Genmab A/S (GMAB) 2009 Q1 法說會逐字稿

Good day, and welcome to the Genmab conference call. Today's call is being recorded. During the telephone conference you may be presented with forward-looking statements that include words such as "believe", "anticipate", "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.

At this time I would 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 first quarter results conference call. The first thing I'd like to do today is recap the results for the three months ended March 31. In this quarter we recognized revenues of approximately DKK252m, which is approximately $45m. That compares to DKK167m or about $30m in the first quarter of 2008. We also reported a net loss of DKK199m, which is around $36m. This compares to a net loss of DKK210m and $38m in the first quarter of 2008.

The reduction in loss is largely the result of increased revenues as operating expenses have remained fairly steady. Our net financial items were negatively impacted by the continued international financial credit crisis and reflected a loss of DKK110m, which is approximately $20m in the first quarter. However, we did see some improvement in the month of April, with the market value of our euro portfolio increasing by DKK60m. This positive trend has continued during May.

We ended the quarter with cash and marketable securities of DKK1.4b, approximately $255m. We are maintaining our previously issued guidance for 2009.

The highlight of the quarter was the successful filing of the United States and European marketing application for ofatumumab for the treatment of patients with chronic lymphocytic leukemia. Along with our partner GSK we have requested approval of three patients who have received prior therapy. Acceptance of the filings by the US and European authorities triggered milestone payments of DKK145m, which is around $26m to Genmab from GSK. As a result of the BLA acceptance, Genmab also received a one-time payment of $4.5m from GSK. This was in exchange for terminating our option to co-promote ofatumumab. You may well remember this, as we've previously announced it.

Once the FDA accepted the BLA, it also granted ofatumumab priority review status, which reduces the total review process from ten months to six. The PDUFA action date, which is the date required under existing law for the ofatumumab BLA is August 1, 2009. In addition, the FDA has granted ofatumumab an orphan drug designation for the treatment of CLL. Once approved an orphan drug is granted seven years of market exclusivity during which directly competitive similar products cannot normally be placed on the market. Ofatumumab also has orphan drug status in the EU, and that provides the possibility of ten years of market exclusivity.

Last week, we announced another important development in the ofatumumab approval process. The FDA has scheduled a meeting of its Oncologic Drugs Advisory Committee, which is known as ODAC, to discuss the ofatumumab BLA on May 29 in Orlando, Florida.

Now in addition to the ongoing ofatumumab review, and potential approval, we have a number of key events to look forward to. Two ofatumumab and two R1507 abstracts will be presented at the American Society of Clinical Oncology meeting in May and June. The ofatumumab abstracts will provide additional details on the interim results of the Phase III refractory CLL study. The R1507 abstract will describe results in the Phase II sarcoma study, and some pre-clinical data in non-small cell lung cancer. The abstracts will be published on the ASCO website on the evening of May 14.

We have an update on accrual in the zalutumumab head and neck cancer pivotal study. As of May 8 we have 259 patients in the study. That's up from 229 in February. The final analysis will be conducted once 231 deaths have occurred. We expect to report results of the study by year-end.

We also expect to report results from three ofatumumab studies during the third quarter. The Phase III non-Hodgkins lymphoma study in refractory patients and two Phase II frontline non-Hodgkins lymphoma and chronic lymphocytic leukemia studies.

In summary, during the first quarter Genmab reached a number of important milestones related to the potential approval of ofatumumab. We highly anticipate the ODAC meeting later this month as well as the outcome of the FDA's total review process. In the meantime we will continue to work hard to expand our ofatumumab and zalutumumab development programs and to further our other clinical and pre-clinical research.

We now look forward to answering your questions. Joining me on the call today are Dr. Jan Van De Winkel, President of Research and Development and Chief Scientific Officer, and David Eatwell, Chief Financial Officer. Operator, could you please open for questions now.

Thank you. (Operator Instructions). We'll go first to Martin Wales with UBS.

Good afternoon, good morning. Two quick questions. Firstly, sorry, could you just repeat when you said you anticipated other head and neck cancer Phase III to report?

It's impossible to predict exactly, Martin. We need to see 231 deaths because it's a survival study. So we are projecting that we'll have these results before the end of the year but we -- and I don't think before the fourth quarter, but we can't be more specific than that.

Okay. And something closer, obviously we'll see some briefing documents from the FDA on Arzerra ahead of the ODAC on May 29. Do you have any comments or anything you're anticipating the FDA to raise in those briefing documents?

I think we'll just have to wait and see what they tell us.

Can you give us any color at all in terms of -- the filing's been pretty quick so far (multiple speakers).

I really can't. I agree with you that we're very pleased that they've responded as quickly as they have and that the ODAC is scheduled. But we don't have anything else to add at the moment.

Okay. Thanks very much.

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

Hello, good afternoon. Thank you for taking my questions. I've got two questions, please. The first one is just on the unrealized losses that you have been recognizing on your marketable securities portfolio. You already highlighted that there has been some reversion April. And I'm just wondering what the risk of further losses would be or would you expect full reversion of the losses so far recognized until the end of the year, so that net-net you wouldn't actually recognize any losses at year end?

And the second question is on your R&D expenses. They were quite low in the first quarter, but you haven't changed guidance for the full year for operating expenses. So I'm just wondering if you're being conservative on the guidance for the full year, or if we should expect a significant ramp-up in R&D expense over the next quarters and what exactly would be driving that increase. Thank you.

Brigitte, I'd like to hand these questions over to David.

Okay, thank you, Lisa. Yes, with the unrealized losses, as you know, we suffered some losses in Q4 of 2008. And you see that loss has continued in the first part of 2009. Most of the loss goes back to our European portfolio. As you know we've got a mixture of four different investment managers investing in different currencies for us. But it's been our European portfolio and literally down to ten bonds within that European portfolio. And all of those bonds are in the financial sector. As you know, there's been a lot of turmoil with the banks. But the good news is that I think perhaps after the US stress test results were announced, there's been some recovery in the equity of banks. And that's also now reflected in the recovery of some of these bonds.

What we also did is, you'll see that we moved some of our portfolio out of those investments in marketable securities and into cash in Q1 of 2009. We managed to do that, and the ones we liquidated were all around par, so we actually made a small gain on that liquidation. And that's giving us an increase in cash between December and March. So at the end of March we were sitting with DKK324m of cash on hand. So that's good news for us, because it means we've got enough cash for our immediate needs.

And of course we've got other milestone income particularly coming up in Q3 of 2009. Now why is that important? That means that we've got enough cash to fund the company in the medium term, then we have the luxury of time to wait for some of these bonds to recover back. Now it's not just a case of sitting and watching the recovery, it's also managing that very carefully with our portfolio managers. So if we see some bonds recover to a nice position, what we may do is to switch more of those, particularly out of the financial bond sector into things that are more secure, such as treasuries or money market accounts.

So we're managing it very carefully. I can't predict to say whether the trend that we've seen in April and the first half of May will continue. It does seem that the banking sector is recovering. So we remain optimistic for 2009 that we'll be able to recover that loss from the first quarter and if we can hold to the extent we can hold to maturity, then of course we will reverse all of that unrealized loss.

So just to confirm, at this point you don't expect to have to liquidate any of those holdings significantly below par? Because you say you've got the luxury of time.

No, no, our Danish portfolios, two Danish portfolios, are absolutely fine. And actually their performance, they're actually above our book cost in the two Danish portfolios. So there's a large chunk there. Also you saw at year-end there was about 20% of the portfolio was held in treasuries. So there's a number of ones that we can call on that are at or above par before we have to get into these, as I say, literally ten bonds in the financial sector.

In terms of your second question, in terms of the R&D spend, it was a little lighter in Q1, if we compare it to the DKK1.6m of operating expense we've got in our guidance. As you mentioned, we've got DKK338m operating expense in Q1. Quarter to quarter we can get some lumpiness, if I can call it that. That's mainly around some of the contracts, particularly on CMC, where if you get a number of batches fall into one quarter or another, then that expense will move around a little bit quarter to quarter. So I wouldn't read too much into just looking at the DKK338m for one quarter in comparison to the DKK1.6m. In terms of guidance overall we're remaining on that guidance that we published when we gave the 2008 results.

That's very helpful, thank you very much.

Thank you.

The next is Philippa Gardner with Jefferies.

Hi, it's actually Peter Welford here. A couple of questions. Firstly, on the advisory committee meeting, can you just give us some insight into whose job it is to actually prepare for that meeting? Who it is who actually sends representatives to actually speak at that meeting on behalf of the company? So will the company presentation be made by a Glaxo spokesperson or will Genmab be involved in that process?

Secondly, then on the filing for CLL, have you initially heard any feedback at all from the FDA? Or any thoughts at all on what additional data from the ongoing studies that you're running, that report in 3Q may be needed by them, or any insights from them as to whether or not any of that data is required?

And finally, then just on the financials again. Can I just confirm that that DKK60m you're talking about is a reversal of the -- I think it's the DKK380m roughly that you mention in the interim statement as being the fair value adjustment so far? Thank you.

Okay. Let me start with the ODAC. GSK formally filed this BLA and they have two very experienced people who have made multiple presentations at ODAC committee meetings. And they will make the formal presentation on behalf of Genmab. The preparations are being made by both parties. You know, Peter, that we actually ran that study and our statisticians conducted the analysis. So the team that is on hand to answer questions during the meeting will include several representatives from Genmab.

Then in terms of the filing, I think your question is has the FDA said they want to wait for the next set of data before they're willing to make a decision about this BLA? Did I understand that question correctly, Peter?

Yes, I guess what I'm asking is that I think some of the existing CLL [initial] trials, you're still -- you're quite heavily involved in. And so you're probably again doing some of the analysis. So have you had any indications yet from Glaxo that any work is required from you still that you want to submit to the FDA so that they have more data on hand by the time we get to the August 1 deadline?

I think as you know, there's always an ongoing discussion with the regulatory authorities when you're working on an approval process. So certainly there are questions going back and forth. And our team, along with the GSK team, are working to answer those.

If the question is have we heard that we need the Phase III NHL data, I'm not aware of any request like that. I don't believe that they would have accepted our application for review or scheduled the ODAC meeting if they thought we needed another set of clinical trial data before they could rule on the BLA.

Then finally, I think I'll hand over to David to answer the question about the DKK60m.

Yes, with the -- thank you, Lisa. You're right, we had the fair market value adjustment as you saw in Q1. It was DKK142 negative adjustment in Q1. And as shown in our financial statements, you can see the cost of the marketable securities are just under DKK1.5b, and a total fair value adjustment of DKK365m at March 31, 2009. So that means on average the portfolio is performing at 75% of the cost.

Now the question was, is in April we saw an improvement on our European portfolio of DKK60m. Yes, that is reversing part of that loss of DKK142m that we suffered in Q1 of 2009. So that's a positive trend and a reversal of the loss that we achieved in Q1.

That's great, thank you very much.

Thank you.

We'll go next to Peter Sehested with SEB.

Yes, hi there, thanks for taking my call. I just wonder if you can narrow in the timing for the end announcement of the ofatumumab studies if at all, i.e. the two Phase II and the one Phase III trial, (inaudible).

Peter, I wish I could give you the date and the minute, because I'd like to know myself. So I'm sorry to say that the guidance we've given of Q3 is the best we can offer at the moment.

Okay, Q3, thanks very much. Okay. All right, thank you.

(Operator Instructions). We'll go next to Samir Devani with Nomura.

Hi, everyone. I've just got a couple of questions for David, really. Going back to the ten bonds that have caused the grief in terms of their marketable securities, can you tell us what the monetary value, or the current mark to market value of those bonds are, and their duration, their average duration?

I haven't actually got the value of those -- the ten in front of me. But I can say it was those ten that were driving the majority of the loss, both in Q4 of 2008 and in Q1 of 2009. Duration on those bonds is mixed. There's ten different bonds with ten different duration dates overall. But as I said, we have seen a nice recovery in some of those during April.

I think overall in the view of the portfolio managers and other independent advisers that we've been speaking to with these bonds, is that the market really did get dislocated for a period at the end of 2008 and early 2009. And they really were, the pricing on those -- some of those financial bonds overall was really at such a level that effectively the market was saying that one out of every two banks would fail or be nationalized. And I think that's above anybody's expectations of where the banking sector could go. And as you've seen the sort of equities recover over the last month or so, you're seeing bond prices starting to come back as well.

One of the advantages on this, which is I know not great comfort, being as we suffered the losses, but of course those financial bonds now are giving very high yields. And I think the marketplace is beginning to look at that, particularly with treasury bonds being such low yields now the market is beginning to return. So if you're looking at some of the trading history on some of these financial bonds, at one point you were looking back several months. Really there was very wide spread on these prices between the bid and ask. And it was really showing that it was an illiquid market for a period. Now you're beginning to see the sort of market come through. And as real bonds are trading back in the marketplace again and people are stepping back into them with some more confidence, you're seeing those prices recover quite quickly. And that's what we've seen in April.

I just want to try and get a handle on, David, if is there a requirement for example to hold these bonds for more than five years? Is the maturity relatively far out?

It's a whole mixture. It's -- I can't -- overall you saw the financial statements at the year-end, the average effective duration that we quoted in there. We've got a mixture of different items. At the beginning of the year we were sitting with a runway of about 3.5 years. As I said, we've liquidated a number of bonds at or above the cost that we paid for them. We've still got our Danish portfolios that are above par, and we've got a number of treasuries which are at above par as well. So we're in no particular time pressure to liquidate some of those banking bonds. So to the extent that there is no more Lehman type situations out there, then we should be able to wait it out and get to a maturity date on some of those bonds.

And coming onto your guidance, your cash at year-end guidance, what's the assumption that for those marketable securities in your DKK1.25b?

What we're looking for overall in terms of the net financial items is because of the volatility of it, we just assumed in our guidance at the beginning of the year and still assuming now is that it'll effectively be a zero sum game with the net financial items. So assuming that any small amount of fair market value adjustments is offset by interest income. Very difficult to predict on that particular item. That's why we were focusing really on the operating expense guidance and the operating loss guidance. But we are assuming that net financial items will be a zero sum game for the year. So obviously I'm a little behind on that one at this particular point in time. But I'm a little ahead on the operating expense as well.

And just finally on the corporate tax to be paid. I'm assuming this is on work done at the manufacturing facility. Is that a good run rate for the full year?

The tax actually relates to our Dutch facility. Because of the way that we're -- Danish obviously is the mother company, and they contract with work for the other subsidiaries and so there is on a cost plus basis. So that small amount of tax there is just because we're on a cost plus basis, that there's a small amount of tax to pay in the Netherlands. And that I would -- assume that would be a reasonable amount. It's a pretty small number, I think it's DKK3m in Q1.

That's great. Thanks, David.

Thank you.

We take our next question from Michael Aitkenhead with Piper Jaffray.

Good afternoon, and thanks for taking my questions. I've just got two questions on ofatumumab. The first question is have you progressed to discussing the drug's labeling and the risk evaluation management program with the FDA?

I don't think we have anything to report on the label at present. I think the best update we'll have will be at the ODAC meeting.

Okay. And my second question is, can you give us an indication of the level of detail that we might expect from headline data in Rituxan-refractory NHL?

We'll have to discuss that with our partner. If you recall, when we allowed -- when we announced the CLL data, we were able to talk about response rates and at least make a comment on the safety profile. And I expect we should be in a position to do that again.

Okay, thanks.

(Operator Instructions). We'll go next to Thomas Bowers with Danske Bank.

Thank you. Just a question regarding the CD20 arthritis program. Actually the [inadequate] NTx response studies, I want to be exact. I believe you have completed enrollment since you have -- you're not long in recruiting patients any more. So can we expect to see some response data on this study before year-end?

And maybe also give some timing on the subcu study as well? Thank you.

Thomas, I wish I had an update for you on both of those. The subcu study is ongoing. I know that -- I think when GSK posted this to clinicaltrials.gov they said they expected to have data sometime in the first half of the year. So I don't believe that's going to happen. That study will continue for a while longer.

And then on the rest of the RA program, we are in discussions, as we said before, with our partner, about whether to go forward in IV or subcu. So I don't have any news on that either. And I can't at the moment tell you exactly when we expect data from the ongoing Phase III study. But we'll hope to have an update for you some time soon.

Thanks.

We take our next question from Sachin Soni with Kempen & Company.

Good afternoon, everyone. Thanks for taking my question. My question is regarding Arzerra and its indication in RA and RRMS. Can you please provide some update on that front? How is that program going on?

Jan, would you like to comment? I think basically it's not very different from what I've just said, that these are all ongoing studies. But Jan, do you have anything to add to that?

Dr. Jan Van De Winkel: Not very much. So there's two studies ongoing in RA, and one in MS. And there's one subcu study ongoing in RA. And we've nothing to report apart from saying, Sachin, that they're going very well. I think they're moving forward. We are in discussion with our partner GSK as Lisa already indicated about the future strategy, IV versus subcu and how to position that. And I don't think that we're in a position now to give you any further update.

Thank you.

Dr. Jan Van De Winkel: All right.

(Operator Instructions). And Dr. Drakeman, it appears we have no further questions at this time.

Thank you all for joining us today on this call. We are very excited about the ongoing approval process for ofatumumab, and looking forward to hearing what the Advisory Committee has to say at the end of this month. So we look forward to talking to you all again in the future. Thank you and goodbye.

Thank you, that will conclude today's conference call.