Genmab A/S (GMAB) 2009 Q3 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Genmab conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions). This conference is being recorded today November 11, 2009.

And during this telephone 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 this is required by law.

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

Hello and welcome to the Genmab third quarter 2009 results conference call. I would like to first turn to the results for the nine months ended September 30, 2009.

We recognized revenues of DKK432m compared to DKK667m in the same period of 2008 and reported the net loss of DKK403m which is approximately $79m. This compares to a net loss of DKK526m or approximately $104m during the first three quarters of 2008. The net financial items have continued to be positively impacted by improved market conditions and this resulted in the net financial income of DKK141m or about $28m for the first nine months of 2009. We ended the third quarter with cash and marketable securities of DKK1.38b, approximately $271m. This is a decrease of DKK382m or $76m from the end of 2008. The decrease primarily arises from the investment in our research and development activities.

Following last week's announcement of the Company's plan to reorganize, we updated our financial guidance. As details were provided last week and in the third quarter report, I would just like to highlight that due to careful cost control, we project a cash balance at the end of the year of approximately DKK1.1b, slightly higher than our previous guidance.

The reorganization plan itself is designed to prepare Genmab for the future of both the Company and our industry. We focused on building a lean, flexible company that is also focused on our proven strength in developing innovative new cancer products. We have matched the organization to the current and projected needs of Genmab and will carry on developing all of our existing clinical and preclinical programs. We will maintain a strong core team with critical antibody discovery and development skills, poised to help fill the unmet demand for innovation in the biopharma industry.

At present our pipeline includes six cancer antibodies in clinical development, three of which are in pivotal studies including Arzerra which is already approved in refractory CLL. Zalutumumab for pivotal data in refractory head and neck cancer is expected next year and RG1507 is being developed by our partner Roche. We also have more than 10 preclinical antibody programs.

I would like to take this opportunity to discuss the advantages of another asset, our manufacturing facility which we are now offering for sale. The facility is state of the art and it's well suited to meet a wide variety of clinical and commercial manufacturing needs including potentially as a vaccines production facility. It can produce both clinical trial and commercial scale batches at three different scales. We have two 1,000 liter vessels. We also have two large 10,000 liter fermenters, but these are designed to also be usable at half that size for 5,000 liter volume. This fits well with increasing productivity of cell lines and anticipated demand for biologics generally. We believe these advantages could be very attractive to potential buyers.

I would also like to reiterate our optimism about Zalutumumab. As we announced at the end of October, we are now expecting data from the Zalutumumab pivotal study in refractory head and neck cancer in 2010 rather than this year as previously projected.

As you will recall this is a survival study where two-thirds of the patients are treated with Zalutumumab and best supportive care and one-third of the patients receive only best supportive care. The study results will be reported after 231 deaths have occurred. This extra wait means that patients in the study are living longer than we had projected. Although we do not know what the difference in survival is between the two study arms, we are encouraged by the longer survival and are looking forward to seeing the results next year.

The crowning achievement for Genmab this year has no doubt been the FDA approval of Arzerra for the treatment of CLL, that is refractory to fludarabine and alemtuzumab. We are excited about this accomplishment and what it will mean for patients.

We also have much to look forward to with Arzerra as results from the Arzerra Phase II frontline combination study in CLL and the Phase III in Rituximab refractory non-Hodgkin's lymphoma patients will be presented at the ASH conference in December. In particular we anticipate a more detailed analysis of the refractory NHL data. We announced this week the start of the first head-to-head study of Arzerra versus Rituximab. This study will treat patients with relapsed or refractory diffuse large B-cell lymphoma, which is a form of non-Hodgkin's lymphoma.

We also continue to plan additional Arzerra studies in NHL with our partner GSK. Just as a reminder, in the GSK collaboration there is a contractually agreed development plan, with a comprehensive, well-defined and detailed list of studies. Both parties must agree in order to add to the defined plan. In the agreement itself, we also structured the cash flow to offset the majority of the costs to Genmab.

As we look ahead, we believe Genmab is now better positioned to meet the needs of patients and the industry going forward as we are focused on antibodies, the fastest growing area in the bio-pharmaceutical industry. We are concentrating our efforts on what Genmab is best at, discovering and developing new antibodies. While innovation can be said to be lacking in the development of new pharmaceutical products, at Genmab innovation is our core strength. With our newly lean and flexible development organization we will be able to develop our extensive pipeline of clinical and preclinical products, in a more efficient and cost effective way than ever before.

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.

Thank you ma'am. (Operator Instructions). Our first question comes from Mike Aitkenhead from Piper Jaffray. Please go ahead.

Good afternoon and thanks for taking my questions. I've got three questions if I may. The first one is when can we expect data from the first Phase II trial of Arzerra in diffuse large B-cell lymphoma?

My second question relates to the open label Phase II trial for this indication. Although data hasn't been published, have you seen anything in these trials that gives you confidence in the head-to-head trial with Rituxan?

And thirdly and finally, how is recruitment into the DAHANCA frontline head and neck trial progressing? Could this be used for regulatory application and when will we expect the data?

Michael, thank you for your questions. I'm not sure that we have given information out on any of these subjects. Jan, do you have any update on when the DLBCL data is projected? I know it's not until next year just because of the follow-up period.

Dr. Jan van de Winkel: No, I don't have that data. I can tell you for the last question, Mike, that the DAHANCA trial is actually progressing well but we have not given an update on that one.

And with regard to the Phase II data, we believe -- we have not analyzed all of that data. That analysis will come next year in a very structured manner. But we are pretty confident that the antibody is working well also on the basis of preclinical data which we have generated and discussed in public. They're also showing again differentiation between Arzerra and some other CD antibodies. So we are hopeful that the diffuse large B-cell lymphoma tumor target is a very target for Arzerra therapy.

And our next question comes from Yasir Al-Wakeel with Credit Suisse. Please go ahead.

Hello and thank you for taking my questions. I've got a couple of questions and then I'll jump back in the queue. Firstly, your recent press release about the restructuring stated that you were restructuring to build a sustainable business model. Now by that do you mean, do you mean by sustainability that you won't need to raise more cash? And if so, what Arzerra sales assumption is that predicated upon?

My second question is about financial income. You reported strong net financial income yesterday. Can you just shed any light as to whether or not this trend is continuing for Q4? Thank you.

Let me answer your first question. We do not have any current plans to raise funds. And I know that some people have wondered since we are planning to do some visits to London and Copenhagen next week, if that would be an announcement. And the answer is no. We're actually not planning to do that.

I don't think at this point that we can actually give you sales projections for Arzerra. We're of course very interested in seeing what the first sales data really looks like and right now we know that there'll only be a few weeks of sales in 2009. So really I think the time at which we can start to get a more concrete idea of these sales will be after the first quarter next year.

David, would you like to answer the financial income statement please?

Sure. Thanks for the question Yasir. Yes, we were very pleased with the net financial items performance in Q3. As you know we had a loss in 2008 of about DKK95m. That got worse in Q1 of 2009 with another DKK110m loss. But in Q2 we saw a recovery, bounce back of DKK128m, and then a similar amount in Q3, another DKK123m to bring us to the year-to-date number of DKK141m.

Now most of that damage was done as you know in the European bonds that we were holding in the financial sector. And as we saw these bonds recover and begin to get back towards par, we took the opportunity at the end of Q3 to really rebalance our portfolio and get out of that risk in that corporate financial sector. So if you look at note three on the financial statements you can see that we substantially reduced the amount we were holding in marketable securities and increased our cash balance at the end of Q3. So now if you look at the end of Q3, actually more than half of the DKK1.4b cash in marketable securities was held in cash or cash equivalents.

Also if you look at note three in the accounts, you can see now that the difference between the net book value and the cost is now at just 5% differential. So it's substantially improved from where we were at the end of '08 or particularly at the end of Q1 2009. So the chance for further recovery now is quite small. And also within that final 5 percentage points there, there is the Lehman, infamous Lehman Brothers bond. So if you remove that one, we're actually now within about 1% of cost. So unfortunately that's about it on the recovery of net financial items, but we're now in a very much stronger position than we were going back a few quarters ago.

Thank you David.

Thank you. Our next question -- please pardon my pronunciation, Guillaume van Renterghem with UBS.

Hi. Actually I've just two basic questions. The first one is on the financial income. Could you share with us actually what part is due to earnings in cash and what part actually is due to revaluation of your financial assets?

And on the R&D line, could you tell us actually what GSK reimbursed you in Q3 '09?

And out of your R&D expense actually what share was due to Arzerra and what share was due to other R&D expenses please?

David, I think those questions are for you.

On the net financial items, the -- in terms of where we were at the nine months, the breakdown of the DKK141m, DKK50m of that was interest, DKK117m of it was gains on the marketable securities so an improvement in the value, and then there was a DKK26m of other mostly related to FX movements overall. So that was the DKK141m.

I'm sorry, could you repeat the second question?

Yes, on the R&D line actually, can you tell us actually what share in Q2 '09 was related to Arzerra trials and what part was non-Arzerra trials?

And can you tell us as well in your income what share, what R&D costs were reimbursed by GSK in Q3?

Yes, we haven't given the breakdown at that level of detail on our R&D line overall what proportion belongs to Arzerra. But obviously with the number of trials there, some 17 ongoing trials, it is a large portion of our R&D expense overall.

Also in terms of the recovery of monies back from GSK, we haven't been that specific. But you can see the P&L breakdown overall on page 12 of the financial statement. Overall there's about DKK100m in the nine months, DKK100m. And most of that relates to GSK billing although there is some third party manufacturing that leads in there as well.

Thank you. Sorry, last question if you don't mind, can you tell us what income did you have from the Brooklyn Park facility in Q3?

In Q3, it was not material.

Sorry?

It was not material, not a material amount in Q3.

Okay, thank you very much. Cheers.

Thank you. And our next question comes from Brigitte de Lima with Banc of America - Merrill Lynch. Please go ahead.

Good afternoon. I think I'll start off with some three questions. Just going back to the head-to-head study in DLBCL, I'm just curious as to why that particular indication is the first one you decided to do a head-to-head study. Is there anything specific that you feel extremely confident about that you think that's the best study to show that Arzerra is differentiated versus Rituxan.

And the second is do I understand it correctly that GSK is not involved in this trial and if not, why not? So I presume there's no milestones associated with those.

And then the third one is could you just remind me what your plans are in follicular lymphoma specifically? Do you have a first line study against Rituxan that's about to start a new feature?

I'm going to hand the head-to-head DLCBCL rationale to Jan. But I'm not sure why you think GSK is not involved in this study because all these studies are carried out jointly.

I was just wondering because the press release didn't mention GSK and I didn't see a press release from GSK. If I'm wrong, does that mean then that GSK is involved?

These are all -- all these studies are going to be (multiple speakers) joint studies. And then Jan why don't I hand off to you.

Dr. Jan van de Winkel: Absolutely. So we are confident. We already addressed this a little bit in the question to Mike from Piper Jaffray that diffuse large B-cell lymphoma is actually an excellent indication for Arzerra to run in and also head-to-head. That head-to-head aspect is based on I think on a general opportunity in this particular indication and also very strong preclinical data that show very nice differentiation preclinically between Arzerra and other CD antibodies. So we believe this is a very good tumor to start in with the head-to-head.

With regard to follicular lymphoma, you had a number of questions there. We actually have a number of studies planned and some of them are already agreed but not announced yet in public in follicular lymphoma in different lines, both first and second line as well as refractory follicular lymphoma. We will give you more news in the near future, together with our partner GSK. But follicular lymphoma is actually of course also very high on our list on the basis of the data we have generated in this area's settings up to now in combination with chemotherapy, where we have excellent data. And also we believe we have encouraging data in the refractory setting, albeit at a less high level of responsiveness that we would have liked to see.

We believe that in looking in more detail at the data, that was also an announcement of yesterday, we will present at ASH in an oral presentation the analysis of that study is actually quite encouraging. So you will see from Genmab and Glaxo more detail on different studies in different line of follicular lymphoma as well and some of that, those studies are indeed also head to head studies.

Jan, could I just ask a question about the relapsed DLBCL. My understanding is that I think these patients normally, do not have a lot of options.

Dr. Jan van de Winkel: Exactly.

And that their response once they've relapsed tends to be fairly short or their progression through survival.

Dr. Jan van de Winkel: That is absolutely correct. And also if these patients are treated with Rituxan - because Rituxan is used for chemotherapy in the first line setting in diffuse large B-cell lymphoma - actually the effect of the combination therapy after these patients relapse is actually much smaller in diffuse large B-cell lymphoma and they do indeed progress quite rapidly there. So there's a medical need there for new agents and we believe that Arzerra actually has a chance to do well there.

Thanks very much. It was all very helpful.

Dr. Jan van de Winkel: Alright.

Thank you. And our next question comes from the line of Peter Welford with Jeffries. Please go ahead.

Hi, I have three questions. Firstly, on the GSK collaboration with Arzerra, have you got yet an indication internally from them on the budget they're thinking about for 2010? I'm not going to ask you what that number is but have you have heard from Glaxo what they think they will want you to pay during 2010?

Secondly, on the Roche IL13 I think it is, asthma antibody, on your decision not to develop that, was your decision there based on the Phase I data you've seen from Roche? Or was it rather based on your decision on which therapeutic areas you want to focus in and the sort of resources available at Genmab to potentially progress that further?

And then thirdly just looking at the comment you made on the pre-specified trials and milestones to compensate Genmab on Arzerra spend, could you just elaborate on that a bit more in detail? Are you saying therefore that you should get compensated before you invest in the R&D or are you saying that your R&D investment in trials should then be returned to you if the trial is successful based on a milestone then payable from GSK? Thank you.

Okay. Let me start with your question about the resources and the budget. I would like to go back to my comment that the budget is developed jointly. There is a defined development plan that is part of the contract. We did update it after the contract was signed. So we in the considered way worked to create a very comprehensive budget. So it isn't as if GSK comes to us and says here's the budget and this is what you have to do. We jointly made a plan for how the product would be developed and that is really the subject of mutual discussion. So really there's already a development plan that has set what our required payments are for next year.

Having said that, let me try to address the question on the milestones a little more. While we're not in a position to give you the specifics of future milestones, if you were to look at the milestones we've achieved to date, you'll see that they can occur at a variety of times. So some happen when studies are initiated for example, some happen like the one we just received at the time of approval or the time of a filing. So the milestones are part of an overall cash flow that we worked on when we signed the collaboration agreements that was made to match reasonably well with the development plan.

Now our goal in co-developing was to be able to play a very active role in working how the project would be carried forward. It was also to try to give ourselves good economics going forward so we have a really quite substantial royalty rate, for example, because we share in the development cost.

And then as to the Roche, I think that the issue there was I believe Roche had a pipeline conflict and they've had another product that was a conflict to that one. And asthma's not really an area that we would be involved in. Also as part of our agreement with Roche, we would need to have paid them back everything they had spent so far and they had made a really substantial investment in that product even though it was early stage. So the overall economics of the program were not favorable, especially when combined with our focus on cancer.

That's great. Thank you very much.

And our next question is a follow up from Yasir Al-Wakeel. Please go ahead.

Hello. Thank you for taking my question again. Just some further granularity please on the head-to-head trial in DLBCL. Can you give us any indication about the planned recruitment split of patients? What patients are you aiming for in the relapsed setting and what patients are you or what proportion of patients are you aiming for in the refractory setting?

And then just a philosophical question on the DLBCL trial, is it not the case that in the refractory setting by definition Rituxan does not work and therefore pitting against Rituxan is somewhat questionable? Thank you.

Let me start with your philosophical question, Yasir. I don't believe that we can make a comment on how another product is working other than referring you to existing publicly available information and scientific information. I don't also believe that there is any specific plan to split between relapsed and refractory. Jan, do you have any comments on that?

Dr. Jan van de Winkel: No, that's correct. There's no specific plan.

I think they're just both eligible.

Dr. Jan van de Winkel: Yes, they can both be included. There's no targeted setting, Yasir, for these two categories of patients. So, no, we cannot give you further granularity on this one.

Okay, thank you.

Thank you. And our next question comes from Lars Hatholt with Nordea. Please go ahead.

Yes, hello. Lars Hatholt, Nordea. I had a question regarding your DLBCL clinical Phase III head-to-head trial. I wonder whether you would tell us something about what will be the cost for this trial in terms of cost per patient or total cost.

And furthermore, regarding top line in looking at 2010, obviously you may get a milestone from Zalutumumab. Could you tell us what other projects you might earn something from in 2010?

David I think we should hand these to you.

In terms of the cost of trial, we haven't given out details of that level in terms of costs for individual trials.

In terms of 2010 top line, we've got milestones of course continuing with Arzerra, hopefully things like the approval of CLL in Europe. In terms of Zalutumumab of course we're waiting for the Phase III data to come through in Q1 of 2010. Armed with that data our plan would be to enter partnership discussions so there could be potential partnership income of some form in 2010. And then obviously the royalty stream would be the other top line item that we would hope to begin in 2010 and build throughout the year.

Maybe I could make a comment on the potential upfront payment for Zalutumumab. We've actually tried to do some oncology benchmarking to look at the payments for products when Phase III data is available and one of the things we discovered is that almost all products are partnered earlier than that. So the best data we can find is really data for products that are in Phase III. And what we saw in those was a range of payments and obviously there are a range of indications. The median is $101m. The lowest price we could find was $45m upfront and that's for products that do not already have Phase III data. So while that's not an answer as to what we expect, it at least gives you an idea of the range.

Thank you very much.

(Operator Instructions). And our next question comes from Sachin Soni with Kempen & Co. Please go ahead.

Good afternoon everyone. A quick clarification. If I look at nine months revenue, it's DKK435m and there's a gap of still DKK200m for full year. Is that coming from PDL facility or do you expect another milestone?

Would you like me to take that one, Lisa?

Yes please.

Yes, you're absolutely right. DKK435m is the revenue at the first nine months. To that of course you can add the recently announced milestone achievement on CLL for the approval by the FDA and that milestone is DKK116m. And also we've got the deferred revenue which you can see that comes in at a rate of about DKK55m per quarter. And that would then leave you a gap of some DKK34m. If you look at the nine months and look at the other revenue that I haven't talked about there, then it's DKK102m for the nine months. And if you simply take that and divide it up by three as sort of marker indication for the future, then that would bring you now to exactly DKK640m which is our guidance.

That's crystal clear. Thank you.

Thank you.

And Dr. Drakeman, there are no further questions at this time.

Thank you all for joining us on this call today to discuss the third quarter results. We, as I have said before, really believe that Genmab is positioned well for the future. The reorganization helps us work toward a sustainable company. Our goal is to continue developing projects. As we've mentioned before, we haven't stopped the work on any of our programs. We've just matched our organization to our projected needs as our large state studies have finished up. So we believe that Genmab is working in an exciting area and we look forward to talking to you again in the future.

And ladies and gentlemen, this does conclude the Genmab conference call. You may now disconnect. Thank you for using ACT Conferencing.