumumab, also known as HuMax-EGFr, in refractory head and neck cancer patients this year.

In the case of Ofatumumab, we have a very exciting year ahead of us because we expect the headline data now in early August. And assuming it's positive, we maintain our plans to file the BLA this year. The dedicated BLA team is working very diligently to be certain the data is verified, that it's precise, that it's supporting the filing in the best possible way.

And I'd like to say we are also very encouraged by the steady pace of additional patients entering the study. You may remember that we concluded the enrollment for this interim analysis at the end of November with 150 patients, but as of now we've treated 185, so that's an increase of 35 patients. So it's more than one a week coming into the study. We continue to be very encouraged by this, because the physicians clearly have an interest in the study and it seems that they believe it's helping their patients.

Then, to move on to Zalutumumab, the EGFr antibody, of course the key event coming up will be the expected interim analysis in this survival study. Now, the timing of the analysis does depend on the survival rate and of course we hope the survival rate is improved by the therapy we're giving. One-third of the patients receive standard of care. The other two-thirds receive the EGF receptor antibody.

We remain very enthusiastic about this antibody's potential as an improvement over existing therapies. And this was highlighted, for example, in an April publication in the proceedings of the National Academy of Sciences. These results of preclinical studies on the mechanism of action of Zalutumumab show that using it should make it difficult for cancer cells to grow, multiply and survive. So this antibody we hope will be a real benefit to patients whose tumors express the EGF receptor.

At this point, I'd like to also summarize the financial results of the quarter. Revenues were DKK167m, that's approximately $36m, versus the first quarter of 2007 when we had DKK80m and $17m approximately in revenues. So, that's an increase of about 47% in Danish kroner. The net loss was DKK210m, about $45m, versus approximately -- excuse me, exactly DKK77m in the same period last year and approximately $16m.

Now, this increase is of course due to the significant expansion of our portfolio, more products in development and more products in late stage development than we had a year ago. And we believe that we are building value in the Company with this work.

The first quarter cash position was DKK2.4b, which is at the exchange rate on the reporting date about $503m. That's a decrease of DKK1.3b, approximately $280m, from the end of 2007. This decrease primarily arises from the DKK1.2b investment in the manufacturing facility that we made in March of 2008.

We are currently maintaining our guidance for the end of the year, which is a projection of about DKK1b, about $200m, and an operating loss of around DKK900m and a net loss of between DKK800m and DKK900m, for a U.S. dollar equivalent of between $160m and $180m. We project the cash position will be between DKK1.7b and DKK1.8b at the end of the year, which is around $360m to $382m.

So, at this point, we would very much like to give you an opportunity to ask your questions. I have on the call with me today Jan van de Winkel, our President of Research & Development, Claus Moller, our Chief Operating Officer, and Bo Kruse, our Chief Financial Officer. So, operator, please open for questions.

Thank you. (OPERATOR INSTRUCTIONS). Our first question comes from Erica Whittaker with Merrill Lynch.

Hi there. I've got a few questions. First of all, can you give us an update on the timing of CD20 data in NHL? You mentioned in your slide that accrual's not complete. Do you still expect to get data this year or will that slip into 2009?

Erica, as you know, we did put out a slide this morning showing that accrual isn't finished. You mentioned that. At this point, we know that in order to count a person as a responder the response to the product needs to last at least six months. As we have not completed the accrual in the study, we have to project that the data will now be available some time in 2009. I can't give more precise guidance than that. We need to wait until the last patient is in the study before we can give you a better timeframe for exactly when that will happen.

Okay. And do you still expect to meet the revenue guidance that you've provided without a potential milestone for positive NHL data and filing?

Yes, we do.

Okay. And that leads me to my next question, which is the other revenues, for example, that you reported this quarter in addition to milestone revenue, which is the -- what I understand is the co-development payments from Glaxo and some PDL revenue. Do you expect that revenue to increase markedly quarter by quarter through the course of the year, as you put more investment in the CD20 clinical trials?

Bo, would you like to answer that question, please?

Yes, I think it's fair to expect a milestone increase of those revenue items.

Okay. And congratulations, Bo, I can't believe you're on the call.

For those of you hearing Erica's comment, Bo welcomed his second child, a beautiful baby boy, yesterday. So we're very grateful to him for joining us today.

And then the other question I had was you've told us that the data will be available for CLL in early August. Could you give any indication of what the content of the press release will be? Will you tell us -- what information will we get, to understand whether you've met the 25% response rate or not?

Erica, at this point, I can't say any more than we expect to be in a position to release headline data. We need to agree with GSK what the content of that press release will be. I hope that -- I think you said that was your last question, we have quite a few people on the call.

Sorry, I just had one -- sorry, just one quick --

I really think we need to move on. Maybe you could come back later.

Shall I go back in? Yes, that's fine. That's fine.

We'll move next to Peter Welford with Lehman Brothers.

Hello. A couple of questions, firstly on the CLL data again, we're sticking with that one. Can you just possibly outline to us what, in addition to the 132 patients, 24-week response rate, what else the regulators will be looking at from that CLL Phase III trial to get the data package in to them?

My understanding is that in addition to the response rate the regulators will be very interested in the duration of the responses. Jan, do you have anything to add to that?

No, not in much detail. But definitely -- we have definitely had discussions with them about the duration of response and we think that they would like to see that the response lasts for a number of months, for sure.

Okay. And so --

And of course it's the quality of the responses (inaudible) the distribution between complete and nodular partial and partial responses. If we see complete responses and nodular partial responses, I think everybody will be very enthusiastic about it.

Thanks, Claus, that's a very good point.

Yes, okay. So when you say it will be interim, therefore, in August, what should we see when the full data set are available, obviously aside from the additional 53 patients in the safety database and [efficacy]?

Well, I think, actually, the key addition will be that we have other patients in the study. Do you agree with that, Claus?

Yes, absolutely.

Okay. And given that now 185 are enrolled, we should be able to get, by the time a filing occurs, we should have 24-week response data from those 185 at least?

Yes, I think what will happen at some time point is that we close for inclusion and currently we are stipulating to do that probably when we have reached a total of 200 treated patients. But it's still going to depend on discussions with our partner. But at some time point, we will close for inclusion and then those that are in the study at that time point will be followed for 24 weeks. And then the full data set will be the analysis of that complete set of patients.

Okay. And then a very quick financial one for Bo. Wouldn't you say that the joint -- the CD20 development costs that are reimbursed, clearly that is by far away only a small proportion of the total CD20 costs. So what is it about those costs that means that you get those reimbursed, if you like, and you book them as revenue as well as costs, compared to the other R&D costs where you're just presumably expensing half of the original cost?

With respect to the CD20 reimbursement, it works so that Genmab would get 50% of our development expenses reimbursed from GSK. So what we book as research and development cost is basically the entire investment in the program and the reimbursable 50% would then be recognized as revenues. Did that answer your question?

Okay. Sorry, maybe I missed something, but the total budget for CD20 for this year was, I've forgotten the number now, I think was it $300m? I can't remember. I'll have to look back on my -- and so you will book all of that cost through your P&L, but you will then receive half of it back. So there will not be any R&D costs (multiple speakers).

I'm not sure that's the case, Peter. I think some costs are GSK costs. Remember, they're responsible for certain aspects of this. Do you agree with that, Bo?

Exactly. Okay.

Yes. So (multiple speakers).

Okay, so you will purely book revenue --

(Multiple speakers) the proportion that we [had in] was from GSK would not hit in any other way than be recognized as part of the R&D expenses.

Exactly, so it's trials like the CLL trial, for example, where you started it. You're still, if you like, running the trial from that point of view, so you will therefore get 50% of the costs essentially back from GSK.

And that would be the case with any trial that we run. Of course, if it's a trial that GSK runs, then we'd just get an invoice of 50% of their expenses.

Now, there's another important point here. The CLL study, the original CLL study, was a 2007 expense so we were not sharing costs on that. We had a structure that allowed for us to receive milestones which were offsetting our costs then. So I think basically, in summary, Peter, both parties are investing in research and development. We are together responsible for half the costs, so we do receive reimbursement or they receive reimbursements depending on who's making the investment.

Got it. That's great. I'll jump back in the queue. Thank you.

We'll move next to Asika Gunawardena with Piper Jaffray.

Hi, guys. A lot of my questions were asked already, but let me focus a little bit on CD4. So the CTCL study is obviously slowing down a little bit, but can you give us a little more color on the prospects of the drug and what the future is -- what the future drug is going to be in other indications like that, NCTCL, etc., and when are we going to have an idea about that?

I think, at this point, that we are reviewing the antibody program in all aspects, including the manufacturing costs, the future investments that we need to make. Having said that, it's too early for us to say anything except that because recruitment has been really slower than expected, which we said when we received the program [back], but even after we expanded the inclusion criteria so more patients are eligible for the trial, that's just forced us to reconsider the program, think about what the timing could be to finish and to file, what the investment is, what the manufacturing commitment would be. I can't give you any more precise guideline than that, because of course this review is ongoing. We've asked a number of our senior people to participate in it from both the development and the manufacturing team. And as we work our way through the information, we'll be able to come back to you.

I do think that the non-cutaneous T-cell lymphomas, that that market based on all the information we have is larger than the cutaneous T-cell lymphoma market. There's also nothing approved for those patients, whereas with the CTCL patients there's a new product that's reached the market which may be affecting our accrual, since there's a new therapy to try before the physicians put their patients into an experimental therapy. And these are the kinds of things that we're looking at.

I'm sorry that I can't give you more detail than that. I have always felt this antibody could really help patients. I continue to believe that it's potentially very beneficial to patients and we'll just do everything we can to find a way to work in this program.

Okay. Thank you very much.

We move next to Michael Novod with Handelsbanken.

Hello. This is Michael Novod from Handelsbanken.

Hi, Michael.

Hi. I just have one question, my others have been answered. With regard to the EGFr program, you say that you still expect an analysis to be released in 2008. Could you update us on how is the -- we all know the mortality endpoint is around 50%. How far are you in the trial that you can say that you still expect it to be in 2008?

Michael, I think what we've been able to tell you today is that we've dosed 132 patients. We haven't been able to evaluate the survival in all of them yet and don't expect to be able to do that until later this year, to be able to tell you whether there's a difference in the survival rates between the patients on standard of care, which is approximately a third of the patients, versus the ones receiving Zalutumumab, which is two-thirds.

So we remain optimistic on the basis of the enrollment data and on all the preclinical and clinical data we have so far. But we really don't have any comment on where we are in terms of the survival rate so far.

Okay. Just a follow-up to the previous question on NHL and CD20. I think you've previously said that if data was supportive in the pivotal trial you could see it on the market in 2009. Is that still a fair assumption or how severe is the delay that you report today?

The non-Hodgkin's lymphoma study, I think because we don't have the last patient in, it's very hard to say exactly when we will be able to file. What we learned from the chronic lymphocytic leukemia study is that it's taking a little bit longer. I think we originally anticipated about six months between the database and being ready to have the headline data and make the appointment with the FDA. We found in that that it's taken about seven months. I can't predict exactly how long it will take to work with the non-Hodgkin's lymphoma patient data.

So I appreciate that you would like to know exactly when we hope to file. Unfortunately, I'm not in a position to give you any more guidance than we have, except that we don't expect the data now until some time next year. Of course, this is a supplemental.

Okay.

I should point out it's a supplemental BLA, but I think it's very hard for us to predict exactly how long it will take to finish the process.

Okay. Thanks.

Poul La Cour with Kaupthing has our next question.

Yes, hi. This is Poul La Cour with Kaupthing in Copenhagen. Just a few questions as well. Starting out with the CLL, please again tell us what sort of response rate you would consider approvable and what sort of response rate you would consider to be very competitive, first.

Second, please walk us through the process for filing the CLL study. So, after you've shown us the data in August, what happens? Have you already gotten a schedule for the pre-BLA meeting with the FDA, etc.?

Third question on the CLL as well. Did you say that you actually enrolled 150 patients in November last year, because I'm a bit confused there since in the press release that you did send out it said 132?

And then fourthly --

Poul, okay. Let me quickly answer that. 132 that we expect to be able to evaluate. I think we made a determination at that point that some of the patients did not meet all the criteria to be -- remember, we're trying to be very careful. So we believe that 18 of the patients, even though we can evaluate them, they would not meet the criteria of either of the two possible groups to be included in those.

Okay. And then just the fourth question, I guess, for now is regarding the NHL. How many of the patients have you actually enrolled now?

Okay. And like I said, we haven't given an update on exactly where we are on the NHL accrual. Claus, could you answer the question about what we said about the response rates that we think are probably at the right level and how we're viewing that?

And I think, on the process, I'm not sure we can add very much because we really haven't given any details about the BLA meeting. My understanding is we can't schedule it until we have the analysis.

Correct. In terms of the pre-BLA meeting, we can ask for that when we have the analysis and we need to provide the data 30 days in advance.

In terms of the response rates being guided by the FDA to us in our fast-track designation discussions with the FDA prior to initiating this protocol, the FDA guided us that a 25% response rate would be considered significant in this population, especially considering that if you look at what's experimental therapy and what is available typically can induce a response rate between 10% and 15%.

And the other thing also important here is that Campath, which is the last product that got approved here, was approved in patients that are fludarabine refractory based on a 33% response rate in 93 patients. And the patients that we're looking at are patients that are both refractory to fludarabine, like Campath was, but also to Campath. So we're talking about one step further out in disease progression. Or they are alternatively intolerant to Campath. That is a very toxic compound to patients.

So, a 25% response rate was guided as a significantly relevant target for filing. The other thing that has been said in this context is also it doesn't mean you can't file with a lower response rate, especially if some of the patients that you have among your responders are complete responders, or what's called nodular partial responders, which means that your bone marrow is free of malignant cells but seems to have some indication. A certain number of leukocytes and normal cells in your bone marrow look okay, but some of them may be in some kind of clonality, which can give some suspicion of remnants of your disease still being present. But nodular partial responses and complete responses would be considered very supportive in approval of the product, as would a 25% partial response rate.

In the [parentheses], I can say that in the Campath study, which as I mentioned was in 93 patients, the fludarabine refractory patients, they had a 33% response rate and only one of the responders was a complete responder. The rest was partial responses. So I think that gives you a pretty fair understanding, I think, about what we're looking for here.

Just a follow-up on the process for filing. What happens after you've had the pre-BLA meeting with the FDA, please?

We go home and put together, hopefully based on a recommendation from the FDA, that the product seems approvable or fileable. We put together the rest of the BLA filing, with whatever input the FDA may have given us at the pre-BLA meeting, which could include some additional focus in the safety database, etc., whatever they may consider relevant.

Is there a process or a step that you can cut back on, since you are delaying the studies by two months and yet you expect to file it this year? And also, previously you did expect to file it at the end of this year.

Well, I think the time plan we are following is basically still the same, since we were just saying that we hope to have some preliminary results here in June/July. But the full analysis which we will need to go to the FDA is still basically on the same time schedule. So I think we are not delaying the filing process by not coming with the data until August. Then it's just going to be on the full data set.

As Lisa indicated, it takes a little longer to do some of the data [queries] from the earlier set, so that's why we decided to do this the other way, and also because then we only have one set and it's a few weeks later than originally planned. So we don't think we have a delay there in the filing.

Okay.

We'll move next to Steve McGarry of Goldman Sachs.

Hi, good afternoon. Just a few things. Firstly, in terms of the analysis of the CLL study, will that be analyzed and submitted on the basis of your expectation that the FDA will analyze it based on the existing criteria for CLL? Or will you provide an analysis, using the new criteria that were published earlier this year? Hello?

Yes, yes.

Sorry.

We're using the previous one, not the new one published this year.

Okay doke. And your expectation isn't that the regulators will adopt the new criteria by the time you file?

I don't think they will have adopted them yet.

Okay doke.

That's the exact kind of stuff that you may [bump] into a pre-BLA meeting and so you can accommodate such requests from the authorities in due time. So we don't file and then they go, well, you should reevaluate the data and re-submit, because we want you to use the new qualifications. So that's exactly why we go for pre-BLA meetings [among others].

Okay. Secondly, then, obviously you've continued to recruit patients into the CLL study and the assumption is that these patients wouldn't be recruited unless clinicians felt that there was a benefit for these patients. Is there a minimum threshold in terms of subjective responses or a subjective improvement that clinicians would need to see before they would enroll patients in an extension like this? Or is there a certain duration of response that they are seeing subjectively in these patients that would be a minimum threshold?

This is Lisa, by the way. For some reason I was cut off back in the call. So are you asking about the CLL study, Steve?

Yes, yes.

And your question is that you want to know is there a minimum threshold the doctors know about now or for the individual patient?

Just for the individual patient.

Claus, do you have any thoughts on that?

No, I don't think I've heard any comments like that. The only kind of comments we've heard is that the doctors have been happy about being able to offer this treatment to patients and therefore also are happy to be able to continue being able to offer it.

Okay. And then, just finally, just on non-Hodgkin's lymphoma, obviously it's taken slightly longer to get your full patient recruitment and best patient population. Will that change the filing strategy in any way, do you believe? So, in other words, would you wait for data in earlier stage patients or will you definitely still file on NHL in these refractory patients?

I don't think the filing strategy has changed, Steve. I think that we are starting to think that this is probably a very small patient population, the ones who did not achieve a response to the existing CD20 antibody either in their first treatment or during maintenance. Claus, do you have anything to add to that?

No, I think that the strategy has been to use this as a supplementary BLA filing and we're still planning to do that. But of course the environment may change as time goes by, but I don't see anything that would speak favorably against not doing that. It seems the right strategy still.

Okay doke. Thanks very much.

We'll move on to Peter Sehested with SEB Enskilda.

Yes, hi there. Good afternoon. Just jumping back to CLL, did I understand it correctly that you will not ask for a pre-BLA meeting until you have analysis of the data?

Well, you want the complete technical definition, you have to ask for it at least 45 days in advance. 30 days before you get the -- before you actually go to the meeting, you have to submit the package. So that gives you -- you can ask for it a couple of weeks before you know you have your data set ready. But technically, we can't ask for the pre-BLA meeting until you at least know that 30 days before the day you get granted you can submit a data package.

And I'm sorry that for some reason I was cut off from the call when the question came out about the timing, but I imagine it was reiterated that the timing really didn't change --

Exactly.

At all, that we're on the same schedule we always were and the team is working along.

Yes.

Just quickly, could you guide a bit on the different top line revenue items, such as what you expect to book in reimbursements from GSK and from manufacturing revenues, as well as milestone revenues?

I just don't think we've given that level of detail.

Well, this could be the first time.

Mark Clark of ING has our next question.

Sorry, good afternoon. Just going back to CLL, one question on the sort of thresholds that would be required. You mentioned the 25% guidance from the FDA, but there are two patient groups here, one of which are those who are inappropriate to Campath because of bulky tumor. I'm guessing it'd be harder to get responses in, because the reason, I'm told, that Campath is not effective is because the antibody cannot penetrate the tumor adequately and you may have a similar issue. Would the FDA accept a lower threshold in that group, do you think, than in the simple double refractory group? Thank you.

Claus, that's for you, I think.

Well, yes. I think, as I mentioned earlier when I commented on the expected response rate, it's not that the FDA has said that you need to have exactly 25% as a minimum. They just have said that with a 25% response rate you may definitely have an approvable product. But it doesn't mean that you don't have an approvable product if you have 10% complete responders in bulky patients. Hey, come on, everybody would agree that that product should go to the market instantly.

But I agree that it can be more difficult to penetrate these tumors. On the other hand, antibodies work significantly different from -- CD20 antibody works significantly different from Campath. And I think also you have a pretty good chance of actually getting into these bulky patients and induce some responses. I doubt that [our investigators] would have continued putting these kinds of patients in the study if it wasn't the case. But if it's going to be sufficient for regulatory filing, we all have to wait and see.

I think we can say that we have -- I believe that we've seen more of what we call the bulky tumor patients, patients who aren't eligible for Campath.

Yes, correct.

We've actually seen more of them than we have of the double refractory.

Yes, that's correct.

So I think there are very significant numbers of them in the total 185 patients.

Within the 132, it's 66 each, isn't it?

Yes. When we announced that recruitment was finished, we had at least 66 in each arm.

Yes, okay. Thank you. That's clear.

Our final question will be a follow-up from Erica Whittaker.

Hi there. It's just a follow-up financial question. I think previously you gave net financial income guidance for the year of DKK70m to DKK75m. Are you still retaining that guidance after the first quarter or are you not providing outlook any more on that line?

I'm sorry, we gave guidance on --?

On net financial income.

Bo, do you have any comments on the financial income?

Yes. We have not found a reason to update the full year in the financial income, even though the first quarter has been a little bit below expectations.

Okay. That's it. Thanks.

And we do have one more question. It will come from Peter Welford.

Hi. Sorry, just a quick question. Actually, there's two, I guess. First one, coming back to the CD4, when you were talking about CTCL and the market opportunity and how that's changed over the last few -- well, I guess year or so. I guess I was just wondering, the prognosis of CTCL patients is actually quite good in the point of view they've got quite a long life with the disease. I guess I'm finding it hard to therefore rationalize the fact that, even with an additional drug approved, most of these patients try a lot of therapies, given the duration of disease. So why do you believe, therefore, there isn't a potential for an additional therapy to fit into that treatment paradigm?

Peter, I think I should start by saying I'm not sure we believe that yet or not. We're conducting a review. Remember that the patients that we're treating in this study are the ones who have failed standard therapies, so we're talking about a portion, at least in this study, a portion of the whole population. And again remembering that they tend to have failed -- I think they have to have failed at least two standard therapies. You're right that they do try what's out there, but it seems to us that there's a good possibility that the physicians are also now trying the new approved product before they would put them into a study.

And I think that what we've seen, having commented on the new product, it's called Zolinza, the sales have really not been that high for last year. And I don't know all the reasons for that. We've been trying to look into that. But if you look at that our recruitment has been slower than we had expected and that the sales were not very high for Zolinza, I don't know what Merck expected but I think they were something around 17m, but I'm not the expert on the Zolinza sales, that we have to at least reexamine the market and the potential, remembering, as I said, that the initial indication is in the refractory patients.

Okay. And the last quick one for Bo is can you possibly give us an order of magnitude or some sort of guidance as to what the PDL contract manufacturing revenues were for the first quarter?

The first quarter PDL activities would consist of the work performed from March 13 through 31, so by definition it would be very limited. I'm sorry I can't be more specific.

Okay. Let me ask it a different way, then. Can we conclude that there is a gross profit contribution, it is gross profitable net for you to do this work, i.e. the revenues are greater than the COGS you've booked?

That's a fair assumption, yes.

Okay, that's great. Thanks.

I'd now like to turn the conference back to our speakers for any closing or additional remarks.

Thank you again for joining us today. As we conclude this first quarter call, I'd like to say that the management team is very excited and very positive about the prospects for Genmab. We really are in what we call a year of decision.

We have the two key drivers, the Ofatumumab study in CLL patients, the Zalutumumab study in the refractory head and neck cancer patients, well in hand. We think that we should have a good look at the data in both of those before the end of the year. And we are optimistic that we have created and developed two products that should provide a substantial improvement over existing therapy. Of course, we need the Phase III clinical data to confirm that, but everything that we've done so far points in that direction.

And because of that, we think that patients have a lot to look forward to and we think the Company does as well, and that we're working very hard to make these new products a reality for those patients and for all of you as investors.

So thank you again for joining us today. We look forward to talking to you in the future.

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