Genmab A/S (GMAB) 2011 Q2 法說會逐字稿

Good morning, and welcome to the Genmab Q2 2011 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 an 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, sir.

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

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

We go to slide three, 2011 highlights year to date. During the second quarter, we built on the achievements of the first quarter, most significantly with the Pharma programs. So far, this year, we have reported Arzerra sales totaling DKK171m, resulting in DKK34m in royalty revenue for the first half. This is a 48% increase in royalty revenues compared to DKK23m in the first half of 2010. We are on target to reach the DKK80m in Arzerra royalties included in our 2011 financial guidance.

We have reported data from two ofatumumab studies. As mentioned last quarter, data from a Phase I/II study of a subQ formulation of ofatumumab in RA patients of stable background methotrexate was presented at the 2011 EULAR conference in London last May. Profound and sustained peripheral B-cell depletion was achieved in patients treated with subcutaneous doses of 30, 50 and 100 milligrams of ofatumumab. The overall incidence of adverse events in patients treated with ofatumumab was 89%, compared to 63% in patients who received placebo. And the most common adverse events were headache, nausea and upper respiratory infection. A full description of the study results is available on the EULAR website.

Data from the Phase III study of intravenous ofatumumab for RA refractory to TNF-alpha therapy also became available recently. This study was terminated early, in line with GSK's decision not to continue development of the IV formulation of ofatumumab in autoimmune diseases like rheumatoid arthritis. As such, only descriptive analyses from the study were performed.

A total of 169 patients were enrolled in the study, including 84 who received placebo and 85 who received ofatumumab plus methotrexate. At week 24, 42% of patients treated with ofatumumab obtained an ACR20 response, compared to 19% on placebo. The most common adverse events in patients treated with ofatumumab were rash, pruritus, cough, urticaria, throat irritation and erythema.

As we have previously mentioned, GSK's first priority in autoimmune diseases will be in multiple sclerosis, where they are progressing development of the subQ formulation and expect the first patient to enter a Phase II study in the fourth quarter of this year.

In addition, a number of extracts are in preparation for submission to the annual meeting of the American Society of Hematology taking place this December in San Diego. This includes headline results from the ofatumumab Phase II study in Waldenstrom's Macroglobulinemia, as well as additional ofatumumab and daratumumab data.

Together with GSK, we continue to work to maximize the value of ofatumumab. Patient enrollment in the Phase III study of ofatumumab in combination with chlorambucil and frontline CLL was completed almost six months ahead of schedule, and we expect data from this study in Q1 of 2013.

In addition to the 21 ofatumumab studies in Genmab's pipeline, there are presently nearly 70 investigative sponsored studies of ofatumumab approved. More than 300 patients have been treated in these investigative sponsored studies and a number of additional ISF study proposals are under review. A total of 48 ofatumumab studies are currently active or recruiting patients.

Last quarter, we announced that our partner Roche was planning an additional Phase II study of RG1512 in cardiovascular disease. We can now add that the first patient entered this study during the second quarter. However, in connection with one of Roche's regular pipeline reviews and after assessing data from a Phase II study of oxelumab with the Roche code RG4930 in asthma, Roche has decided to discontinue further development of this antibody at this time. Continued development of oxelumab is possible through an investigative sponsored study in another inflammatory or autoimmune indication, but at this time we cannot give any further information.

An additional pipeline update for Genmab is that we were very pleased that during the second quarter we gained a new partner, when Emergent took over the rights to Zanolimumab, the CD4 antibody, from TenX. When we have development news on that product in the future, we will update our pipeline accordingly.

We also recently announced our decision to wind down the zalutumumab program. Though we conducted a thorough search for a partner and attracted interest from a number of parties, we ultimately were not able to agree on a partnership satisfactory to Genmab. Five of the zalutumumab studies that were ongoing are being closed, while the Phase III study run by DAHANCA, the Danish Head and Neck Cancer Group, will continue. We will, however, continue to follow leads and enter a partnership for zalutumumab should an appropriate opportunity arise.

I will now hand the call over to David Eatwell, to discuss the key financial results for the second quarter of 2011.

Thank you, Jan. We should now be on slide four.

The first-half revenue came in at DKK167m. That's DKK109m lower than H1 of 2010. The main reasons for the reduction in revenue was the inclusion of a GSK milestone of DKK87m relating to the approval of CLL in Europe that was in Q2 of 2010, and the TenX licensing revenue that was reported in Q1 of 2010 of DKK24m.

In addition to the deferred revenue of DKK113m in the first half of this year, we also reported DKK35m of Arzerra royalty income. And as Jan said, that's about 50% more than the amount recorded in H1 of 2010. And as a reminder, we still have the DKK80m of royalty included in our full-year guidance and we fully expect to achieve that.

Despite the lower revenue, we did see a slight reduction in the net loss to DKK192m, compared to DKK219m reported in the same period last year. And I'll give you more detail on the buildup of this number in a moment.

Also shown on this slide is the headcount detail. We ended the quarter with 187 FTEs, a reduction of 30 FTEs or 14% from the end of June 2010. The 187 employees includes the 23 FTEs in Minnesota, and those of course will be transferred once the facility is sold.

Finally on this slide, the cash balance. We started 2011 with around DKK1.5b of cash and marketable securities, and we burned through DKK238m in the first six months of the year. That compares to a burn rate of about DKK350m in the first half of 2010. So the burn rate was about a third less this year than last year.

Now let's move over to slide five and the income statement. We've already discussed the revenue, so let's move on to the operating expenses. You can see that the R&D expenses for H1, at DKK259m, are DKK154m or 37% below the DKK413m reported in 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.

As a reminder, the GSK amendment was signed in July 2010, so at the beginning of Q3. So H1 last year still included the full costs for the ofatumumab program, including the costs of the autoimmune development. Once the deal was signed, we reversed certain accruals and we were no longer incurring expenses related to the development of ofatumumab in autoimmune indications. Therefore, Q3 of 2010 reported a very low expense number. Therefore, the large R&D expense savings that we're showing in H1 will be a little less dramatic when we present the nine-month data later this year. Regardless, the amendment with GSK has significantly reduced our expense base and our cash outlay.

Our G&A expenses also decreased substantially, from DKK103m in 2010 to DKK35m in the first six months of 2011. You'll recall that 2010 included the one-time expense of DKK39m related to the departure of our former CEO. We also benefited from a 36% reduction in the G&A headcount and the corresponding impact on the salary expense and the warrant charges.

The total operating expense for H1 came in at DKK294m, DKK220m or 43% lower than 2010. This brings us to the 2011 operating loss of DKK127m, compared to DKK240m in the first half of last year.

Next, the net financial items and tax, at DKK46m net cost in H1 of 2011. This line includes all sorts of items, including interest income, the value adjustments on the marketable securities, FX movements and corporation tax amounts. The adverse amount in H1 of 2011 was driven by the non-cash foreign exchange rate adjustments, mainly associated with the intercompany loan between Denmark and Minnesota, which was impacted by the weakening of the US dollar in 2011. 2010 benefited from an FX gain of a similar magnitude.

Just as a reminder here, the dollar/DKK exchange rate was DKK6.07 at the end of June 2010, compared to DKK5.16 at June 30 this year.

Finally on this slide, the discontinued operations. The DKK19m relates to the ongoing expense maintaining the facility in a validated state. And the amount was greater last year as 2010 included some staff retention and transition cost related to the reorganization plan.

And that brings us back to the net loss of DKK192m, 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 new guidance range for 2011 compared to the previous guidance that we issued in February. The main change is that we have slightly reduced the operating expense range, by DKK25m, and this has rolled down and improved the operating loss, the cash burn and the closing cash balance.

The reduction in expense base is driven by a continued focus on cost control, and also by the benefit of the current pound sterling/krone foreign exchange rate and the impact on our expense obligations under the GSK collaboration.

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.

Now I'd like to hand the call back over to Jan, to take you through the remaining priorities for 2011. Jan.

Thanks, David. We are now moving to slide seven, the 2011 objectives.

As we've mentioned, we're already making significant progress in achieving our 2011 objectives. Via GSK, we reported Phase I/II RA subQ data in May and ofatumumab has been launched in three additional countries, bringing the total number of countries where Arzerra is on the market now to 21. National reimbursement is also now available in seven of these countries, including some of the larger European markets of Germany, France and Italy.

We fulfilled our commitment to limiting investment in zalutumumab, by taking the decision in June to wind down the program. We announced a new IND candidate, HuMax-CD74 ADC, and have signed a new partnership agreement with Seattle Genetics.

We continue to focus on cost control, as shown by the slight improvement in the 2011 guidance. We continue to keep a laser sharp focus on our dominant priorities and work hard to meet our objectives.

We now move to the end of our presentation of the second-quarter results and we are happy to answer any questions. Operator, please open the call for questions.

(Operator Instructions). The first question is from Guillaume van Renterghem from UBS. Please go ahead.

Yes. Hello, Jan. Hello, David. I've three questions, if you don't mind. The first one is with regard to daratumumab. I'm wondering when we could see the Phase I/II study, at least the headline, in multiple myeloma, because according to ClinicalTrials.gov it is still recruiting patients. And I think that we should not be able to get data before 2012, so I wanted to have your view on that.

On zalutumumab, you suggested that you could not reach an agreement by -- with any of the parties which were interested, but could you give us an idea of what was the best offer you got on the table?

And finally, on your manufacturing plant, it has been quite a long time since the plant has been up for sale. I'm wondering if you have had so far any firm offer or any suggestion of price, and whether you still expect to sell the manufacturing plant for $120m or at least more than $100m. Thank you.

Thank you very much, Guillaume, for the questions. Daratumumab, we are still recruiting patients and we are fully expecting to talk about clinical data this year. I already mentioned that we are going to submit extracts to ASH and that is obviously, I think, a key forum for hematologists to look at this data. So we are still recruiting patients. That means we were still dose escalating. But we expect to give you a flavor of the clinical data this year at a medical conference, and we will update you once we know more about the exact timing for that data release.

For zalutumumab, we have actually worked very hard with a number of parties to reach agreement on an offer that would be satisfactory to the Company. We couldn't reach an agreement on satisfactory conditions to us, which means a decent upfront payment and also a partner with the capabilities, Guillaume, to really develop a larger market for zalutumumab. But we have had a number of discussions and we still have discussions on zalutumumab.

So in the future, as I said in my introductory remarks, we will actually discuss partnering zalutumumab, but only with the appropriate party. But for the time being, we're going to wind down the activity and then spend the resources on other programs that can build more value for the Company more rapidly.

Then finally, with regard to the plant, we are still very hopeful to sell the facility this year. However, at this moment, I can't give you more details about the sales process, as it would be inappropriate to make any more comments that could potentially be used by prospective buyers or give away a negotiation advantage to another party. So I cannot give you any more light on that, but we are hopeful to sell the facility this year.

Maybe if I can add just one more question on the plant. Since it has been on the market for quite since time, would you consider putting the plant actually to an auction, to get actually whatever highest price the buyer would be interested?

Yes, that would be one of the possibilities, Guillaume. However, I said before that we have interested parties. We have already had several of them visiting our facilities. And at this moment I don't want to give you any more details, as it could be used -- those information could be used by prospective buyers and that would not be wise or appropriate.

Okay. Thank you.

The next question is from Brigitte de Lima, Bank of America-Merrill Lynch. Please go ahead.

Good afternoon. Brigitte de Lima. Just -- sorry to bother you with this, but I've got two more questions on the facility, if I could. Just given that you've got the comparison -- well, you mentioned the facility bought by BioMarin, and you clearly state the capacity and the square footage. I was just wondering how I should think about the price of your facility compared to this one that was sold. Because if I look at capacity, it would suggest that your facility should be a lot more expensive than $120m. If I look at the square footage, it suggests the opposite. So how should we really think about pricing and what's this $120m really based on?

And then, secondly, can you disclose at all if BioMarin looked at Genmab's facility before deciding to buy the Pfizer one? Thank you.

All right, Brigitte. Pricing of the facility, let me first address the differences between the Shanbally facility from Pfizer and our facility. When you look at the sizes, ours is bigger. It's 36 acres versus 29. The total square footage is almost double for the Genmab facility. And the capacity in liters is like almost four times the capacity in liters. When you look at the capacity in batches per year, it's about double the size of the Shanbally facility.

However, we have said very clearly before that actually we believe that the price we have set for the facility is a realistic price, also in the context of the BioMarin price for Shanbally. However, the potential buyer will actually have his own opinion on their specific needs and also will balance this with their next best alternatives. So it's the buyer who actually determines what they want to offer for the facility. But we believe that the price we have set is a realistic price, and we are working with that price for the time being.

And I cannot comment, Brigitte, on whether BioMarin looked at this facility. But there were a number of companies looking at the facility, I can assure you.

Okay. Thank you.

The next question is from Peter Welford, Jefferies. Please go ahead, sir.

Hi. Yes. Thanks for taking. I think I've just got one question, which is just on the rheumatoid arthritis Phase III. Did you mention at the start -- did you give some sort of, I guess, description or a bit of color on what the efficacy data were for the TNF refractory population? And if not, could you just perhaps outline what those data in the TNF refractory patients were in terms of the efficacy?

And then, do you have any more visibility or timing on Glaxo's decision to potentially move forward with the subcut in RA? Or is that going to be dependent first on conducting the MS dose finding study in RA and then a decision on -- sorry, in MS, and then a decision in RA will be made? Thank you.

Thanks, Peter. I can take both of these questions. I mentioned already in my introductory remarks that we had 42% of the patients in the ofa arm which obtained an ACR20 response compared to 19% on the placebo. We already, however, stopped the study prematurely, together with Glaxo, because they are going to give priority to the subQ formulation of ofatumumab. And what I would say is that actually the ACR20 response in the treatment group -- ofatumumab treatment group compared to the placebo in this study was actually fairly similar to what we have observed in the previous Phase III study of ofatumumab in the methotrexate refractory patients. So I think the data actually looks fairly good.

I cannot shed more light on other data, Peter, because Glaxo fully intends to present the data at a medical conference, where you will see more details. So I cannot go into more detail at this time, but you will see that in due time when the data will be presented at a medical conference, and that will be done by GSK or one of the investigators together with GSK.

And also with regard to timing for RA, what I can do is repeat that Glaxo absolutely prioritized the subQ development of ofatumumab in MS. In the second half of this year, we will start Phase II studies. I already guided towards the quarter four for the first patient to be included in an MS study, and I cannot give you any further insight into what the timing might be for RA, as well as several other autoimmune diseases which we are looking at. I don't know whether Glaxo wants to wait on the data from the MS study with the subQ formulation before starting these other studies, or whether that can be done in parallel.

There is considerable cost involved in autoimmune development, as we both know. And I think you have to ask GSK for their priority, because they fully determine the priority for the development of ofatumumab subQ formulation in autoimmune disease. I cannot shed any further light. And I also don't know that, I can add, Peter.

Okay. Thank you.

(Operator Instructions). The next question is from Samir Devani, (inaudible). Please go ahead.

Afternoon, everyone. I've just got a question on the size of the R&D unit now. I think you mentioned there you've got about 140 employees. I wonder if you could just split that into how many are working on clinical programs, how many are working on pre-clinical, and whether you feel that's an appropriate size now, considering the discontinuation of zalutumumab.

Okay, Samir. I propose to now let David give you the numbers and the spread over the different parts of the Company. David?

Yes. We've got around 40 employees in Denmark, but that is split between administrative employees, because that is our head office so we've got things like investor relations and finance and legal and IP people out in Copenhagen. So there's a roughly 50/50 split between development people and administrative staff in Copenhagen. Around the -- between 110, 115 in the Netherlands, all on the research side, and about just 10 staff now in New Jersey, plus the 23 in Minnesota. So about 20 staff on the clinical side, clinical development.

And maybe I can add to that, David, for Samir. I think this is the appropriate size for the Company. We have a very good and robust, I think, pre-clinical pipeline. And you will also see the clinical pipeline grow in the near future. Both the pre-clinical and the clinical pipeline will grow quite nicely under the new strategy. We're appropriately staffed. It's a scalable entity. We can actually -- when we close partnerships with other companies, for instance on the technology, on the DuoBody technology, we can actually quite easily scale it up, but then we let the new partner pay for the upscaled capacity. So we believe we are fully staffed now and also appropriately staffed for our current strategic plan.

And as we see the zalutumumab study work decline over the next six months, we'll begin to see the daratumumab studies increase with our combination studies that we have planned to start in 2012.

Then just one final question on the zalutumumab partnering. Isn't any partner better than no partner?

Sorry? I didn't hear that too well. What was the question, Samir?

I was just asking whether any partner would be better than no partner.

I think it's trying to get somebody with some confidence that (multiple speakers).

Let me address that question. We could have closed a partnership now or a month ago, but we believe that actually the product is actually an active antibody and safe antibody. We believe that there is potentially a huge market for this product. As I explained at the time to several analysts, actually, it requires quite an investment, not to get it on the market, the antibody on the market, but to build a larger market. And since this is not a first-in-class molecule, but actually a third-in-class molecule, big and medium players in the pharma biotech world were not too keen to take on this project. And the parties we had advanced discussions with had many times only limited funds.

So I would argue very strongly that we should have the right partner for this product, because it can absolutely play a role in significant areas. And up to now we didn't get those discussions to the stage that we could close a partnership under satisfactory terms. So I would argue that it's better not to close a partnership than a poor partnership, Samir. But others may think about that differently. But I think at the right time we will find a partner for this program.

Okay. Thanks a lot.

Having no further questions, this concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you. Thank you all for calling in today to discuss Genmab's Q2 2011 financial result, and we very much look forward to speaking to you all again in the near future. Thank you.

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