Genmab A/S (GMAB) 2011 Q1 法說會逐字稿

Good morning, and welcome to the Genmab first-quarter 2011 financial results conference call. All participants will be in listen-only mode. (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 under no 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. Jan van de Winkel. Please go ahead.

Thank you. Hello and welcome to the Genmab conference call to discuss the Company's financial results for the first quarter of 2011. Joining me on today's call is David Eatwell, our Chief Financial Officer.

I move now to slide 2, the forward-looking statement. As already referred to in the introduction, we will be making forward-looking statements, so please keep that in mind as we go through this call.

I'll move now to slide 3, highlights year-to-date. On this slide, you see that we have already achieved a number of accomplishments this year. We started off the year with a well-attended R&D day in Utrecht, where we provided an update on our pipeline and proprietary technology platforms.

Next, we reported the first full year of Arzerra sales, totaling GBP31 million and the first-quarter 2011 sales of GBP9.4 million, resulting in DKK16.4 million in royalty revenue this quarter.

Another important development in the Arzerra program is the start of a new Phase III study in patients with CLL who have bulky disease. This is refractory to treatment with fludarabine. Patients with fludarabine-refractory CLL have few treatment options and a poor prognosis, and there is no set standard of care for patients with bulky CLL.

This study will measure progression-free survival of patients treated with ofatumumab versus the physician's choice of CLL treatment. Patient enrollment began recently. Data from a Phase I/II study of a subQ formulation of ofatumumab in our [A] patients of stable background methotrexate are scheduled to be presented at the EULAR Conference 2011, which takes place between May 25 and 28 in London. An abstract describing the data is already available on EULAR's website. We are pleased to announce that GSK has recently filed an IND for the subQ formulation of ofatumumab for treatment of multiple sclerosis with the US FDA.

Our partner, Roche, has continued to advance the RG1512 program, targeting P-selectin. In December, Roche announced plans to start a Phase II study in cardiovascular disease, and has subsequently announced plans for an additional Phase II study, which is expected to start recruiting patients within the second quarter of 2011. Together, these two Phase II studies will include approximately 900 patients.

Finally, we have expanded our collaboration with Seattle Genetics. Similar to our previous agreement, Genmab received rights to use Seattle Genetics' clinically validated antibody drug conjugate technology with our HuMax-CD74 antibody. Under the terms of the agreement, Genmab paid an undisclosed upfront fee to Seattle Genetics, and Seattle Genetics has an option to opt in to co-develop HuMax-CD74 with Genmab at the end of Phase I.

Importantly, Seattle Genetics owes Genmab a payment contributing towards a previous investment in the product in case they would exercise the option to co-develop HuMax-CD74 ADC. We are particularly excited about the potential of HuMax-CD74 in hematological cancers, such as follicular lymphoma, chronic lymphocytic leukemia, diffuse large B-cell lymphoma and multiple myeloma, as well as in a number of solid tumor indications. These include large indications, such as colorectal cancer, breast cancer and lung cancer, as well as smaller indications that are high unmet medical need. And examples are pancreatic cancer and malignant melanoma. We are very pleased to be working with Seattle Genetics on another antibody, and to have added the HuMax-CD74 ADC to our preclinical pipeline.

I would now also like to take a moment to give an update on our progress with the planned sale of the manufacturing facility and in finding a development partner for zalutumumab. The market conditions for selling the facility remain difficult. However, our highly-experienced sales agent is working hard to find an appropriate buyer for the site. We continue to attend biotech manufacturing conferences and keep active contact with potentially interested parties.

The partnering activities for zalutumumab are also ongoing. In order to reduce Genmab's overall investment in the zalutumumab program, we have recently converted two ongoing studies, the pivotal Phase III study in refractory head and neck cancer, as well as the Phase II safety study, to named patient programs. This means that no new patients will be recruited and ensures that existing patients in the studies will be allowed to continue treatment with zalutumumab.

These measures will not affect the primary endpoint data for the studies and do not interfere with a potential regulatory filing by a future partner. We reaffirm our commitment to either find a suitable development partner for zalutumumab within the first half of this year or to actively wind down and limit our spending on the zalutumumab program.

I will now hand over the call to David to discuss the key financial results for the first quarter of this year. David?

Thank you very much, Jan. We are now on slide 4, the key data. The Q1 revenue came in at DKK83 million. That is DKK24 million lower than the first quarter of 2010. The main reasons for the reduction in revenue was the inclusion of 10X licensing revenue -- there was a one-off income reported in Q1 of 2010 -- and also reduced charges for the development build to GSK. As you'll recall, we transferred the tail end of the trials that we were running with GSK. Of course, that lower development revenue is offset by lower Genmab costs.

In addition to the deferred revenue, we also reported DKK17 million of Arzerra royalty income in the quarter. That is about double the amount recorded in Q1 of 2010. And as a reminder, we have about DKK80 million of royalty included in our full-year guidance.

Despite the lower revenue, we did see a reduction in the net loss to DKK111 million compared to DKK130 million reported in the same period last year. And I will give you more detail on the buildup of that number in a moment.

Also shown on this slide is the headcount detail. We ended the quarter with another reduction in FTEs to 182, a reduction of 94, or about 34%, from the end of Q1 2010. The 182 employees includes 23 employees in Minnesota, who of course will be transferred once the facility is sold.

Finally on this slide, the cash balance. We started 2011 with about DKK1.5 billion of cash and marketable securities. And we burned through just DKK94 million in the quarter, and that is about half the burn rate of Q1 2010.

Next, let's move to slide 5 and the income statement. We've already discussed the revenue, so let's look at the operating expenses. You can see here that the R&D expenses for Q1 at DKK128 million are DKK92 million or 42% below the DKK220 million reported in Q1 2010. Again, this is driven by our amended agreement with GSK and our very disciplined approach in controlling the expenses, the headcount and our cash burn.

Our G&A expenses have also decreased by nearly half from Q1 2010 to DKK17 million. The decrease was driven by the reduction in the G&A headcount of over 40% and the corresponding impact on salary expense and warrant charges.

That brings us to the total operating expense for Q1, which came in at DKK145 million, DKK 108 million or 43% lower than 2010. That brings us to the operating loss of DKK62 million, which compares to DKK146 million loss in Q1 of last year.

Next, the net financial items and tax at DKK39 million -- that is a charge. And this line includes interest income, the fair value adjustments on the marketable securities, FX movements and corporation tax amounts.

The most significant amount here is the FX movements. The adverse amount in Q1 2011 was driven by DKK32 million of non-cash foreign exchange rate adjustments. This is mainly associated with the intercompany loan between Denmark and Minnesota, which was impacted by the weakening of the US dollar in the quarter.

Finally on this slide, the discontinued operations, the DKK10 million related to the ongoing operating expense maintaining the Minnesota facility in a validated state. The amount was greater in 2010, as it included some staff retention payments related to the reorganization plan.

That brings us back to the net loss of DKK111 million that we discussed on the previous slide.

Now let's move on to slide 6 and the guidance for 2011. On this slide, you can see the guidance range for 2011 compared to the actual numbers for 2010. And as you would expect at this early stage of the year, there is no change to the guidance for 2011 at this stage.

The only comment I would add at this point is that the operating expenses are more likely to trend towards the bottom of the range, of DKK675 million, rather than to the top of DKK725 million. As a reminder, the guidance does not include any significant new deals, as they can't be predicted with any certainty at this stage.

Now I would like to hand the call back over to Jan to take you through the priorities for 2011. Jan.

Thanks, David. We now move to slide 7, the objectives for 2011. As we have mentioned, we are already making significant strides towards achieving our 2011 objectives. Via GSK, we are scheduled to report Phase I/II RA subQ data in May. And ofatumumab has been launched in an additional country in Europe, the Czech Republic, bringing the total number of countries where Arzerra is on the market now to 18, a number that is projected to further grow over the coming months.

We have announced a new IND candidate, HuMax-CD74 ADC, and have signed a new partnership agreement with Seattle Genetics. We are well on our way to meet or beat the 2011 guidance.

In addition, we continue to work to strengthen our senior management team in order to implement our business strategy more effectively. As open and transparent communication with all stakeholders is a key component to this strategy, we have recently appointed Rachel Curtis Gravesen as Senior Vice President, Investor Relations and Communications. Rachel's experience in a variety of communications roles will serve to raise Genmab's external communications to a new level and strengthen our operations by putting new focus on internal communication.

We are looking forward to a productive and very exciting year at Genmab and will continue to keep a sharp focus on our dominant priorities.

Now it's slide 8, and look forward to answering all your questions. Operator, please open the call for questions.

(Operator Instructions) Guillaume van Renterghem, UBS.

I have quite a few questions, if you don't mind, but probably I am going to speak in two lots. The first one is with regards to daratumumab. I am just wondering how much will the Phase I/II in combination study in multiple myeloma will cost, and just ballpark. And I was wondering what endpoint are you going to use between PFS and overall survival. That's my first question.

More basically, on Arzerra, we see kind of a stagnation of your sales in (inaudible), actually. I'm just wondering compared to your bullish comments that you've made over the last few years on CLL potential, I'm wondering what is holding back this potential, especially that we see more -- sorry -- supporting being launched more in European countries. That is going to be my first two questions. Thanks.

Thank you very much for the questions. Why don't I start with the second question, Arzerra sales. We are very optimistic that the sales level will actually increase over the next few years, especially because we now have a permanent reimbursement takeout active for Arzerra in the US, and that will have an effect. And we have an increasing number of countries to come online, and there, actually the reimbursement is in place for the drug.

On top of that, there will be a lot of data from the current trials that they will be doing in the near future. There is an increasing number of trials that Arzerra will tested by clinicians. I can tell you that on clinical trials of (inaudible) now 56 studies. Of it, 41 studies are active or recruiting Arzerra, and that number will increase. As I described at the R&D day, that is we have now a total number of anticipated studies of over 70. So there will be more clinical experience and data becoming available.

We have a number of Phase III studies ongoing, in CLL, as well as in the other indications. And data will drive further take-up of the drug. So we are very optimistic that the sales will continue to rise. But probably it is not the right thing to focus too much on the next few quarters, but think about what the sales level increase and buildup will be over the next few years.

Let me then return back to daratumumab, the first two questions. The cost one, I will refer that to Dave to see what we can say about that. The endpoint is we will look at response rates in this trial. It is a Phase I/II dose-escalation study; it's going very well. We are escalating to higher and higher doses. And it is actually quite customary not to look at overall survival or progression-free survival, although we will of course look at those indicators. But response rates will be the real endpoints of this Phase I/II study.

And then I will ask David to see that he can give any feedback on the cost level for the Phase I/II multiple myeloma study for this year.

Yes, the cost in this year is not significant out of the total operating cost of around DKK700 million. To give you sort of a rough guide, over half of that DKK700 million is spent on external development costs. Of course, the largest part of that being over DKK200 million being spent on CD20 ofatumumab with our partner, GSK. The next one, as we've spoken about before, is zalutumumab at around DKK80 million. And you are probably in the region of around DKK30 million at this stage for daratumumab, that is included in the 2011 numbers.

Thank you very much.

Philippa Gardner, Jefferies.

I've got a couple of questions, if I could. Firstly, just on the financials and just coming back, David, to your expenses guidance. Now, I know you said that it is sort of still early days and too early to tweak the guidance, perhaps. But looking at your expenses this quarter, I was just wondering what is it that is going to ramp up to sort of hit the lower end of the range. Because expenses this order were pretty low, especially R&D.

And then my second question just on the financials is just in terms of the warrant expenses, which are quite low this quarter. So is this really the new run rate that we should be thinking about for that?

And then my final question, just on a comment that Jan made about strengthening the management team. So aside from the recent hire in IR, do you have more plans beyond that, and could you maybe talk us through those, please? Thank you.

Okay, Jan, would you like me to talk through the expenses ones first?

Yes, I think why don't you take one and two, and then I will come back to Philippa's question on the management team.

Okay, very good. As you know, the lower end of the guidance is DKK675 million. Philippa, as you pointed out, we had around DKK145 million in the first quarter. So if we carried on like that, we would be about DKK100 million below the bottom end of the range.

We expect expenses will increase throughout the year -- some of the trials that are ongoing, some of the recruitment in trials that we've got going with GSK, some of the new trials that have started up, like the one Jan mentioned in this call.

So currently, our internal projections are around a run rate of around more like DKK175 million for the remaining quarters of the year, rather than DKK145 million. Sometimes it does depend on the level and speed of recruitment on some of the trials, but our best estimates at the moment, our internal forecasts, as we roll them up, come in around the bottom end of the range.

In terms of the warrant expense, yes, it is lower. Part of that is a reflection on a reduced number of staff and part of it is a reflection of a reduced share price. So when you are going through the Black-Scholes calculations, then you're coming up with lower values. So yes, if it is a little like this quarter, we would expect more warrant to be issued through the year, and that will increase this charge slightly. But the run rate for warrant charges is certainly lower in 2011 than it has been in prior years.

Thanks, David. I will now go to the third question from Philippa. The management team, yes, we are looking forward to continue to strengthen the management team. We are now actively looking to strengthen the medical department, to bring in more expertise in hematology and oncology -- experience from an experienced medical doctor and clinical development in the industry. So you can anticipate an update there in that region also.

Okay, perfect. Thank you.

Brigitte de Lima, Bank of America Merrill Lynch.

Good afternoon. I've got a few questions as well. The first one is, it is not very clear to me how this conversion to named patient basis actually works. So if I understand it correctly, you said you stopped enrollment. So does that mean that you haven't actually hit the enrollment target yet? And if you do partner, then your partner would have to restart enrollment again, so that would essentially push back the timing of the final data.

And secondly, you said that the guidance for expenditures on zalutumumab for this year is around DKK80 million. But you also said that I think you intend to partner by the end of H1, and if you don't find a partner, you'd consider winding the whole program down. So why that guidance? It seems a bit excessive, because you are obviously not going to spend that much this year.

And then on zalutumumab, as well, I was just wondering how your partnering discussions are going. Can you comment at all on how many parties you are talking to and if you already have a short list of, say, a handful of less that seem to be quite keen and you're sort of getting more to the final phases of discussion?

And then just a final question on Arzerra. You talked about starting the trial in patients with bulky tumors. Should I read into that that, at the moment, given the label you have for the antibody, not many patients are being treated that have bulky tumors, and treatment is really restricted to those patients covered by the label? Thank you.

Thanks, Brigitte. Let me start off with the first one and then I will also pass some questions on to David.

The conversion to the named patient program, essentially we don't recruit new patients there. For the Phase III study, we already have recruited all patients, and this just means that we actually just allow the patients who are on-study to continue to be treated with zalutumumab.

In the safety study, we actually stopped enrollment, because we are very close to the target rate and we have already communicated in October last year that a new study in the United States is not necessary to go forward to the filing in the US. We also said very clearly that we believe the database is sufficient at this moment already for a potential filing in Europe.

So there will be no pushback from this action. It will just stop the cost to continue in the coming years. Not so much this year, but more in the coming years, because then the trial will take longer. I hope that will answer your question.

I will ask David to actually give a little bit more color on the funding for zalutumumab, the DKK80 million, and what this means for the projected guidance for costs this year. David, can you comment on that? And then I will take your other question.

I think that is a good point, and I think it is a very helpful question, Brigitte, because I thought we did stand the chance of misleading people here.

We have gone to the named patient studies. That will reduce the total cost, the lifetime cost of those studies. However, as we've looked through it, the DKK80 million, which we are just looking at 2011, there is also costs that were in 2012. What we've seen by closing down these trials earlier for going to the named patient study, we are seeing a reduction in the total cost of the study, and we are saving money in 2011. But what we are seeing is some of those endpoint costs at the end of the trial, some of those milestones for closure of this study, with the CROs, et cetera, some of those are actually now advancing forward from 2012 in 2011.

So as we stand today, the way we are looking at it, the DKK80 million still stands, but it is still the right thing for Genmab to do because we are lowering the absolute total cost of the life of the program. So it makes total cost cheaper; won't be much impact in 2011.

All right. Let me take the zalutumumab partnering process. I've already told you that this is ongoing, and it is actually unwise, we believe, to share too many details at this moment on this partnering effort, because we could actually then give away information that could be used for negotiation advantage to other parties. From that, you may conclude that we are in discussions and we are -- this is an active process that I am not going to give any more details here, unfortunately.

And the fourth question on Arzerra and the bulky tumors, the label is actually restricted, you know that, to the double refractory patients. I cannot comment on that we actually are treating outside of this trial bulky -- patients with bulky tumors. I don't have that data actually in my possession.

But this is one of the studies which we actually committed to for the European registration, and there is an unmet medical need here. This is in a very good study in 120 patients. The details you can find on clinicaltrial.gov. And this is just a study we need to perform linked to the European conditional registration, market registration, and may lead to a label expansion also into the bulky tumor population.

Can I just run a quick follow-up on zalutumumab? Do you mind confirming that your deadline for partnership is the end of June, and if you don't find someone by then you will wind down the program?

I can reaffirm that we are very committed to close a partnership deal within the first half of this year, and when that doesn't happen that we are then committed to wind down the program, yes.

Okay, thanks.

Guillaume van Renterghem, UBS.

I actually have two more questions. The first one is that you have mentioned -- you have stopped mentioning the UniBody platform. I'm just wondering what is going on there, if you have already -- I mean if you are discussing licensing of the platform and if there are any interested parties, or if you have simply completely stopped the platform.

And you mentioned as well that are subQ Phase II data in RA will be presented at EULAR. So I assume it is a good thing. But are there any trends that we see the Phase III data in IV in RA? And if not, could you share any light on the issue of 50 and 70, and any hard numbers would be highly appreciated. Thank you.

Thank you very much for the two additional questions. The UniBody platform, we have actually described in a very detailed manner on the update in January, as you may be aware of. But this is a very good platform. But the type of antibodies you make, the UniBody molecules you make via this platform, are not out optimally suited for cancer therapy. Because for a cancer therapeutic approach with an antibody, one needs immune factor function. This is not optimal with UniBody molecules.

So for Genmab, having a very strong focus now on oncology programs, UniBody platform is of less value than the UltiMAb platform or the Bispecific platform. However, this is an interesting [power] platform for other companies. We are actually quite busy talking with a number of companies about getting access to the DuoBody platform, the new Bispecifics antibody platform; that is a very active process. And also some parties are interested in UniBody. So there is definitely an interest.

We at Genmab are not spending a lot of time on UniBody at this moment because of the focus in oncology. Let me know when that is not clear enough.

The subQ formulation, with regard to your second question with Arzerra and the data presented. The abstract is online and I can also tell you that, actually, the data looks pretty robust. At different doses of the subQ formulation of Arzerra ADC, profound and sustained peripheral B-cell depletion in RA patients. This, I think, is boding well for the uses of that formulation in autoimmune diseases.

The next step will be to move forward with the subQ formulation in MS. It is being prioritized by our partner, GSK. And since the amendment of the GSK agreement on ofatumumab last July, it's them -- it's Glaxo being responsible for the further prioritization of the other autoimmune studies.

And you were asking specifically about the IV RA data. I believe that there will be published, but it's up to Glaxo to determine the moment that these data will be published. They publicly said a number of times that they are very committed to present the data in all of the studies, and that, I believe, will also include these IV RA data. But it is up to them to determine the timing of the publication of the data, so I don't have any further information or details to add at this moment.

Thank you.

(Operator Instructions) Samir Devani, Nomura Code.

Afternoon, everyone. I apologize in advance if these questions have been asked. I got cut off halfway through. Firstly, on Arzerra, can you just outline which new territories are expected to come onstream this year?

Okay, I cannot be too detailed here. I can tell you that in Europe, we are already on the market in 17 countries. And only another handful -- less than a handful -- we are reimbursed at a national level. But that number will increase in the coming months.

We have also already started the filing procedures in other territories, in Asia and South America, but I am not allowed, I am afraid, to give you too much details on that. So it will be a number of European countries which will come online and at end of this year, you may see already territories coming online outside of Europe and the United States.

Okay. And then just moving on to zalutumumab, you've given quite a definitive timeline. I'm just wondering -- you've also said the product, you think in your mind, is filable in Europe now. Why not simply file it?

We have spent a very significant amount of money on the development of zalutumumab. It is a very fine antibody. We believe that some significant new investments are needed to actually create a bigger market, outside of the initial, relatively restrictive refractory head and neck cancer market.

We need to balance, Samir, the investment in this program versus all the other programs, and look at the potential value builds for Genmab and the shareholders. And we believe it is actually at the appropriate moment to transfer over the program and the costs associated with expanding this program to a credible development partner.

That is a decision we have made some time ago. We have been very clear. I said that in the first half of this year we hope to give you very clear updates on the partner for this program. And alternatively, we believe that it is better to actually wind down the program; then we can still partner it at a later stage. And of course, the filing possibilities are still there.

But we believe that at Genmab, we can better spend our resources on other programs which will build much more rapidly and also much more robustly value for shareholders.

Can you just tell me what the cost to file it would be (multiple speakers) refractory head and neck?

It is dependent on, of course, both internal costs, the team. You know that we've been through a number of reorganizations over the last years and it has actually decreased number of employees quite significantly. So in order to file, we would actually use internal [cost of sellers], significant CRO costs and other costs that we didn't put into the budget right now.

But I will ask David to see whether we can give you a rough indication for potential costs to a European filing for zalutumumab. David, do you want to give that information?

I don't have an accurate number, I'm afraid, Jan, but I would figure it would be probably be in the range of $20 million or something. But that would be a pure guess. I haven't got that data in front of me.

My final question is on daratumumab. You indicated that we will get some response rate data, I think at the end of this year. Could you tell us what the hurdle rate in that data -- from that data, to continue development, what sort of response rates do you need to see?

I can tell you that very, very clearly. I mean, with antibodies alone, binding to the tumor cells in multiple myeloma, there's absolutely no responses reported by any antibody ever in a monotherapy study in these refractory multiple myeloma patients. And [when] we would see a decent number of responses, this would immediately place this antibody in a separate category, Samir.

What we also know is that this antibody in preclinical studies, both in vitro and in animal models, is synergizing really well with drugs like lenalidomide and Velcade. So it can potentially be used in combination with other drugs, which on itself are very good for treatment of diseases like multiple myeloma and other cancers.

We have presented a number of data at the ASH Conference last year. We published now two papers on the preclinical data with daratumumab, and also have a published abstract at ASCO. And I can tell you that we have already received very significant attention from biotech and pharma companies on the basis of the preclinical data.

We got further validation for the choice of CD38 as a target for an antibody therapy, because sanofi-aventis and also Morphosys are either in the clinic, for sanofi-aventis, or moving towards the clinic with their CD38 antibody.

Preclinically, this antibody is really well-differentiated from both these other molecules. So we believe we have not only a very fine first-in-class possibility that preclinically behaves extraordinarily well. The clinical trial is going well. We have already said publicly that we have expanded that now into other territories outside of Europe -- and that means the United States for the ongoing study.

So we believe that if we see a decent number of well-documented responses or partial responses, that would already place this antibody in a class of its own. And there are new drugs needed for diseases like multiple myeloma. I don't think that I need to add anything further here. But the hurdle rate is pretty low, actually.

So just to be clear, a decent number of responses -- does that mean just, oh, say, 10% response rate, would that be sufficient?

That would be higher than ever seen in the history with any antibody on a [cell] targeting an antigen on multiple myeloma cells. But I am not going to commit to that, because this is a Phase I/II dose-escalation study. If one would see responses or signs of -- like decent numbers of patients stabilizing the disease, that would be phenomenal data here.

Thanks a lot, Jan.

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

Thank you all for calling in today to discuss Genmab's quarter-one 2011 financial results, and we look forward to speaking to you all again soon. Thank you.

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