Genmab A/S (GMAB) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to the Genmab conference call. Today's call is being recorded. During this telephone conference, you may be presented with forward-looking statements that includes 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 this is required by law.

At this time I'm pleased to turn the call over to Dr. Lisa Drakeman, CEO of Genmab. Please go ahead, ma'am.

Hello and welcome to the Genmab first-half 2009 results conference call.

First, I would like to turn to the results for the six months ended June 30, 2009. We recognized revenue of DKK348 million, which is approximately $66 million. This compares to DKK277 million or $53 million in the first half of 2008. We also reported a net loss of DKK314 million, which is approximately $60 million. This compares to a net loss of DKK490 million or about $93 million in the first half of 2008. The reduction and loss is largely the result of increased revenue, as well as a strong focus on cost control.

We are also happy to report that the second quarter net financial income of DKK128 million or about $24 million has fully reversed the loss of DKK110 million recorded in the first quarter of 2009. We are now reporting a DKK18 million or about $3 million net income year-to-date on financial items.

As previously discussed, the volatility in our portfolio was caused by a small number of bonds in the corporate financial sector within the euro portfolio. These bonds recovered well in the second quarter and have continued the positive trend during July. We end the half year with cash and marketable securities of DKK1.5 billion. This is approximately $280 million.

Earlier this week we updated our financial guidance. We now expect revenue to be approximately DKK750 million, around $142 million, compared to an original expectation of DKK1.2 billion or $228 million. With a continued focus on cost control, we anticipate that our operating expenses will be approximately DKK1.4 billion, DKK200 million below our previous guidance of DKK1.6 billion. This results in a revised operating loss of approximately DKK650 million. We now expect the cash burn for 2009 to be approximately DKK700 million and projected cash balance at the end of the year of approximately DKK1.1 billion.

The highlight of the second quarter was the meeting of the FDA Oncologic Drugs Advisory Committee known as ODAC to discuss the Arzerra BLA on May 29. The committee voted 10 to 3 that the Arzerra data was reasonably likely to predict clinical benefit for patients with chronic lymphocyte leukemia whose disease is refractory to both fludarabine and alemtuzumab. This positive outcome was an important step in the Arzerra approval process.

In June the FDA extended the review of the Arzerra BLA by three months to review additional chemistry and manufacturing data we submitted on June 5. The new action date for the BLA is October 31 of this year. Other highlights of the quarter included the presentation of the Arzerra CLL data and R1507 sarcoma data at the ASCO annual meeting. In addition, we have completed recruitment of patients in the Phase III pivotal study of zalutumumab in head and neck cancer. The final analysis will be conducted once 231 deaths have occurred. We currently expect to report results of the study by year-end.

In the past few weeks, we have presented results from three Arzerra studies. On July 23 we announced preliminary results from a Phase III study of ofatumumab to treat methotrexate refractory rheumatoid arthritis. The study met the primary endpoint of ACR 20 at 24 weeks. At that timepoint 50% of patients treated with ofatumumab achieved an ACR 20 response compared to 27% who received placebo. All key secondary endpoints were also significant.

Earlier this month we announced positive topline results in the Phase II study of Arzerra in combination with fludarabine and cyclophosphamide to treat front-line chronic lymphocyte leukemia. The complete remission rate was 32% in patients who received 500 mg of Arzerra and 50% in patients who received 1000 milligrams of Arzerra. The overall response rate was 77% in the 500 milligram treatment group and 73% in the 1000 milligram treatment group.

Finally, we announced results from the Phase III study in rituximab refractory non-Hodgkin's lymphoma earlier this week. The overall response rate in patients treated with 1000 milligrams of Arzerra was 10%, including one complete response and eight partial responses.

In addition, 50% of these patients achieved stable disease. While the response rate is not as high as we had hoped, it is important to point out that our study included a very highly refractory patient population. 49% of the patients were refractory to their last chemotherapy treatment, and patients had received previously a median of four treatment regimens. We think the 22% response rate in patients who were only refractory to rituximab monotherapy is encouraging.

Genmab and GSK will continue to review the results and plan to use them to refine and optimize the development and regulatory strategy for ofatumumab and NHL.

While 2009 has been an eventful year so far, we are not done yet. We are expecting to report data from the Arzerra Phase II study in front-line NHL later this quarter. We hope to present additional data from the Arzerra CLL, NHL, and RA studies at medical conferences later this year.

Finally, we are looking forward to the potential approval of Arzerra in October after seeing the results of the Phase III study of zalutumumab in head and neck cancer.

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

Operator, please open the call for questions now.

(Operator Instructions). Peter Welford, Jefferies.

Just a few follow-up questions. Firstly, I noticed in the report that the Phase II retreatment trial in NHL has not started up as even now that trial will not start, and that will -- the re-treatment trial will be run after one of the other trials NHL has started and then run. But as far as I understand, the Phase II CLL re-treatment trial is in progress.

Just then two financial questions. Firstly, on the manufacturing revenue, I think we're very high in the second quarter versus prior quarters. Is there a general sort of running down of the activities now for PDL, or are the activities -- do they have no necessarily end in the near future?

And then the second quarter is on the deal terms with Glaxo. I was just wondering after you've missed out on the 450 million milestone this year, is that milestone now impacted at all for the future? I mean is that milestone just delayed, or is the other total terms of the deal with Glaxo potentially changed by the data that we saw early this week?

Peter, I think we can comment by saying that you are correct about the two re-treatment studies. Let me comment briefly on the GSK deal terms, and then we will ask David to comment on the manufacturing revenue.

The deal with GSK does not change as a result of this set of results. That milestone was tied, however, to the specific study. There are other follicular lymphoma milestones or non-Hodgkin's lymphoma milestones that are no way affected, however, by the results of this refractory patient study. David, do you want to answer the manufacturing question?

Just to follow up, sorry, does that mean that if you in the future run another study in a relapsed NHL population, that milestone can still be achieved, or was that very specifically linked to this Phase III study?

That milestone was linked specifically to this Phase III study.

Okay. I got it straight. Thank you.

And David, do you want to answer the manufacturing revenue question?

Absolutely. Yes, thank you for the question, Peter. The PDL we should now call it Facet Biotech, of course, formally known as PDL, that revenue will alter quarter to quarter. Overall there will be some further revenue from Facet Biotech in H2 of 2009. Overall the Facet revenue is not hugely material to our total revenue number. However, we are pleased to continue our relationship with Facet, and any revenue from Facet, of course, is helpful to offset the Minnesota operating expenses.

Okay. That is great. Thank you.

(Operator Instructions). Brigitte de Lima, Bank of America.

Hello. I have got two brief questions, please. The first one is on the lower end of the expectations for operating expenses. I understand you have lowered that by DKK200 million. I just wondered if you can clarify more specifically where you're cutting back? I presume it is R&D. And if that is the case, could you just explain what studies you have decided not to conduct? I mean where exactly are you cutting down not to spend that money?

And then the second question is, just going back to the milestone payments for this year, is it correct to assume that the milestone payment or payments you are still awaiting for this year is tied only to US approval of Arzerra or is it (inaudible) US and European approval?

Actually on your comment about the lowering of the spend rate, it is not because we are cutting any studies or making any changes to our R&D program. The reason that we were able to show you a lower additional expense than the milestone revenue would have paid far, is that we've had a really careful and conscientious approach to cost controls this year. I think we can ask David to comment on that in some more detail.

Yes, I think if you look at the half-year expense, you can see we're running at DKK674 million in the half year. So that gives us the opportunity just to keep holding that expense at a pretty level level. Of course, we made our portfolio review in October 2008 to really make sure that we were controlling our expenses and focusing on the absolute best products in our portfolio, and, of course, we did reduce the headcount. We have been very careful with that headcount and very careful with replacing people when they leave. So we have managed to actually keep our headcount. At the end of June, our FTEs were 530 compared to 628 at June 30, 2008. So that's a 98 head reduction or 16% reduction in the headcount. So being very mindful with those costs and also with a portfolio review.

For example, if we are looking at the R&D spend, it was DKK662 million in 2008, and the R&D cost for 2009 half year was DKK578 million. Most of that saving was actually down to the portfolio review, particularly spending on CD4. So it is really that portfolio review and being very careful, very mindful with those costs coming forward. So our revised guidance is not about changing strategy. It is not about stopping or changing trials that are already in place.

Okay. And then your second question was about milestone revenue. While we can't give you any details of milestones, I believe we are anticipating other milestones than a potential approval milestone. But the approval milestone we are hoping for this year would only be related to the US. The European process is on a different timetable than the US one, and we could not anticipate a European approval until sometime in 2010.

(Operator Instructions). Richard Parkes, Piper Jaffray.

I have just got a few questions. Firstly, you talked about some ASH presentations, Lisa. I just kind of missed what you said. I just wondered if you could reiterate which of the data sets you are submitting for presentation at ASH?

My second question was just on the over pipeline programs. I'm thinking like HuMax-CD38. I'm just wondering when we can expect an update on either that program or the other pre-clinical programs?

And then finally, I've got a financial question just for David. I'm thinking and looking into 2010 and your initial thoughts on R&D budgets and potential milestones from GSK. I'm just wondering how comfortable you feel with ending the year with $200 million in cash, and do you think you could achieve profitability with that level of cash, or would there be a requirement for additional financing?

Jan, do you think you could address the issue of what we are hoping to present at ASH, as well as any comments on the CD38 program or preclinical programs?

I would be happy to do that, Lisa. So we have submitted a number of abstracts both on the PK data on CLL studies of Arzerra, obviously on the pivotal study in non-Hodgkin's lymphoma, the one we described this week (multiple speakers) study in CLL and some very exciting new preclinical data comparing very carefully Arzerra with rituximab. So we have submitted a number of abstracts, and, of course, we don't know which ones will be accepted. But those are the -- they are very heavily focused on Arzerra and various clinical studies.

Did you say there would be data in DLBCL?

No, I did say the CLL -- CLL PK data that I think are quite interesting. Of course, the pivotal study in non-Hodgkin's lymphoma, the ones the data released this week, as well as the frontline combination therapy data in CLL. I did not say the Diffuse Large B-Cell Lymphoma.

Okay. Great. Thank you.

The HuMax-CD38, the program is going very well. I think early next year we will update you further on the progress on the HuMax-CD38 program in multiple myeloma. You may actually see when you come to the preclinical data from a new preclinical data on combination therapy this HuMax-CD38 either at the end of this year or early next year, I believe that we are scheduled to have an R&D update for the first part of next year.

Now you will be further updated on several of the preclinical programs. The Tissue Factor program is running very actively, and it is moving towards the clinic, and also our UniBody platform, on this we have not spoken about for quite some time. We have reached some very exciting proof of concepts in different models, and we are scheduled to update you further on the preclinical pipelines at the R&D update early next year.

Lisa, would you like me to answer the question on the cash flow, cash burn rate?

Yes, please do.

Yes, thanks for the question, Richard. If you look back to what we said before like when we were talking at the AGM, we sort of described our cash runway as the starting balance at the beginning of the year of DKK1.8 billion, and then we had a protected burn rate for 2009 of DKK500 million. So that was meaning that we were starting 2009 on that basis with three and a half years of cash.

Now, of course, we revised our guidance but, as Lisa said, with a strong cost control. Although we brought the revenue down by 450, we are only changing the cash burn and hence the year-end cash balance by 200.

So if we do the same calculation now, then we are taking the same opening balance of DKK1762 million, dividing that by 700, that would indicate two and a half 1/2 years of cash at the beginning worth on hand at the beginning of 2009.

Now, of course, both of those examples assume that the future will be a repeat of 2009 or the past in terms of the cash burn. But some of the things I think we've got to look forward to in 2010, 2011 and then beyond, I mean the first thing will be the approval of CLL in Europe, as Lisa said, in the first part of 2010. And then we will begin to start growing the Arzerra royalty stream, and then also going later in that period, there could be milestones and royalties from Roche R1507.

Of course, one of the big things we are looking forward to in 2010 and 2011 is the outlicensing potential of zalutumumab once we get the Phase III data and then following that through with a filing and then approval. All of that could drive upfront fees in terms of licensing, but also then milestone income and then toward the very end of that period starting a royalty stream, assuming it gets onto the marketplace. So there are some opportunities there for the future periods to really replenish our cash balance and our reserves.

Of course, what we will also do is keep very careful monitoring of our product portfolio. We did that exercise in October of last year, but that is, of course, not a one-off exercise. That also gives us then opportunity to select and invest in the strongest assets within that preclinical portfolio. But also looking at the overall cash spend, it does mean that we will possibly elect to outlicense some of those earlier stage assets. And, of course, as Genmab has done in the past, those can be a very early stage where we hand the antibody over completely to a partner, or they can be Genmab taking them through to Phase I, II or in the case of like zalutumumab taking it right through to Phase III. So we've got a number of different options there still for Genmab.

At this time we have no further questions remaining in the queue. I would like to turn the call back over to Dr. Drakeman for any additional or closing remarks.

Thank you all for joining us today. We appreciate the opportunity to talk to you about the results of the second quarter, and we look forward to speaking again in the future. Thank you and goodbye.

Thank you, ma'am. That does conclude today's teleconference. We thank you all for your participation.