Genmab A/S (GMAB) 2010 Q1 法說會逐字稿

Thank you for standing by and welcome to the Genmab earnings release conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions).

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 an obligation to update statements regarding the future nor to confirm such statement in relation to actual results unless this is required by law.

I must advise you that this conference is being recorded today on Wednesday, May 12, the year 2010. I would now like to hand the conference over to your speaker today, Dr. Lisa Drakeman. Please go ahead, ma'am.

Hello and welcome to the Genmab 2010 first-quarter results conference call. For our first item, I would like to turn to the results for the three months ended March 31, 2010. During this period, we recognized revenues of DKK 107 million, which is approximately $19 million, and reported a net loss for continuing operations of DKK 116 million, about $21 million.

This represents a significant reduction compared to the first quarter '09 loss of DKK 150 million, which was approximately $27 million. We ended the quarter with a cash position of DKK 1.077 billion, which is about $195 million. We maintain our financial guidance for 2010.

The highlight of the quarter was the receipt of a positive opinion for conditional approval in Europe for Arzerra in refractory CLL. Subsequent to the balance sheet date, the European Commission granted a conditional marketing authorization for Arzerra for the treatment of refractory CLL, which triggered a milestone payment of DKK 87 million to Genmab from GSK.

Of course an item of great interest to all of us is the Arzerra first-quarter sales. This was preannounced when our partner, GSK, released first-quarter earnings showing sales of DKK 42 million resulting in DKK 8 million in royalties to Genmab. Because of rounding errors, I just want to point out that we in fact received royalties at a rate of 20% of net sales.

This does represent a significant increase over 2009 fourth-quarter net sales of DKK 29 million, but it is difficult to draw any conclusions from the sales seen in the last two quarters at this early stage.

Our understanding is that GSK is putting a significant amount of sales and marketing effort into Arzerra and working hard to educate physicians, and now also those physicians in the EU. Although we have obtained regulatory approvals both in the United States and Europe and achieved compendia listing in the US, it takes time to put everything in place to have the product prescribed and reimbursed in an effective manner. We are looking forward to following the development of the sales during 2010 in the future.

The ofatumumab program is expanding. In collaboration with our partner, GSK, currently there are 20 ongoing ofatumumab studies, up from 17 at the beginning of the year. This includes two new Phase III studies, a recently announced Phase III study of ofatumumab in combination with bendamustine for the treatment of NHL, and a Phase III study of ofatumumab maintenance versus no further treatment in patients with relapsed CLL, who have responded to initial treatment.

We also continue to expand our pipeline. Recently we announced HuMax-cMet, which has the potential to treat a variety of solid cancers including breast, lung, pancreatic, ovarian, prostate, renal, gastric, and colorectal. This antibody of course is in very early stages but it does have blockbuster potential.

We also announced an expansion of our technology, a novel next generation by specific antibody technology. We believe this exciting new technology that combines the ability to find two targets in a single molecule can increase target specificity and recruit potent killing mechanisms to fight disease. Based on laboratory data we have observed to date, our technology overcomes key challenges to older by specifics such as inefficient manufacturing. We also believe that Genmab by specifics can show improved time in the body, which would enhance the ability to kill disease.

In March this year, we also announced topline results from zalutumumab Phase III study in refractory head and neck cancer patients who failed platinum-based chemotherapy. Although we observed a 30% improvement in survival, it was not the 50% improvement we were targeting with the study. However, these are the first data presented to demonstrate that an EGFR targeted antibody given as monotherapy induces a clinically meaningful improvement in progression free survival in patients with head and neck cancer who have failed platinum-based chemotherapy.

We have been encouraged by reviews of the results with our clinical advisors and regulatory experts. Consequently, we are presently preparing for consultation meetings with regulatory agencies in Europe and the US. The results of this study will be presented in an oral presentation at the 2010 American Society of Clinical Oncology annual meeting, known as ASCO, and they have also been selected for the 2010 Best of ASCO San Francisco meeting that will take place July 16 through 17 of this year.

I would also like to give you an update on the facility sale process. This remains very active with Genmab employees and our agent, PharmaBioSource, reaching out to buyers in many ways including attending numerous industry conferences. We are currently engaged with a number of interested parties who are reviewing confidential information.

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, could you please open the call for questions?

(Operator Instructions) Brigitte de Lima.

Thanks for taking my questions. I've got quite a few, so maybe I will start off with just three. First simple one. Was Arzerra already launched in the first European country? If so, when? And can you make any comments at all on pricing? Is it roughly similar with the US price?

The second is on the potential impact of US healthcare reform on Arzerra sales. Is there a way you can quantify the impact for us? Have you discussed this with GSK?

And then the third one I will ask is regarding last year when the guidance was changed, there seemed to be a roughly DKK 100 million milestone payment associated with the start of an NHL trial which moved into 2011. I'm just wondering where we stand with that milestone. Is that still included in your guidance? Have you --? Obviously you haven't received it, but are you still looking to receive that at some time in the near future? I'll start with these three now.

Okay, thank you, Brigitte. We have been informed that Arzerra launch has begun. I believe Germany was the first country where the drug was made available and GSK has plans to continue to add new countries on a regular basis in the short term.

As to pricing, I don't believe we have any information on pricing yet. My understanding is that those discussions are ongoing with various European authorities.

Finally on the NHL milestone, you are absolutely right that there was a study we hoped would start next year that was moved into this year. And, David, I don't know if you have any comments that you would like to make on that.

In terms of the guidance for this year, the revenue guidance of DKK 350 million to DKK 450 million does include an allowance to further milestones from GSK.

And I just had the question on US healthcare reform, the potential impact on Arzerra sales.

We have not had any significant discussions with GSK about that. However, Arzerra is an orphan drug. It's qualified as an orphan drug in both Europe and the US. So my understanding is that the healthcare reform pricing pressures will not affect orphan drug pricing. But of course, you should double check that.

Okay, if you don't mind, I still have one more question and that's related to the reimbursements you are receiving from GSK. So if my calculations are correct, we received DKK 22 million in Q1. Is that something we can use as a run rate for subsequent quarters as well?

It could be a little lumpy quarter-to-quarter, but that's reasonable. You can also look at the 2009 numbers to sort of gauge the amount that was received in the year. But you are quite correct, it was around the DKK 20 million for Q1.

Okay, thanks very much.

Yes, thank very much. This is Carsten from Carnegie Bank Copenhagen. I just have one question for you. Lisa, in November, 2009, there was a lot of discussion about analysts expectations for Arzerra. I think you are quoted in a lot of the local media for saying that even the highest estimate which at that point in time was Arzerra sales of roughly $100 million could prove to be conservative. Could you shed some more light on this now, given that you've seen Arzerra on the (inaudible) for the first quarter, first full quarter?

Carsten, I know what I said at the time, which is that I thought analyst estimates generally were lower than we thought possible for 2010. I think the average sales suggested by the analysts last year were around $44 million.

Having said that, we have such limited data so far. We only had a few weeks of sales in 2009 and now we only have a first quarter in which there was a holiday week. So I don't think we are in a position to give any specific guidance about sales expectations for 2010.

David, would you like to add anything to that?

The only thing I would add perhaps, Lisa, is that at the early stage, I think it is a little too much to expect to get clean data about what you could expect for the future given this stage of the launch. I think the early stage of the launch you've got sort of a lot of noise around the data in terms of stocking policies and filling the pipeline, etc.

Plus I think in the US it can take a while for the first patients to go through the Medicare reimbursement. As you know, the NCCN guidelines give it a wider indication than the strict label, but that doesn't mean physicians are going to have to sort of test it out, if you like, with Medicare to start with and see if those first patients perhaps where they are using ofatumumab off label to see if they get reimbursement through the US Medicare system.

So I think that whole process takes a while. It probably takes 90 days for Medicare to reimburse. So I think there will be a few quarters before we could really look at the quarterly sales data and try and figure out any future trends from it. And of course the European approval mean that the sales should grow throughout the year. Some countries will be able to launch earlier than others. Some countries will have to go through pricing reimbursement negotiations before the product can be launched.

Okay, thank you, but ahead of the launch you are willing to say that estimates, the forecasts were conservative. Do you still see them as conservative or are they more spot on now? Where are we? I not asking for specific guidance. I'm just -- so I was trying to feel how your sentiment has changed since you actually launched the product.

I don't think that our sentiment has changed, Carsten. I think that we really believe in the possibilities of Arzerra. We believe there are many patients who can be helped by it. And I think David made a very good comment when he said that we need to watch what happens as the physicians start to work their way through the reimbursement system as the European countries roll out. So I think we just have to wait and see exactly how these sales come out.

Thomas Bowers.

Yes, thank you, Thomas Bowers from Danske Markets. Firstly regarding the subcu formulation, can you comment on how this fits into the original agreement with Glaxo? My point is, should we expect lower royalties for subcu formulation or is it reasonable to believe the potential milestone related through the IV formulation in arthritis will remain the same? Or will you somehow be compensated by Glaxo on this?

And then my second question is regarding the Arzerra milestones. In general I believe the total amount of milestones is around DKK 6.4 billion, equal to the DKK 9 billion adding the upfront and equity investment from Glaxo. And as far as I can see, you have received just over DKK 900 million currently and probably some DKK 600 million on the non-Hodgkin's Phase III studies so we should be down to some DKK 4.8 in my estimate, give or take.

But it's come to my attention on one of your latest slide presentations and you highlighted the potential future cash generation of some DKK 650 million or around DKK 3.7 billion. So my question is where is the remaining DKK 1.1 billion?

And then finally on the preclinical pipeline, you have among others highlighted the Her2 antibody as one of your clinical candidates, but I'm just wondering how you believe it will differentiate compared to the TDM1 antibody now close to the market? And also in generally speaking, it seems we are starting to see a shift from these naked antibodies to conjugated antibodies, especially with ImmunoGen's late stage breakthrough with the top technology. So any thoughts on this one? Thank you.

Let me start by answering the question on the subcu and the royalties. We have a royalty rate for any use of Arzerra and it remains the same regardless of formulation.

As to milestones, I don't think I'm in a position to speak very specifically about exactly where milestones are situated. But there's nothing about the subcu development at present that would suggest any different financial terms.

In terms of the total milestones, you are right that we have a slight (inaudible) potential for more than $650 million in milestones. David can probably comment a little on -- this does not include all potential milestones in (technical difficulty). David, maybe you would like to comment a little on that.

Yes, just to reiterate the numbers, you are quite right, when we had the initial deal with GSK, we said that the total potential fees in milestones will be about DKK 9 billion and you're quite correct, that did include the upfront license fee of about DKK 600 million and around DKK 2 billion of stock purchased by GSK. So if all potential milestones come through, you're quite right, that would be about DKK 6.4 billion.

With the recent CLL Europe milestone, we'll have received about DKK 1 billion at this point in time. And depending which exchange rates you use, the $650 million is going to be somewhere around the DKK 3.6 to DKK 3.8 billion.

So there is some difference as you explained between there. The $650 million I would class as being relating to those products currently under development or we envisage in development in the short-term. So the $650 million does match to sort of what we know, what we can see in the reasonable future at this point in time. But overall, the DKK 9 billion was really everything, every single indication and every dosage format went through. But $650 million is a good number.

Then you asked a question about the Her2 antibody. I'm going to ask Jan to talk about what characteristics he has sought in creating that antibody. I think it's probably a little too early to comment in general on naked antibodies versus other possibilities just because right now naked antibodies are still dominating although other possibilities of course are interesting. Jan?

Absolutely, Lisa. I think it's a very good question for us. We have of course looked at the whole panel of antibodies and not only compared it with Herceptin or Trastuzumab but also with other antibodies like (inaudible) which will also follow on antibodies work done by other companies, as well as conjugated antibodies like Trastuzumab-DM1, the molecule you were referring to.

Genmab is clearly thinking broader about antibody therapeutics. Not only do we focus on naked antibodies, but also we have just recently announced a new technology to make by specific molecules, which have distinct advantages at the safety as well as the efficacy level over earlier generation antibodies. And we are also in the laboratory scale have looked at conjugated molecules.

What I can tell you is that in our panel of antibodies targeting Her2, there are antibodies outperforming in vitro as well as in animal models both for Trastuzumab as well as conjugated forms of Herceptin. So we have not yet decided on the final therapeutic format but we are pretty optimistic that we can both at the efficacy as well as at the potential safety level make molecules or have generated molecules that outperform some of the competitors. That is I think all we can say at this moment.

Okay, thank you.

Lars Hatholt.

Yes, hello. Lars Hatholt, Nordea. Sorry, I had a question regarding the sales process of your US production facility. Let's say that you fail to shutter the site in 2010. Then your financials begins to look somewhat strange, you could say. And in that case, would you be able to make some cost cuttings or postpone some start up of some programs to sort of contract this phase of serving the sites in 2010?

And another question that's regarding the DLBCL Phase II projects, as far as I can see, it seems likely that we are going to have these dates rather soon. Thank you, that was my two questions.

Okay, well let's start by saying that we really think that the facility sale process is very active, that we have a number of interested parties and that the doomsday scenario hopefully will not appear. Having said that, I think I'd like to hand over to David to comment on thinking about the Company in terms of cost cutting and cost control.

Thanks, Lars, thanks for the question. Overall, I think we've done quite a lot in the recent sort of 18 months or so in terms of cost cutting. We have really sort of moved Genmab into sort of a larger employment number, larger fixed cost into something perhaps a little leaner and more flexible.

So although we've still got sort of a fair amount of R&D spend that we are burning through at this particular point, we've seen a change over the last 18 months to two years where the money was being spent on infrastructure and employees through to now being -- the majority of the money is supporting the actual Phase III clinical trials.

And of course once you start a clinical trial, it's difficult to stop them and indeed we consider the Arzerra ones at this point to be a significant investment in our future.

But in terms of other products coming through, whether it's looking at things that are in early-stage development with zalutumumab, whether it's looking at new INDs coming through, things like cMet, we can control the spend on those and we can elect different periods for Genmab to perhaps seek a partner for those.

And you've seen Genmab do it in the past where it has taken products through to Phase III like zalutumumab through Phase II like we did with Arzerra or to license things out earlier, like the relationship that we have with Roche where we actually discover the antibody but hand over to the partner to make all of the investment.

So in terms of sort of worst-case scenario where we sort of couldn't expect a facility sale, and I think we can expect the sale. It's like selling a house. It's difficult to know exactly when it's going to sell, exactly what the value is, but I think we can be assured that the Minnesota facility can't be zero. So we do expect the sale to come through. As we said, though, we do expect it to be an [82] event for 2010 because it will take time for companies to go through their due diligence.

But we've done a lot to sort of control our expenses. Our headcount at the end of March is about half what it was at this time last year, so we are sort of in control of our expenditure and take that sort of cash burn very seriously.

I think the second question is about the DLBCL results. I don't know that we've been able to say publicly yet when they will be due. We do expect them this year and I'm not sure, Jan, that you have anything to add to that.

I think we can't be more precise. Probably definitely in the first half of this year but the exact timing has not been clear for (inaudible).

Thank you very much.

(Operator Instructions) Samir Devani.

Hello, everyone. I just want to pry a bit at the cash situation a little bit deeper. Just again thinking about the doomsday scenario, have you thought about going back to GSK and looking to potentially restructure the deal where you don't have to foot the bill for the R&D and maybe take a slightly lower royalty instead and maybe ease the cash burning position of the Company?

I don't think that we are really in a position to comment. Right now we are very happy with the agreement as it is. We do have milestone flow to help us with the expense of the R&D. And long-term I think as you know, our royalties start at 20% and they go up. And while I think at present perhaps the market is not recognizing the value of that, we believe that the royalties are very important in terms of value to the shareholders.

So I think that's probably all I can say at the moment. David, do you have anything to add to that?

No. I think you said it all there, Lisa. Thanks.

Okay, but thanks for the question, Samir.

There are no further questions at this time. Please continue.

Thank you all for joining us today. We appreciate your attention and your interest in Genmab at the time of the Q1 results and we look forward to speaking to all of you again in the future. Thank you and goodbye.

That does conclude our conference for today. Thank you for participating. You may all disconnect.