Genmab A/S (GMAB) 2008 Q3 法說會逐字稿

At this time I would like to welcome everyone to the Genmab nine months results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

During this telephone conference, you may be presented with forward-looking statements that include words such as believe, 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 this is required by law. Thank you.

I would now like to turn the call over to Dr. Lisa Drakeman, Chief Executive Officer of Genmab. Please go ahead, ma'am.

Hello and welcome to the Genmab third quarter results conference call. First, I would like to turn to the results for the nine months ended September 30, 2008, which are in line with expectations.

We recognized revenues of DKK667 million, approximately US$128 million. We also reported a net loss of DKK526 million, which is approximately US$101 million, and an increase of DKK265 million from the same period in 2007, which is about a US$51 million increase.

This increase is primarily due to our ongoing clinical development activities, including six Phase III studies in preparation for the first BLA ever for a Genmab product. We ended the third quarter with cash and marketable securities of DKK2.1 billion, which is approximately US$402 million.

The highlight of the quarter was the positive interim results from the Phase III ofatumumab study in refractory CLL. We reported response rates of 51% in patients refractory to fludarabin and Alemtuzumab and a 44% response rate in fludarabin-refractory patients who were considered inappropriate for Alemtuzumab. The abstract of this data has been accepted for presentation at the ASH conference in December, and we look forward to sharing the detailed results of the study with you.

Our work to file US and European applications for approval also continues on schedule. In addition, we anticipate milestone payments upon acceptance of the European and the US filings. Earlier this month, we also announced the outcome of a portfolio and organizational review. We conducted this review in order to bring greater focus to creating the most potential value for patients and shareholders and to build a sustainable business.

As a result of the review, we plan to concentrate on development of cancer therapeutics and will focus on a less broad but higher-potential portfolio. Consequently, key decisions from the review include discontinuing the zanolimumab program, moving to out-license three pre-clinical programs and reducing headcount by approximately 100 employees.

After the quarter ended, we also announced data showing that rheumatoid arthritis patients who participated in the ofatumumab Phase II study achieved long-lasting results at the 48-week follow-up period.

We would also like to update you on the status of the zalutumumab Phase III refractory head and neck cancer study. Although we cannot predict exactly when we will have the survival data we need to perform the interim analysis, we do continue to project interim results in February or March of next year. It is important to note that we do not have any specific information about survival in each of the two arms -- patients who received treatment with the antibody plus best supportive care, or patients who received best supportive care alone.

We currently have 188 patients in the study. That's up from 173 patients that we reported in August, when we gave the second-quarter results.

Finally, as we have announced a focus on high-potential cancer programs, we would like to give you an introduction to some promising programs in Genmab's preclinical pipeline. The discovery team is hard at work on two well validated targets, Her-2 and VEGF, with a goal of creating products significantly differentiated from those currently on the market. For Her-2, an important solid tumor target, we have generated over 90 human antibodies with the goal of creating a product candidate designed to have fewer side effects and better engagement of immune system-killing mechanisms such as antibody-dependent cellular cytotoxicity and killing by compliment.

We are also working on an antibody to VEGF, the best validated target for anti-angiogenic antibody therapy for cancer. We have generated over 45 human antibodies specific for VEGF. A large number of human antibodies block binding of VEGF to the KDR receptor, and a number of novel human antibodies bind better to VEGF than a marketed antibody.

We are also working on preclinical programs for novel targets. Two of these are tissue factor and a target expressed on cancer stem cells. The tissue factor molecule is involved in signaling and angiogenesis and is strongly over-expressed on a variety of tumor cells, including 98% incidence in pancreatic cancer and about 60% in colon cancer. We have generated and characterized over 70 human antibodies. A number of these exhibit a potent effect on signaling inhibition, antibody-dependent cellular cytotoxicity and anti-tumor activity in both laboratory and animal models. We're currently working to select a lead candidate.

The second novel target program is for a target expressed on cancer stem cells. Targeting and destruction of cancer stem cells is an area generating considerable interest currently and may be a very effective new approach to treat cancer.

Today's announcement of the four new preclinical programs underscores one of Genmab's distinguishing characteristics and one that I believe is not fully taken into consideration in our current market valuation. That is Genmab's ability to create and select antibodies as well as any biotechnology company in the world, including potentially improved, next-generation antibodies for known targets and also new, original antibodies for novel targets.

In summary, we have many things to look forward to, including the filing of our first BLA for ofatumumab, data from a number of ofatumumab studies and from the pivotal study of zalutumumab and continued work on our exciting pre-clinical programs. Genmab is working hard to ensure the sustainability of our Company as we move toward a commercial future.

We now look forward to answering questions from all of you. Joining me on the call today are Dr. Jan van de Winkel, President, Research and Development and Chief Scientific Officer; and David Eatwell, Chief Financial Officer.

Operator, we are ready for questions now.

(OPERATOR INSTRUCTIONS) Richard Parkes, Piper Jaffray.

Good afternoon, thanks for taking my questions. I've just got two or three, if that's okay. The first one, I wondered if you could walk us through the structure of your portfolio of marketed securities, particularly the split between corporate and government bonds.

The second question is related to the ongoing zalutumumab study. It sounds as if recruitment may be slowed a little bit, relative to the run rate between May and August. And I was wondering if there was anything -- is that a correct assumption?

And then my final question is just related to the Her-2 antibodies. I just wondered if you could repeat how you think those new antibodies are differentiated, just because I missed that.

Why don't I answer quickly the question on the zalutumumab study, then we'll ask David to talk about how the portfolio is invested, to the extent we have made that information public, then Jan can talk about the antibodies.

The zalutumumab -- I don't think it's really slowed down that much. We have a shorter period, if you recall. We're actually reporting now only a month after the close of the quarter, and it was six weeks later than that in August, so we had the entire summer and part of May to include patients. So I think patients are still coming into the study at a very good rate.

David, could I hand off to you for the portfolio question?

Absolutely, yes, no problem. Richard, obviously, I can understand your question in these turbulent markets at this point. And obviously, you probably saw in our nine-month net financial income was a net financial loss, in fact, of about DKK18 million. That DKK18 million included interest income of about DKK95 million, but it also included fair market value losses on the securities for DKK118 million, then, plus some exchange movements as well.

Overall, we've got total cash and marketable securities of just under DKK2.1 billion to September 30, and that included marketable securities for DKK1.9 billion. The cost value of those securities is just over DKK2 billion. You can see it note 3 of the accounts. The marketable securities of cost is DKK2.048 billion, just over DKK2 billion, and the fair market value adjustment at 9/30 is DKK125 million.

So that means that our fair market value adjustment at 9/30, our securities are about 94% of the cost of those securities. So, whilst we are not delighted with the loss on the securities, we do need to keep it in context overall that we are still at about 94%. That does include the write-down of the Lehman bond, which is about DKK31 million. Now we invested in a number of different types of securities, including government treasuries, corporate bonds and bonds in financial institutions. We only, of course, invest in things that are from investment-grade issuers. We do have a strict policy; we do have some diversity within our portfolio. Our portfolio includes three different currencies, so we get some natural hedging there, and we split the fund over four different portfolio managers.

And given strict guidelines in our policy in terms of type investments, the duration, credit rating, maximum they can invest in any one company, et cetera, overall our policy is to preserve the principal and keep liquidity for the Company. I don't have an actual percentage breakdown, I'm afraid, that I can give you between the different types of bonds that we hold.

Okay, no problem, great.

Your next question comes from the line of --

I think we need Jan to answer before we take that off, operator. Jan was going to talk about differentiation of the antibodies.

We have a very large panel of antibodies made to Her-2 and there have been a lot of new insights recently about the mechanism of action of anti-tumor antibodies, also targeting tyrosine kinase (inaudible) receptors like Her-2. What we will look for is differentiation at the level of binding, the tightness of binding and also the exact epitope -- the spot on the target recognized by the antibodies.

We cannot give you further detail here, but we believe we have excellent feeling of how to select antibodies that actually are designed to have a higher potency of tumor killing than the first generation of anti-Her-2 antibodies. That is, I'm afraid, I have to leave it at for the moment, but we are well progressing and we are very firm in our belief that we can make better antibodies, actually, than the first generation.

Okay, great, thanks very much.

Steve McGarry, Goldman Sachs.

Just one quick question -- Lisa, in the last conference call, according to my notes, you had said that there's potentially $169 million in milestone payments on ofatumumab to come before the end of 2009. The one thing that I haven't noted accurately -- is that just on filing and acceptance of ofatumumab, or does that include approval milestones as well?

That does not include approval milestones, Steve. Those are all pre-approval milestones that we've mentioned.

That's really helpful, thanks very much.

Asthika Goonewardene, Piper Jaffray.

I have two more questions to add to what Richard asked earlier. So, in the interim report you mentioned that you may miss a milestone payment this year, but given that the new earning process for which Genmab realizes milestones pretty much had them immediately realized to the Company, I was wondering if this might signify that a certain trial, a start of a trial might get pushed to next year?

Asthika, we really have not been in a position to comment about specific milestones under our agreement with GSK. So anything that we've announced that we hope to start soon, we still anticipate to do that. I'm sorry; I can't give you any more detail than that.

Okay. And then, one quick one on some numbers. What is the -- first off, are you expecting more manufacturing revenues to come in, in Q4? And if so, how does the volume of expected sales compare to what was realized in Q3?

David, do you have any comment on that?

Yes. We haven't got that sort of level of specificity on the PDL. We were delighted with the PDL relationship, continuing that after we acquired the facility, as noted in the financial statements this quarter. We did shift some of those batches through to PDL. But I would say overall, as a generalization for future periods, because of the nature of -- you know, it's a small number of batches, so the revenue from PDL I would classify as lumpy quarter to quarter. But we are not getting as specific to sort of predict how many batches per quarter will be coming from PDL. But it's a very nice relationship, and of course it does help us offset the operating cost of the facility.

Just to be clear, so this could be a one-off and then next it might just slump down a little bit?

I wouldn't classify the revenue from PDL as a one-off over the coming 12 to 15 months. We do expect further revenues from PDL in the future.

Okay, thank you very much.

Erica Whittaker, Merrill Lynch.

Just a follow-up on the PDL revenues. Is your operation there profitable, or is it making a loss or just about breakeven on the DKK40 million cost there?

The second question I had is regarding the move of ofatumumab into further RA studies, particularly the radiographic Phase III study. Is it possible that you and GSK are waiting for the outcome of the subcutaneous dosing study before progressing to further Phase IIIs because you might be able to use a more convenient dosage form in those studies? Or, would you expect a decision sooner than the readout from that subcut dosing study?

Let me start by saying on the RA that we are in discussion with our partner, GSK, about the best way to carry out the RA program. But I don't have any comment to add at the moment. Having said that, I don't know if you want to make any comment, David, on the PDL revenues. I want to make sure I understood the question. Are you talking about -- are we making money on the batches we make for PDL? Is that the question you're --?

Yes; I guess what I was wondering is, is there about DKK40 million in cost this quarter. And I was just wondering if, therefore, the revenues that you had for that work were actually greater than or less than or equivalent to DKK40 million. I know you've just restarted this operation doing the contract manufacturing, and I'm just wondering if the work there for PDL is actually profitable now, or you have to wait until you are running more batches through and utilizing more capacity.

And then just a follow-up on my question about GSK. When exactly is that subcut dosing study expected to read out?

I don't think we've given any guidance on that, Erica.

I can take the question, Lisa, on the manufacturing facility. Erica, if I can point you to page 21 of the interim report, it's note 2, we do actually state down there the actual operating loss for the Minnesota facility, for the period from March 13 through to September 30, and that was DKK50 million.

In terms of the profitability on the PDL, of course, with [confidentiality] of the customer, it wouldn't be either in our benefit to declare the actual margin on the --

I wasn't asking the margin. I was just wondering if you actually do -- at this stage, if the costs are DKK40 million, are you breakeven or profitable?

I spent 25 years in contract manufacturing. So we wouldn't sell at a loss, but we wouldn't be asked to give you any further guidance than that.

And what you said in answer to the previous question is that that sort of level of production, generating those costs, is not a quarterly run rate, that revenues and costs will be lumpy the over the coming -- was it 15 to 18 months, you said?

I said, I think over, though, I would have to look back at the replay, I think. Over the next fiscal year we still expect our relationship with PDL to continue. But it will be lumpy quarter to quarter, just depending on how many batches that PDL require from us.

(OPERATOR INSTRUCTIONS) Peter Sehested, SEB.

It's Peter Sehested from SEB. Thanks for taking the call. I have --

Peter, I can't quite hear you. I don't know if other people can.

Is it better now?

It's a little better, yes.

All right, I'll try to speak loud and clear. The first question relates to the guidance that you have given. In relation to the results that you achieved so far, if you had to achieve your guidance both on top and bottom line, your revenues have to increase by roughly DKK180 million and your costs have to go up by the same, roughly, or your EBIT has to go down by roughly DKK340 [million] or something like that. That gives a net of third-quarter spend of roughly DKK525 million, which is -- levels, of course, are uncertain. But anyway, it's a higher level that you expect in the third quarter compared to the levels that you've seen in the first three quarters of the year. I just wondered -- what kind -- are you expecting to book some extraordinary charges in the first quarter? That's my first question. We can take the other one after this.

Would you like me to answer that one, Lisa?

Please do.

Yes. With our guidance overall, Peter, we've said the revenue will be sort of at the lower end of the previous guidance we've given. So we said that was DKK850 million to DKK900 million, so you take us for our word, that would suggest that our revenue will be around the DKK850 million or slightly below. We've also said the operating loss would also be at the lower end of guidance, which is DKK850 million to DKK950 million. So that would suggest a sort of DKK850 million revenue, DKK850 million operating loss. And, obviously, if you look at the gap between those two, it [would] indicate an expense of about DKK1.7 billion.

At the nine months we were at about DKK1.2 billion, so that would indicate the expense rate would be about DKK500 million for Q4, and that would compare to about DKK427 million in the third quarter. Again, it's a little difficult looking quarter to quarter for Genmab; there are some things that will bounce around between the quarters, specifically for some of the external charges, like number of CMC batches that are delivered quarter to quarter. They can be quite expensive, and they can sort of cause blips on the quarterly numbers. So nothing dramatic or significant planned in Q4, but there can be a little bit of range of movement between the different periods.

The second question actually is a follow-up to the first one that was asked about the run rate, the enrollment of the HuMax-EGFr study, because I would concur with the first analyst in that the run rate appears to have declined, and particularly in regards to what you said on the prior call in connection with the first half, where you were suggesting about the pick-up in the enrollment, and then you gave us a deadline or timeline for February-March.

Now, assuming that the run rate has slowed and you maintain your current guidance, that would certainly imply that you get a certain number of deaths with a fewer number of patients, i.e., that, all else equal, the effect of the drug should not be as good as you predicted in the first place.

Could you just comment on your thoughts on that?

Peter, I'm not actually sure I'm following you. I think that enrollment in this study continues at a good pace. The interim result is based on a particular number of events. So the enrollment numbers now don't have any significant effect on that; in other words, when we reach the event number we do the interim analysis.

So I guess I don't think there's necessarily a connection between the two items that you are trying to draw.

Okay. I just wanted to hear your comment on that one. Thank you.

Brigitte de Lima, Merrill Lynch.

On the balance sheet there's a line which is known as other liabilities. I've just noticed that this line has been going up by about DKK50 million to DKK60 million pretty much every quarter -- well, since December 2007. I'm just wondering if you could give us a little bit more detail as to what is causing that increase in liabilities and whether this should continue to go up going forward.

And the second question is on the preclinical antibodies that you just described to us, are any of these antibodies actually products of the UniBody platform?

Let me start by answering that they are not UniBody's. These are whole antibodies because we want them to actually engage the immune system, whereas the UniBody is designed to be inert but to block activity of a specific receptor. Other liabilities -- David, do you have any comment on that?

I'm afraid I don't know what is causing that DKK50 million increase between June and September. I would have to look back at the lower level of detail on that. So no; sorry, I can't answer that one at this point.

Martin Wales, UBS.

Just a quick one on the AMG 714. Can you give us any color on -- more color on why it was struck? Was it purely efficacy? If you could also give us some color on what actually happened with the manufacturing now that it has been dropped. It might be interesting to get some color on what happened there. Can you assure us that it was an antibody-specific problem as regards to any factoring rather than anything else that might more widely affect your antibodies?

I think I'll ask Jan to comment on -- as far as I understand, this was an efficacy issue based on the results of two clinical trials. Jan, do you have any comments to add to that?

Yes. I can give some color to that, Martin. Definitely, the belief is at Amgen -- but you should ask them, I think, about their exact decision taking -- that the antibody is active, and targeting IL15 is in fact a very good way of stopping inflammation.

What was one of the observations is that the efficacy is there, both in arthritis as well as in psoriasis, but there are new products now coming to the market, I think, from other parties which seem to be more efficacious, especially in psoriasis. And that was one of the main drivers, I think, for the conclusion of Amgen to stop the internal development. They are still talking about development in other ways, but that's up to them. But this absolutely has nothing today with the manufacturing issues, I can assure you. The cell line is producing very well, and it's a very well producing cell line. It's a very well behaving antibody [which is] efficacious. But I think the landscape changed; that is, I think, the best I can tell you. And the rest, I think, needs to be added to by Amgen.

Perhaps you get this back (multiple speakers)?

Lisa, I think I'll leave this one to you.

I'm sorry, was the question -- do we get it back?

Yes, do you get it back (multiple speakers) --?

No. Amgen retains -- yes, Amgen retains the antibody, and they have informed us that they are looking at other ways to find value in the asset. But we don't have any specifics about that.

Okay, thank you very much.

At this time there are no further questions.

Thank you all for joining us today for the nine months results call. We appreciate your interest in the Company. We also look forward, as I've mentioned before, to some very exciting events for Genmab, including the BLA filing, data from the Phase III zalutumumab study, and of course, more data from the very exciting new preclinical projects, including the Her-2 and the VEGF antibody. We look forward to talking to you again in the future. Thank you and goodbye.