Genmab A/S (GMAB) 2011 Q4 法說會逐字稿

Thank you very much. Hello, and welcome to the Genmab conference call to discuss the Company's financial results for the year ending December 31, 2011. Joining me on today's call is David Eatwell, our CFO.

Let's move to slide 2. As already stated we will be making forward-looking statements so please keep that in mind as we go through this call. Let's move to slide 3.

During 2011 we made significant strides towards building a sustainable company, and achieved many of the objectives we set out to accomplish at the beginning of the year. We worked with our partner GSK to maximize the value of ofatumumab. Ofatumumab had been launched in 23 countries by year-end, and achieved 40% sales growth in 2011. Two new ofatumumab studies were started, under the collaboration, and the number of plans ongoing investigative sponsored studies increased to well over 75.

We reported data from a number of ofatumumab clinical studies, including the Phase II study of ofatumumab in combination with chemotherapy and diffuse large B-cell lymphoma. The data from this study showed a robust response rate of 61%, and is encouraging for the potential of our key ongoing head to head Phase III DLBCL study of ofatumumab plus chemo, versus rituximab plus chemo, in relapsed diffuse large B-cell lymphoma.

Last year we also committed to finding a suitable partner to license zalutumumab, or to close down the program. While we were disappointed that we could not find the right partner, we knew limiting spending on the program was the right thing to do, according to our strategy of spending wisely.

Looking at daratumumab, the next product, for which development is crucial to Genmab, we were pleased with the first safety and efficacy data that we reported at the ASH annual meeting in San Diego in December last year. While this data was preliminary, and efficacy could be evaluated in only three patients at a time, the data available showed daratumumab was clinically active in heavily pretreated multiple myeloma patients.

In today's Annual Report, we included information about three additional patients in this study. Five out of six patients who received 4 or 8 milligram per kilogram of daratumumab achieved reductions in the serum M-component. The serum M-component is an abnormal protein produced by the cancerous plasma cells and is a direct marker for tumor activity.

Furthermore, bone marrow biopsies available from five of the patients showed a reduction in plasma cells for four of the patients. Reduction in serum M-components, and bone marrow plasma cells are key factors for responsive elevations in multiple myeloma.

The data continues to indicate that daratumumab is clinically active in relapsed or refractory multiple myeloma patients, and we are looking forward to presenting additional data from this study during this year, and to beginning new studies of daratumumab in combination with existing multiple myeloma treatments.

We have expanded our pipeline with the addition of HuMax-CD74-ADC to our preclinical portfolio. We entered a second agreement with Seattle Genetics for access to their validated antibody drug conjugate technology, with HuMax-CD74.

In 2011 we worked diligently to advance our DuoBody bispecific antibody technology platform, we validated a large scale manufacturing process for DuoBody molecules, showing that a DuoBody platform can generate bispecific antibodies via a fast and broadly applicable process. This is easily performed at standard bench, as well as commercial manufacturing scale. In addition, we entered our first research collaboration for DuoBody last December with an undisclosed pharmaceutical company.

We had also hoped to sell the Minnesota manufacturing facility last year, however market conditions have continued to be difficult. And as a result of this, industry benchmark data and the advice of our sales agents, we lowered the fair market value, and moved the timing of the sale into 2012. We remain highly committed to selling the facility, and are working hard towards meeting this objective in 2012.

Finally, at the outset of 2011 we planned to keep a strong focus on spending and carefully manage our cash burn. We successfully beat both our original and latest 2011 guidance for continuing operations, as we will explain in the coming slides. Let's move to slide 4, the GSK Arzerra sales trend.

This slide shows the sales trend for Arzerra over time since 2010, as you can see sales in 2011 amounted to GBP43.5 million, an increase of 40% over sales of GBP31 million in 2010. While we do report the sales figures quarterly, it is important to keep a longer-term perspective, and a 40% increase in one year is a respectable achievement.

I will now hand over the call to David, to discuss in more detail our financial results for 2011; David?

Thank you, Jan. Let's move onto slide 5. The revenue for the full 12 months of 2011 came in at DKK351 million, DKK231 million lower than the corresponding period for 2010. The main reason for the reduction in revenue was the inclusion of two GSK milestones, totaling DKK203 million in 2010, they related to the approval of CLL in Europe, and the start of the Phase III NHL bendamustine combination trial.

Two main sources of revenue in 2011 were the DKK226 million of deferred revenue and DKK75 million of Arzerra royalty income. The remainder of the revenue mostly relates to the reimbursements for R&D work carried out for our partners. Although late in the year, we also achieved our first milestone under the collaboration with Lundbeck for about EUR1 million, or about DKK7 million.

You can see that the R&D expenses for the year of DKK532 million were DKK51 million, or 9%, below the DKK583 million reported in 2010. We achieved this reduction despite the fact that 2010 benefited from a one-off accrued expense reversal related to the amendment of our agreement with GSK. I'll come back to discuss the quarterly phasing of the expenses later in the presentation.

Our G&A expenses decreased by 58% from DKK160 million in 2010 to DKK68 million in 2011. Even if we exclude the one-time expense of DKK41 million related to the departure of our former CEO in 2010, the G&A expenses would have still decreased by an impressive 43%.

The total operating expense for 2011 came in at DKK600 million, DKK143 million or 19% lower than 2010. This brings us to the 2011 operating loss of DKK249 million, compared to DKK161 million in 2010. That is an increase of DKK88 million, but remember we didn't have the benefit of the DKK203 million milestones in the result for 2011.

Next, the net financial items and tax at a positive DKK33 million in 2011, compared to DKK18 million in 2010. This line includes interest income, fair value adjustments on marketable securities, FX movements and corporation tax amounts. The year-on-year improvement was driven by corporation tax charges, which were greater in 2010 due to tax timing differences on reorganization related expenses.

Finally on this slide, the discontinued operations, the 2011 amount of DKK380 million includes a non-cash impairment charge of around DKK342 million, and ongoing operating expenses of DKK38 million, to maintain the facility in a validated state. 2010 included DKK130 million of impairment and DKK48 million of running costs. And that brings us to the net loss of DKK596 million for 2011 compared to a net loss of DKK321 million in 2010.

Now let's move to slide 6 and the quarterly expense trend. I mentioned earlier that the quarterly expenses in 2010 were impacted by the amendment to the GSK agreement. As I previously explained, despite the one-off accrual reversal in 2010, we were still able to lower the expense base in 2011.

You can also see on this slide that the expense trend has been far more evenly distributed in 2011 than it was in 2010. Q4, 2011, was a little bit higher, due to increased ofatumumab costs, and the close out of some of the zalutumumab trials.

As we are reviewing the full year results, let's take a quick look at how our results developed throughout 2011, and move to slide 7. On this slide I have plotted the original guidance issued in February 2011, along with the revised guidance published in August and November, and compared it to the result that we finally achieved for 2011.

The orange line shows the operating loss against the right hand axis. And, as you can see, we were able to show a steady improvement throughout the year, moving from a mid-point in the original guidance, of DKK375 million, to an actual result for 2011 of DKK249 million.

The improvement in operating loss also leads to an improvement in the year-end cash position, and you can see from the blue bars, we improved the projected cash position from a mid-point of DKK940 million, to a final position of just over DKK1.1 billion. Using a simple cash flow calculation, that means that if the future cash burn rate is similar to 2011, then we started 2012 with a cash runway of about 2.5 years.

Before we move on to the 2012 guidance, let's take a look and see how 2011 compares from a historical perspective. Please move to slide 8. On this slide, we have the operating expenses represented by the blue bars, and the operating loss shown as an orange line. I'd like to highlight two items.

First, the 2011 operating expense at DKK600 million is the lowest the last six years, lower than 2006. And this is the expense from the continuing operations, so this chart does not include the Minnesota operating cost, in any of the periods. And, rest assured, we will continue to carefully manage our expense base, as we go forward.

Secondly, the operating loss, at DKK249 million, was lower than the operating loss, going right back to 2001. Granted, it was not as good as 2010 but, then, 2011 was a lot better than many of the recent years.

Now, if I move on to my final slide, which is slide 9, and take a look at the guidance for 2012. On this slide you can see the new guidance range for 2012, compared to the actual result for 2011, let's start with the continuing operations.

For the revenue, we have a range of DKK350 million to DKK375 million, slightly better than DKK351 million recorded in 2011. This includes Arzerra royalty income of DKK90 million to DKK100 million, compared to the DKK75 million we achieved in 2011.

For the operating expenses, we assume they'll be in the range of DKK600 million to DKK625 million, and this is slightly above the DKK600 million that we reported in 2011. This is due to an increased investment in ofatumumab and daratumumab, and some other new programs that slightly outweigh the savings from a reduction in the zalutumumab clinical trials. However, as we've already exceeded the annual cash cap for the ofatumumab program, at GBP17 million, in 2011, this increased investment in ofatumumab will not impact the 2012 cash burn.

That brings us to the operating loss from continuing operations, which we have projected to be in a range of DKK225 million to DKK275 million, similar to the DKK249 million that was achieved in 2011.

The discontinued operations amount of DKK40 million, relates to a full year of ongoing operating expenses of the Minnesota facility. The DKK381 million shown for 2011, includes the non-cash impairment of DKK342 million and the ongoing operating expenses of DKK39 million.

The cash position at the beginning of 2012 was just over DKK1.1 billion, and we're projecting that the cash used or burnt through in 2012, will be similar to 2011 and in a range of DKK425 million to DKK450 million. That means that our projected cash position at the end of 2012, excluding the Minnesota facility sale, will be in the range of DKK655 million to DKK680 million.

If we take into account the planned sale of the facility, at $58 million, or around DKK320 million, we are projecting a final cash balance between DKK975 million and DKK1 billion.

Finally, our outlook for 2012 does not reflect the addition of any new significant deals, such a potential partnership for daratumumab.

Now I'd like to hand the call back over to Jan, to take you through the objectives for 2012; Jan?

Thanks, David. We now move to slide number 10. So now let's take a look at our objectives for 2012. This will be the year we can make significant progress to us delivering on our strategy. We will continue to work with GSK to maximize the value ofatumumab, by reporting data, from several studies, including in CLL and diffuse large B-cell lymphoma.

In the first quarter of this year, we already made progress with 0fatumumab, as the Phase III study and second line CLL has finished enrolling patients, with primary data expected in early 2014.

We expect to see Arzerra in new countries, and file for market approval in a new territory. We will work to expand our clinical pipeline, with two new studies of daratumumab, in combination with Revlimid or Velcade, as we have seen impressive anti-tumor effects when these anti-cancer agents were combined with daratumumab, in pre-clinical studies.

We also expect to present new proof of concept data on our DuoBody and ADC products. We will report progress on our partner programs, and have already announced the achievement of the second milestone in our collaboration with Lundbeck, this January.

We are committed to entering new partnerships, for both daratumumab and our novel DuoBody platform.

Finally, we will continue to keep a sharp focus on spending. We are committed to reducing cash burn, lengthening our cash runway, and executing a sale of the manufacturing facility.

We see an exciting and news-rich year ahead, and look forward to updating you all in the coming time. So let's now move to slide 11, and that ends our presentation of the 2011 year year-end results from Genmab, and we are now pleased to answer your questions. Operator, please open the call for questions.

(Operator Instructions). Philippa Gardner, Jefferies.

I've got a couple of questions if I could. Firstly, maybe just, so David, when you talk about the guidance for Arzerra royalties, can I just ask what are you basing that on; is it internal forecasts, or forecasts that you've discussed with GSK?

And then just on R&D spend in 2012, am I right in thinking, from your comments about the additional investment in ofatumumab and daratumumab, outweighing those zalutumumab savings that R&D will be higher in 2012 than it was in 2011?

And then just the final question on the manufacturing facility, which I'm sure you're not going to answer, but I just wondered, since we last spoke, back in November, with Q3 results, has anything changed in respect of how many interested parties there have been, or any developments since November? Thank you.

Philippa, thank you very much, why don't I start with the last question, it is a tough one, and then I will give the even tougher ones, number 1 and 2 to David.

What I can tell you is the manufacturing facility, it's an active process and, actually, it's a pretty active process. But we have signed CDAs, with a number of parties. And we cannot make any further comments on the process, as this may actually potentially be useful, this information, to prospective buyers, or give away a negotiation advantage to a party. So we cannot comment any further.

And, having said that, I give David the opportunity to answer questions 1 and 2, on the guidance.

Okay, thank you for the questions Philippa. Taking question number 2 first, with the R&D spend. Yes, it will be slightly higher in 2012.

If we take a mid-point of the guidance that we said DKK600 million to DKK625 million so bit of an odd mid-point there, but DKK613 million that compares to the DKK600 million in 2011. And overall, development costs in 2011, if we're looking at the external development costs they're about DKK314 million. And included in that DKK613 million that'll be rising from about DKK314 million to DKK333 million. Ofatumumab will be the largest portion of that, at about DKK220 million; so no great change in the R&D costs, in other words.

In terms of the Arzerra sales, we do have regular commercial updates with GSK, but this guidance of DKK90 million to DKK100 million for the royalty is a Genmab generated number. But, of course, we are familiar with what GSK are doing with the product; the number of countries that it's launched in, and some new countries that we expect to be launched in 2012; but it is an internal number.

Okay, that's great. Thank you.

Thanks, Philippa.

Christian Glennie, Edison Investment.

I just wanted to clarify; you list, for daratumumab, you list the 2012 objective for complete partnering. Just to clarify, that is -- the expectation, therefore, is for a deal in 2012 for daratumumab? And if that's right, are you comfortable that you've got to the highest valuation point, in terms of inflection point, for that product?

Well, thank you for your question, Christian; let me take this one. Yes, we have guidance to partner daratumumab in 2012. We presented the first clinical data at the end of last year.

And today we actually give an update. And I can say that we are under CDA with multiple parties, and the interest level is sky-high for this compound. We have seen excellent pre-clinical data, and very promising and encouraging early clinical data.

And, as I said before publicly, this antibody actually ticks all the boxes for what the pharma and biotec wants to see; it's a potential first-in-class. It has a very broad spectrum activity profile. It seems to be unusually active, pre-clinically; and synergizes with all the existing anti-cancer drugs. And the market is potentially large; only multiple myeloma is higher than DKK3.9 billion as we see it. And potentially this antibody can be used outside multiple myeloma; so there is potential for growth.

We have many ongoing discussions with numerous parties, and we believe that a partnering deal in 2012 is entirely feasible; and is of the highest priority for the Company. We believe that this is a very good point to do that on; and that we don't need to move, clinically, much further to achieve a very good and beneficial deal for this compound.

Okay, thanks. And should we be thinking in terms of a fairly classical partnering deal, or are there other kind of options; classical, in terms of up fronts, and masters and royalties? Or are there any other options on the table?

Deals can take various shapes and forms, as you know. But we really want a part of it, the capacity to really take on the further development of daratumumab; and then Genmab gradually phasing out, Christian, and focusing on other compounds.

We definitely want to have a joint steering committee for this compound, moving forward, so that we have a saying in the further development of this molecule. And if you call that a classical deal with up front milestones, and then royalties; yes, this would definitely be in that category.

Okay, thank you.

Sachin Soni, Kempen & Company.

Good afternoon, everyone. My question is regarding the revenue guidance. So, DKK90 million to DKK100 million, Arzerra; rest, if I understand correctly, is mainly deferred revenue; or are you expecting something more to happen as well?

And then the second question is regarding partnering of daratumumab; as you mentioned, you're having a lot of discussions with multiple parties. Can you please give us the flavor of what is the status, in terms of what actually are they looking at? Are they happy with the data they look at, or they say it's still too early, we can't decide? If you could say what kind of discussion is happening, that would be helpful. Thank you.

All right; Sachin, why don't I start with the partnering question, then I'll give the revenue one to David.

So we currently have a number of parties under CDA, and that number is getting bigger by the week. We have a very extensive data room with all the pre-clinical data, and also the uploaded clinical data up to today; and we actually are having very active discussions with a number of those parties, and the feedback is that they are pretty pleased with what they see, also, in the early clinical data.

And what we're going to do is actually move the process forward from here on; I cannot give you any further clues or insights. But it's happening at pretty high intensity at this moment.

David, maybe you can give an answer on the revenue question?

Sure. The revenue guidance, DKK350 million to DKK375 million for 2012; so you take the average of those two, and that brings us to a mid-point of about DKK363 million. You're right, the largest portions of that will be the deferred revenue. You can see that detailed in our Annual Report, of how that'll float through in future years.

So that'll be DKK226 million coming to the revenue line in 2012; also, as we said, our royalty in the range of DKK90 million to DKK100 million, so a mid-point of DKK95 million. Add those two together, that comes to DKK321 million. So that's the largest portion of the total.

That does mean that there's about DKK42 million of other income; and, again, that's going to be similar to 2011, in terms it's made up of revenue, as we're doing R&D work from our partners; and some small milestones. As you've seen, we're already reported that we achieved another Lundbeck milestone in Q1 of 2012, for DKK7 million -- DKK7.5 million.

Okay, thank you.

Thomas Bowers, Danske Markets.

Thank you. Just a question on the Arzerra launch, could you maybe comment on how many of the countries you actually have reimbursement in, by now?

And then secondly, a follow-up question on the R&D spending; you say that zalutumumab savings in '12 will be offset by the increase in ofa and daratumumab program developments. But could you maybe also add some flavor on how much was actually spent on ofatumumab last year, and then estimated for 2012? What I mean is, how much more is actually spent by Glaxo than the capped GBP17 million in the cancer indications?

Thank you very much, Thomas. Let me address the first one.

We have now launched Arzerra in 23 countries and we have national reimbursement in seven of those countries. And, in addition to that, we have, of course, the [DA Court] reimbursement in the United States.

That is it for now, but Glaxo is working very actively with a number of countries to really increase this list. And as I said in my introductory remarks to the call, we also hope to file for approval in a new territory, outside of the US and Europe, so to further increase the market.

David, maybe you can give some more color on the spending profile for ofa and dara in 2011 and '12.

Just to give you an idea on the zalutumumab, we're talking about a reduction in spend of about DKK80 million in 2012, compared to 2011. We've just got a very small amount of spend for zalutumumab in 2012, as we finally close out the last couple of trials.

So that saving of about DKK80 million is offset by increased daratumumab spend, in the region of about DKK50 million. And that mainly relates to CMC cost, as well as the start-up of the new combination trials.

Ofatumumab cost will increase by about DKK30 million, DKK35 million, depending on exchange rates that we get between the pound and the Danish krona. But you can see, overall, in terms of the amount that we've actually spent in the P&L, compared to the GBP17 million cap; you can see a little bit of that in our long-term liabilities, that's detailed in the English version, it's page 70 of the Annual Report. You can see how much of the long-term liability is building up.

So for 2011, the GBP17 million is about DKK146 million; and the actual charge in the P&L's about DKK181 million; so there's a long-term liability building up for 2011, of about DKK35 million. Adding to that, there was about DKK33 million long-term liability in 2010.

For 2012, the total cost, as I say, is somewhere around, with the GSK, of somewhere around DKK210 million; about DKK150 million, say, for the conversion of the GBP17 million. That means we'll build up another long-term liability of a further DKK60 million during 2012.

So, lots of numbers there, Thomas; hope you could follow that.

That's great. Thank you.

(Operator instructions). I'm showing no further questions at this time. I'll now turn the call back over to the speakers for any closing remarks.

So thank you all for calling in today, to discuss Genmab's 2011 year-end financial results. And we look forward to speaking to you again soon. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.