Genmab A/S (GMAB) 2010 Q4 法說會逐字稿

Good morning and welcome to the Genmab 2010 year-end financial results conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

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 the Dr. Jan van de Winkel. Please go ahead.

Thank you. So we should now be on slide one, 2010 year-end results. So hello and welcome to the Genmab conference call and joining me on today's call is David Eatwell, our CFO. We are delighted to talk to you today about Genmab's 2010 year-end financial results. We move to slide two, the forward-looking statements. As already referred to, we will be making forward-looking statements, so please keep that in mind as we go through this call.

I now move to slide three, delivering on our commitments. When I was appointed as Genmab's CEO nine months ago I made a commitment to our stakeholders to ensure greater transparency in our communications with the markets and to deliver on our commitments. Looking back over the past several months I feel confident that we have so far made great progress towards these aims.

The updated corporate strategy we implemented in September is already bearing fruits and we will continue to focus on our core competences, turning science into medicine and building a profitable and successful business. Following the conditional marketing approval of Arzerra in the EU in April of last year we strove to maximize the value of ofatumumab, one of our most significant assets.

In what was surely the fastest negotiation Genmab has ever taken part in, we amended our agreement with GSK, resulting in an up-front payment of GBP90m to Genmab while reducing and capping our costs. We have gone on to recognize the royalty from the first full year of Arzerra sales and expect that sales will increase in 2011 with the launch in additional European countries and the assignment of the reimbursement [Jcoat] in the US.

For zalutumumab we announced results of the pivotal study and the effect we had on neck cancer in early 2010. While the primary endpoint of the study was not met, we discussed the outcome with several regulatory authorities in Europe and with the US FDA and we believe that the data is strong enough for a potential future partner to file a marketing application for zalutumumab in the EU. We have intensified the search for a partner who can invest in this product and exploit it full potential.

We told you how partnerships are a very important part of Genmab's strategy. We brought this strategy to life last year when we signed new collaborations with Seattle Genetics and with Lundbeck. The Seattle Genetics antibody drug collaboration allows us to expand our antibody portfolio with a new type of very promising technology. As for the Lundbeck deal, this partnership allows us to expand into the CNS field, while incurring no expense and little risk by utilizing Utrecht as a profit center, not just as a cost center.

We continue to be at the forefront of therapeutic antibody technologies and announce an entirely novel, bio-specific human antibody platform called DuoBody last year. This novel proprietary technology platform will potentially diversify Genmab's pipeline and partnering opportunities.

We were able to keep you updated on the progress with our new technologies and our broad pipeline at the R&D day we held in Utrecht this January -- this last January. New partnerships and technologies help expand our pipeline, but so do new studies. We have started six new studies in 2010 and reported data from seven. We will continue to initiate new ofatumumab studies with our partner GSK and we expect to report data from the first clinical study of daratumumab, our human antibody targeting CD38, this year, in addition to starting a new combination study for this antibody.

Finally, we have maintained a strong focus on cost control. We said that we would reduce our expenses in 2010 and to further reduce them in 2011. While David will provide more details on our accomplishments in these areas, I would like to point out that for 2010 we have achieved the lowest operating loss in 10 years. We will continue to meet our promise of managing our costs and making better spending decisions as time goes on.

I'm delighted to now hand over the call to David to discuss the key financial results for 2010. David.

Thank you, Jan. We're now on slide four. The 2010 revenue came in right on guidance, at DKK582m; that's virtually the same number as 2009. The 2010 number had included two milestones from GSK totaling DKK203m and Arzerra royalty income of DKK54m. We also saw a large improvement in the net loss, going from about DKK1b in 2009 to DKK321m in 2010. I'll return to discuss this and the make-up of this in more detail in a moment.

Also on this slide is the headcount detail. We ended 2010 with 189 FTEs, a reduction of 120, or 39%, from the end of 2009. The year-end headcount number, of 189, is more than 70% below its peak, which was 643 that we reported in September 2008 and it's been one of the key drivers in controlling our cash burn.

Finally on this slide, the all-important cash balance. We started 2009 listening to concerns from investors about our cash runway and the risk of dilution, but with our very significant amendment to the GSK agreement we were able to shore up and increase our cash balance in 2010, from DKK1.3b at the beginning of the year to over DKK1.5b at the end of the year, an increase of DKK265, or about 20%.

Next let's move to slide five and the income statement. We've already discussed the revenue, so let's move on to the operating expenses. As you can see, the R&D expenses for 2010, at DKK583m, are DKK352m, or 38%, below the DKK935m reported in 2009. Again, this is driven by our amended agreement with GSK and our very disciplined approach in controlling the expenses and our cash burn.

As discussed last quarter, our G&A expenses increased from 2009 due to the expense related to the departure of our former CEO. Without this one-time expense of DKK41m our G&A expense would have decreased by 20%. And, as a reminder, DKK18m of the DKK41m relates to the acceleration of warrant charges.

The total operating expense for 2010 was DKK743m, DKK341m, or 31%, lower than 2009 and this was also better than the last guidance we gave of DKK775m to DKK825m, partly due to some timing differences on development costs which slip into 2011, but also again a reflection of our control of expenses. This brings us to the 2010 operating loss of DKK161m, DKK337m below 2009 and, as Jan had said earlier, this is the lowest operating loss for Genmab since 2000, the year of our IPO, and, again, this is a little better than our last guidance.

Next, the net financial items and tax, at DKK18m; this line includes interest income, fair value adjustments on marketable securities, FX movements and corporation tax amounts. 2009 had a lot higher positive amount at DKK150m, but you'll recall that was due to a bounce back in the value of our marketable securities, which suffered considerably in 2008. As you know, our current portfolio is much more conservative, with an emphasis on liquidity and security.

Finally on this slide the discontinued operations. The DKK178m includes DKK130m related to the reduction in fair value of the Minnesota facility that we discussed last quarter and DKK48m of ongoing expense maintaining the facility in a validated state. And that brings us back to the net loss of DKK321m as discussed on the previous slide.

Now let's move to slide six and the guidance for 2011. On this slide you can see the guidance range for 2011 compared with the actual numbers for 2010. First, the revenue, we expect a pretty tight range for 2011 of DKK325m to DKK350m. This is lower than the 2010 number due to the achievement of two GSK milestones in 2010 totaling DKK203m. We do not have any GSK milestones included in the 2011 guidance. The remaining larger milestones under the agreement mainly relate to the filing and approval in the FL indication.

The revenue also includes deferred revenue mainly relating to the GSK up-front payments of DKK226m. Also included in the revenue is the Arzerra royalty, although it is very difficult to predict growth in Arzerra sales and I honestly don't know what they will be in 2011. However, we have included DKK80m of royalty in the 2011 guidance. That's a 48% increase over the royalty recorded in 2010.

For the operating expenses we again plan a further reduction to a mid point of DKK700m. Now some of you will recall our discussions from last September, when we went through our new strategy, where we indicated that we would be looking for a 20% reduction in the expenses from a base which was then DKK850m for 2010. That would mean a 2011 expense number of DKK680m, which is in the range of our guidance shown on this page.

You may also recall at that September meeting that I said that reduction would be dependent on a partner taking the clinical investment in zalutumumab. To be very clear, my mid-point guidance for 2011 of DKK700m includes around DKK80m of zalutumumab expenses. Our aim is to find a partner to take on at least some of this cost.

In other words, without the zalutumumab expense our expense guidance for 2011 would be about DKK620m. So you can see, taking this into account, we have more than achieved the 20% expense-saving target that we committed to you last September and this reflects our determination to become a sustainable biotech company.

That brings us to an operating loss midpoint of DKK375m, again, an increase in the loss over -- in 2011, which is driven by the absence of the GSK milestones compared to 2010. The discontinued operation relates to the ongoing costs of our Minnesota facility for a full 12 months and, of course, would be lower if we can conclude a transaction before the end of the year.

And, finally, back to the cash balance. We start the year with just over DKK1.5b and will burn through approximately DKK600m during 2011, similar to 2010 levels despite the lower revenue. There are a lot of moving parts in the cash flow, but a simplified way to reconcile the cash burnt to the income statement is to take the operating loss mid point at DKK375m and then add back the non-cash deferred revenue, which I said earlier was DKK226m. Simply taking those two numbers you come to DKK601m, which is pretty much the mid point of my estimate.

As you know, the Minnesota facility is valued at $120m, which at a 5.5 exchange rate is about DKK660m and, if sold at this price in 2011, we would end the year without about DKK1.6b in cash. If the future burn rate is similar to 2011 then it means we'll end 2011 with a runway of something between two and a half to three years. As a reminder, the 2011 guidance does not include any significant new deals, as they can't be predicted with any certainty at this stage.

And now I'd like to hand the call back over to Jan to take you through the priorities for 2011.

Thank you, David. We should now move to slide seven, the 2011 objectives. During 2011 we will retain a laser-sharp focus on our dominant priorities. We will report data from a number of ofatumumab studies, including, via GSK, the first study of the subQ formulation of ofatumumab in RA. We also expect to report data on the first clinical study of daratumumab in multiple myeloma.

We will initiate a number of new ofatumumab studies, including investigator-sponsored studies, and have plans to begin a new combination study of daratumumab with existing therapies. We expect ofatumumab to be launched in new countries and for reimbursement procedures to be put in place. We plan to meet our goal of introducing at least one new IND candidate each year.

We hope to enter a collaboration agreement for zalutumumab and are working very hard to find a buyer for our manufacturing facility in Minnesota. We will continue to seek other new partnerships to expand our pipeline and to monetize and advance our antibody technologies. Finally, we will work to keep our costs under control, with a goal to meet or beat our 2011 guidance.

We are now at slide eight and look forward to answering your questions. Operator, please open the call for questions now.

Thank you. (Operator Instructions). Our first question comes from Mr. Guillaume van at UBS.

UBS. I have two questions, actually, if you don't mind, the first one is on zalutumumab. You mentioned for your [Brooklyn part] facility that you have already a few confidentiality agreements, so I'm just wondering if on zalutumumab you could tell us whether any confidentiality agreements have been signed.

On ofatumumab as well, I'm wondering if you could update us on two clinical trials; the first one is the first-line CLL Phase III in combo with chlorambucil. If you can update us on recruitment and when you expect read out.

And a similar question for your Phase II study in first-line NHL in combination with CHOP that will be nice.

And lastly, maybe if you don't mind, do you expect to receive any milestone on ofatumumab in 2011? Thank you.

Guillaume, the last question, can you repeat that because I missed the last one after the Phase II study?

Sorry. Yes, after the Phase II I'm wondering if you expect any milestones to be received on ofatumumab in 2011.

Okay, milestones. Thank you very much, Guillaume. So let me start with the questions on zalutumumab. We have actually signed a pretty sizeable number of CDAs and have actives discussions going on at this moment. Although zalutumumab is a good drug, it's a safe and efficacious drug, but it needs a partner willing to invest, as we all know, a considerable sum to advance the antibody in a broader area of new indications to extract the full value.

We are very actively searching for a partner but cannot give you any more progress at this point. But what I can be very clear on is that if we cannot find a suitable partner to really fully exploit the potential of this drug, we will reduce the current levels of investment that we are making. In the 2011 guidance we have about DKK80m now built into the budget and we would like to reduce that spend as soon as possible, Guillaume.

You said you have DKK80m on zalutumumab in 2011. Is that correct?

Yes. We would like to limit that as much as possible and actually transfer the costs to either a partner or to shut down activities and we still guide for the first half of this year, Guillaume, to actually come to a potential partnership agreement for that drug.

To, then, updates on ofatumumab, I cannot give you further updates apart from what I did at the recent R&D day for the Phase III chlorambucil combination study in CLL, apart from repeating what I already said at that time, Guillaume; that the recruitment is going very, very well. We have at that time guided for an end of the study at the beginning of 2013, possibly the end of 2012, and that's still the same.

The Phase II NHL CHOP combination study I have no further updates at this moment, but expect there to be updates during this year.

And, finally, with regard to the milestones, at this moment we don't project any milestones from GSK on ofatumumab for 2011.

Thank you.

All right.

The next question comes from Peter Welford at Jefferies.

Hi, yes, thanks for taking my questions. They're mostly financial, I think. Firstly, on the operating expense guidance for 2011, are there any restructuring costs included in that guidance, or is that all the core R&D and G&A costs for this year?

Secondly, just on the revenues, when I work it out with your DKK80m for Arzerra and also the deferred income that we know is coming, I get about DKK20m to DKK40m or so other revenues. Just to confirm, is that revenue that you'll be owed from GSK under the typical reimbursement that happens that's still a hang-up from the prior years, or is that DKK20m to DKK40m from another source related to potential small deals or other things that are ongoing? Just so we can better understand what exactly is built into that.

And then, thirdly, just coming back to the EGFR spend, can we just confirm is all of that DKK80m for costs for the trials that are still ongoing, i.e., the Phase I/II, Phase III trials, and that isn't DKK80m for fees or other charges that may be incurred in consulting and advisory for out-licensing the drug? Thank you.

David, I think I can happily leave all the three to you.

Thank you very much, Jan. In terms of restructure costs first, Peter, there's some very small amount of restructure costs that are in 2011; it's not material. The restructuring cost in 2011 just relates to we did have some transition staff where we made the restructure in October/November of 2010. We did have a number of staff that were continuing with the Company as we transitioned some of their work, so there's a handful -- a couple of handfuls of staff that we've still got in 2011 and there is some retention bonuses related to them, but apart from that there's very little restructuring cost in 2011.

In terms of the revenue, you're quite correct. As we've said, there is the deferred revenue of DKK226m. DKK207m of that relates to GSK, the remainder relates to Lundbeck. Also, as we said in there, there is DKK80m of royalty, so adding those two together that comes to DKK306m and, you're quite correct, that does leave a bit of a gap, then, between DKK306m and the range of DKK325m to DKK350m.

The most significant item that's in there would be our Lundbeck deal. As you know, we signed the deal with Lundbeck last year and we do have some reimbursement of costs relating to developing those antibodies for Lundbeck and the milestone payments in there as well, so most of the remainder cost is down to Lundbeck. There will be very little for GSK because, you'll recall, as part of the amended agreement we did agree to transition the remainder of the GSK -- the studies to GSK and that was successfully transitioned by the end of 2010.

Your last question on the EGFR, we have included the DKK80m costs in 2011. The vast majority of that relates to ongoing trials. There's also some cost in there relating to CMC and the filling of vials, very little in terms of prep work in terms of looking for a European filing, so a large part of that cost you are committed to in terms of trials that you are doing, but still our aim is to try and find a partner and to move those current trials over to the partner as soon as we can. But, as Jan said, if we're not able to find a partner for it we will be looking to trim those costs down as far as we can.

That's great, thank you.

Okay, thank you, Peter.

The next question comes from [Samir Devani] at Nomura.

Afternoon, everyone, I've just got a couple of questions primarily relating to the TenX, the old HuMax-CD4. I was wondering in light of the fact that that company's now filed for bankruptcy whether we're still going to see the data from the Phase III trial they were running, or what's happened to that Phase III trial?

And then maybe you can just give us some -- an update on some guidance on tax for 2011 and whether there's any chance of seeing any Roche milestones this year.

All right, why don't I start with TenX? As far as we understand is the trial is still running and we don't have an accurate up-to-date view of that, Samir, but I expect actually those data to come out. I also know that TenX started up another study together with NIH, with Rosenberg in the cancer area with the zanolimumab antibody, and they are in active discussions with Barclays to resolve their issue. So I still expect the data to come out at some time point but, given the situation, Samir, it's difficult to estimate when the data will come out on zanolimumab.

I think the tax situation I think I'll leave that question to David, as well as the milestone question on Roche antibodies.

Yes, taking the Roche milestone questions first, we have not included any milestones related to Roche in our 2011 guidance, but we will keep an eye on their products, particularly as they're now advancing those through in Phase II in some cases.

In terms of the tax, the tax charge was a little high in 2010, higher than our previous rate, at about DKK21m. The reason for it being high in 2010 was mainly on some tax complications. It's to do with warrant expenses and mainly, again, it relates back to our former CEO where we did have that acceleration of warrant charges. Now those warrant charges hit the P&L, but when you're calculating your corporation tax you don't get an allowance for that warrant expense and that's why we have a bit of a blip of our tax expense in 2010. That will reduce back to a smaller number in 2011, something around the DKK15m, DKK14m mark for 2011 compared to the DKK21m plus in 2010. I hope that answers your questions.

The next question comes from Guillaume van at UBS.

Yes, hi, again. I have a follow-up on daratumumab in multiple myeloma. I'm just wondering what level of efficacy you will be happy with in the Phase II that should come out this year?

I'm just wondering as well, as you know, Velcade is to lose patent protection in 2016, so probably the drug sold for $1.5b in 2009, but as it comes -- as the drug becomes generic and is still very efficacious I'm just wondering if you have done a market research study to assess what level of efficacy you should be able to demonstrate over Velcade to be able to get similar pricing as Velcade currently compared to the placebo -- sorry, compared to the generic.

Thank you, Guillaume, I will take those two questions. This is a dose escalation study with daratumumab in Phase I/II in multiple myeloma, which is progressing well. The antibody is very active pre-clinically in different types of settings, so we would be pleased actually when we would see responses -- clinical responses to this antibody, since, with the exception of one antibody, no antibodies have ever shown to be inducing clinical responses in a mono-therapy setting in multiple myeloma and definitely not in such sick refractory patients.

We do have pre-clinical data which suggests that the antibody is very potent and also that it synergizes really well with Velcade or lenalidomide and some other drugs which are in use in multiple myeloma. So we think that daratumumab could not only be used as a standalone drug, but also in combination with other drugs like Velcade and that would likely be the way of use in large groups of patients in the future.

So we are looking at the market. We are confident that if shown activity in this Phase I/II study that this drug is actually probably best to use in combination with other drugs in a disease like multiple myeloma. The potential for daratumumab, however, is far greater because there are also a large number of other hematological disorders which also express CD38, the target of this antibody, and for it there is a clear medical need for a new drug.

What I can tell you, Guillaume, is that on the basis of pre-clinical work which we have reported on at ASH and at all our conferences and recently in some papers, as you know, we have already received a significant level of interest from other pharma and biotech companies for this asset.

So we believe that when we see clinical responses in the Phase I/II that will be quite unusual for an antibody by itself. And since it has a different mechanism of action from other types of drugs, like Velcade or lenalidomide as the most popular ones, there is a place for it in the market, not only in multiple myeloma, but potentially broader. So we very much look forward to seeing the clinical data, which is still projected to be available within this year.

Sure, but I'm not sure actually it answers my question, because whether it's an antibody or a small molecule like Velcade, what matters is efficacy. And when I see that Velcade has a response rate of more than 60% I'm just wondering what additional benefit you should provide over Velcade to be able to generate what you think the compound could generate.

Yes, but that depends on the line of treatment, because also -- we have also now shown already that in lenalidomide and Velcade refractory patients we see very good responses in the pre-clinical setting. If that would translate to clinical responses in a clinical setting there would absolutely be a need for a drug like that, I can assure you, Guillaume.

Sure. The need, for sure, but it's all about the pricing as well, don't you think?

Absolutely, but pricing can be worked out later. It's too early I think right now to talk about pricing, especially because some of the proteasome inhibitors, like Velcade, may become generic in the coming years, so that will follow later, but I can assure you that the interest level is quite high for this asset.

Yes, but -- sorry, I hope you don't mind if I insist, but I guess your pharma partners, the pharma guys who have looked at the compound, are putting the numbers into their model to see whether it is worth developing the drug and they are questioning the real market potential. So --

Absolutely.

-- price does matter now, not when you're going to have your drug approved. So what is your expectation in terms of peak sales?

It's too early days, because I already explained that the multiple myeloma, the three drugs which are the most actively used there in 2009, generated over $3.5b in multiple myeloma in a growing market. But CD38, the target of daratumumab, is actually expressed in a much wider array of hematological diseases, so the market could potentially be much higher. But it's too early right now to talk about the sales levels in these different markets, because in some of these markets there is actually very few drugs active and, if this one would show to be active, that would actually be a pretty sizeable market.

Okay, thank you.

(Operator Instructions). This concludes our question and answer session. I would like to turn the conference back over to Dr. van de Winkel for any closing remarks.

So thank you all for calling in today to discuss Genmab's 2010 year-end results and we look forward to speaking to you again soon. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.