Genmab A/S (GMAB) 2012 Q2 法說會逐字稿

Hello, and welcome to the Genmab Conference Call to discuss the Company's financial results for the 6 months ended June 30, 2012. Joining me on today's call is David Eatwell, our CFO.

So, let's move to slide 2, the forward-looking statement. As already stated, we will be making forward looking statements so please keep that in mind as we go through the call.

Let's move to slide 3, delivering on our strategy. At the beginning of this year, I told you that 2012 would be the year that we would start making significant progress towards delivering on our strategy. Two recent deals with big pharma for our next generation bispecific antibody technology, the DuoBody platform, show how we are monetizing the value of this technology and our world class antibody expertise.

We are making very good progress with daratumumab, a potential first in class therapeutic, having reported impressive preliminary data and in multiple myeloma and initiating the first of a number of new clinical studies.

Together with GSK, we are building on the success of ofatumumab, expanding the number of countries [and making] this available and investigating new potential indications. We also continue to focus on investing our resources wisely, maintaining tight cost control, while developing the right products that allow us to build a sustainable business.

Each of these achievements represents a piece of our overall strategy that will enable us to meet our mission of improving the lives of patients by creating and developing innovative antibody products.

Let's move to slide 4. Let's talk a little bit more specifically about the DuoBody platform. We are very excited to be collaborating with two new partners on our DuoBody technology. Our agreement with Novartis includes two DuoBody programs, Novartis will fully fund all research and development work, including personnel for these programs. We received a $2 million upfront payment, and will receive future milestone payment and royalties on sale. The total potential value of this agreement to Genmab could reach $175 million, if all milestones are met.

Moving on to the Janssen Biotech collaboration. You can see this is a much larger deal. We will work with Janssen on up to 10 DuoBody programs. We receive $3.5 million upfront and are eligible for up to $175 million in potential milestone and license payments per product. That means, if all 10 programs are successful, the value of this deal could well be worth up to $1.75 billion to Genmab.

In addition, as with the Novartis deal, Janssen will fund all research and Genmab is entitled to royalties on sales. The Janssen agreement marks our third deal for DuoBody since December of last year. We continue to receive significant interest in a DuoBody platform from other companies and hope to close additional partnerships in the future, while we also work on DuoBody projects of our own.

Let's move to slide 5. We believe that the DuoBody platform is one of the best technologies to develop bispecific antibodies available today. Our technology is distinguished from competitor platforms, as it requires minimal engineering and is applicable to antibody sequences derived from any platform. DuoBody molecules can easily be manufactured at large scale and can be administered and dosed as other antibody therapeutics.

These advantages are being recognized by our industry, as shown in a recent survey conducted by Hanson Wade, the organizers of the Bispecific Antibody Summit, held in Berlin last April. Survey respondents who were asked to name the companies developing the best solution for bispecific development ranked Genmab's technology at the top together with Micromet's technology, which has been acquired by Amgen.

As the pharmaceutical industry is looking to build the future pipeline with bispecific antibodies, you would expect that they will want to considering licensing our DuoBody platform. This was exactly the case with Novartis and Janssen.

Let's move to slide 6. Exciting future for daratumumab. As you know, we presented exciting early data from the Phase I/II study indicating the daratumumab was clinically active in patients who had received up to 60 milligram mg/kg doses of the antibody. Overall, 62% of the patients treated in the study so far achieved a response. No other antibody directed to a target or multiple myeloma cancer cell has ever induced clinical responses and used as a monotherapy.

In addition, some patients in the study have maintained their responses, after only a limited dosing schedule for over 5 months. The safety profile for daratumumab also continues to be acceptable, and patients are now being treated at the next and final dose level of 34 mg/kg. To provide further information on the durability of responses inducted by daratumumab, we anticipate starting the second part of this dosing study where patients receive treatment with daratumumab for 24 weeks in the coming month.

A new Phase I/II combination study of daratumumab is now also underway. This study will combine daratumumab with Revlimid, a treatment already approved for use in multiple myeloma patients who have received one prior therapy. We are really excited about this study. Based on preclinical data this has documented increased killing of multiple myeloma cells when daratumumab was combined with Revlimid to treat multiple myeloma that is refractory to Revlimid and Velcade.

We are also planning an additional combination study with Velcade, based on similar preclinical data. We believe that using daratumumab in combination with these existing therapies will be a significant step forward in the treatment of multiple myeloma patients. Daratumumab targets a potential market in multiple myeloma that exceeded $3.9 billion in 2011, and this has been estimated to grow to $9 billion by 2017.

We also are pursuing ways to quickly bring daratumumab to the market and are working on plans for a potentially pivotal study of daratumumab monotherapy, staffing in 2013. Lastly, we are making excellent progress with the partnering process for daratumumab and expect to enter a partnership agreement before year end.

Let's move to slide 7. We are also pleased with the developments of sales of our marketed product ofatumumab. This slide shows the sales plan for Arzerra over the last 6 quarters. As you can see, sales for Arzerra rose again in the second quarter to GBP14.9 million. This is the highest quarterly sales revenue for Arzerra to-date, and is a 43% increase in sales compared to the second quarter of last year.

This quarter's European sales were enhanced by the purchase of ofatumumab by other companies running clinical trials with our antibody. You see the fact that other companies are investigating ofatumumab including in combination with other therapies as a positive sign, but you should note that the increase in European sales may not be indicative of future demand.

Arzerra is now available in 24 countries, including Argentina, the first commercial launch in South America. GSK have also submitted the new drug application for ofatumumab in Japan in April; a milestone for which Genmab received a DKK20 million payment.

So, let's now move to slide 8, ofatumumab cancer clinical trials. As we have discussed before, we anticipate that sales of Arzerra will increase when more data becomes available, which will allow for an expansion of the label and [as the] physicians experience increases with ofatumumab. T here is now a steady stream of data being reported, be it from GSK Genmab sponsored studies or from investigator sponsored studies, such as those recently reported at ASCO and EHA.

These include some exciting data combining ofatumumab with new treatments such as PI3 kinase or BTK inhibitors, which are demonstrating impressive response rate varying from 82% to 100%. These data indicates that ofatumumab works very well in combination with known and novel therapeutics for the treatment of CLL. And ofatumumab may be included in an increasing number of combination treatment regimens in the future.

On this slide, you can see the gold stars which indicate when primary data will be available from the key ongoing cancer studies, including the seven pivotal Phase III trials. The first pivotal data is expected to read out in 2013. And as we report more data and expand the label, we anticipate a substantial increase in Arzerra sale.

I would also like to report that patient recruitment was completed several months ahead of schedule in a Phase II study of ofatumumab in combination with bendamustine represented by the third bar from the top in the figure. And we look forward to data read out from this study in the second quarter of 2013 at about around the same time as our pivotal Phase III front line study in CLL, which evaluates ofatumumab in combination with chlorambucil, versus chlorambucil alone.

I will now hand over the call to David, to discuss in more detail our financial results for the first half of the year. David?

Thank you, Jan. Let's move to slide 9. This slide takes you through the growth in revenue comparing the first half of 2011 to the first half of 2012. The revenue for the first half of 2011 came in DKK167 million, compared to DKK206 million in H1 2012. That's an increase of DKK39 million, or 23%.

The main reason for the increase was achievement of a milestone under the GSK collaboration relating to the filing of an NDA for ofatumumab in Japan, but also the growth in Arzerra royalty and the milestone under the Lundbeck collaboration received earlier this year. The main sources of revenue in H1 2012 were DKK113 million of deferred revenue, DKK50 million of Arzerra royalty income and DKK28 million of milestone payments.

Let's move to slide 10. The R&D expenses for the first half of 2011 were DKK259 million, and we've been able to slightly reduce them to DKK256 million in H1 2012. On this slide, you can see that we have selectively invested more in ofatumumab, HuMax-TF-ADC and daratumumab. But this has been offset by the reduction in zalutumumab clinical trial expense, as well as disciplined spending in all areas.

Now, let's move to the income statement on slide 11. We've already discussed the revenue and the R&D costs, so let's move on to the G&A expenses. These have also decreased slightly from DKK35 million in 2011 to DKK32 million in the first half of 2012. Therefore, the total operating expense for H1 2012 came in at DKK288 million, DKK6 million lower than H1 2011. This brings us to the operating loss of DKK82 million, compared to DKK127 million in 2011. That's an improvement of DKK45 million or around 36%.

The net financial items intact were a positive DKK30 million in 2012, compared to a negative DKK46 million in H1 2011. Most of the year on year improvement was due to a non-cash foreign exchange rate adjustment on the intercompany loan between our Danish and Minnesota locations. This amount continues to bound around based on the varying exchange rates between the kroner and the US dollar.

Moving on to the discontinued operations, which related to the ongoing expense to maintain the manufacturing facility in a validated state. The 2012 US dollar amount was slightly lower than the amount reported in H1 2011, but you can see here in Danish kroner, it's slightly higher due to the strength of the US dollar versus the Danish kroner.

And that brings us to the net loss of DKK72 million for the first half of 2012, compared to a net loss of DKK192 million for the corresponding period in 2011, an improvement of DKK120 million.

Finally, on this slide, I've also included the cash burn for the first 6 months of the year. This year we've used, or burned through, DKK153 million of cash, compared to DKK237 million in H1 2011. That's a reduced burn of DKK84 million, or again, an improvement of 36%.

Now, let's move to slide 12. On this slide, you can see the revised guidance range for 2012 compared to the original guidance that was published on March 7th, earlier this year. We've been able to improve the outlook, mainly as a result of the increased income from our recently announced DuoBody collaborations.

Starting with the revenue, we've increased the revenue range by DKK25 million to a new range of DKK375 million to DKK400 million. Most of this increase is due to our new collaborations with Novartis and Janssen Biotech. We are maintaining the guidance for the operating expenses, so that means the revenue gain drops down to improve the operating result.

The operating loss therefore improves to a range of DKK200 million to DKK250 million, again an improvement of DKK25 million compared to the old guidance. There is no change to the discontinued operation expense of DKK40.

Now, moving to the cash used in operations. Here, the impact to our 2012 cash burn is larger, with an improvement in the range by DKK50 million to a new range of DKK375 million to DKK400 million.

The reason that the improvement in the cash is greater than the improvement in the revenue is that we can include the upfront payments relating to the DuoBody in the cash, but we can't include all of the upfront payments in this year's revenue. That's because we have to account for upfront payments as deferred income and recognize those amounts as revenue in the P&L over the future R&D period, i.e. over a number of years. It's a complex accounting situation, but regardless of the extra cash, our future prospects of an income stream is very welcome.

With the improved cash burn for 2012, we can also improve the projected yearend cash balances both before and after the projected sale of the Minnesota facility. In respect of our current cash position, we ended the second quarter of 2012 with a cash position of just under DKK1 billion.

And as I've said, we're projecting that the cash used or burned through in 2012 will now be a midpoint of DKK388 million. That means our cash runway at the end of Q2 was approximately 2.5 years, on the assumption of course that we burn at that same rate in future periods.

Finally, our 2012 outlook does not reflect the addition of any new significant deals, such as the potential partnership for daratumumab. In summary, this is a solid performance for the half year with improved guidance and a good cash runway.

Now, I'd like to hand the call back over to Jan to discuss the progress on our 2012 objectives. Jan?

Thank you, David. Let's move to slide 13. At the halfway point in 2012, we have come a long way towards meeting our objectives for the year. We continue to maximize the value of ofatumumab and expand its commercialization with our partner GSK. We initiated one new study with daratumumab and are making plans for additional studies. Finding a partner for daratumumab is a key priority for the second half of the year, and we are working towards securing additional collaborations for the DuoBody platform.

We were also pleased to enter a partnership with Cormorant for HuMax-IL8, and additional active discussions regarding other programs may lead to new important partnership for Genmab. Finally, we continue to keep a cash burn in focus and are improving our guidance for 2012, as you have just heard from David.

Let's move to slide 14. Following through on our commitments, when we announced our updated corporate strategy in September 2010, I told you our focus would be three-pronged. First, we focus on our core competencies of developing first in class products and next generation technologies. To this end, we have successfully established the DuoBody technology which is of great interest to big pharma and we have continued to progress and report positive data on daratumumab.

Second, we are turning science into medicine and into real value. This is precisely what we have done and will continue to do with Arzerra, and we plan to bring a second exciting product to the market with daratumumab.

And, third, we are continuing to build a profitable and successful business by making better spending decisions and maximizing value through partnerships. We have entered 6 new partnerships in the past 2 years and, as David showed you, we are disciplined in how we allocate our resources. We're following through on our commitments to stakeholders, and we are looking forward to additional positive developments in the future.

Let's move to slide 15. This ends our presentation of the 2012 second quarter results from Genmab, and we are pleased to answer your questions.

Operator, please open the call to -- for questions now.

Thank you.

(Operator Instructions)

And our first question comes from Thomas Bowers from Danske Markets. Please, go ahead.

Yes, thanks. A couple of questions on -- first on daratumumab. First of all, could you just maybe summarize what type of deal you are looking for at this point of time, with all the (inaudible) of data you now have in hand post ASCO? So anything -- just maybe considering a more backend loaded deal will contribute to certain amount of R&D costs going forward.

And then my second question, could you maybe just update on the partnering process of daratumumab sales ACSO? I'm just wondering if you're seeing increased new interest after ASCO, or are you now more in a -- at a point where you are sort of narrowing in the number of parties for the final negotiations?

And then, finally, just regarding the two combination studies on daratumumab, just to get a feeling on timelines going forward. I'm just wondering which dose levels you will start to administer [dara] in those two studies, and when we should expect the first set of interim data. Thanks.

Thanks very much, Thomas, for the questions. The deal we're looking forward to for daratumumab is we need a partner with a robust presence in the cancer field with experience in the multiple myeloma arena. We think very highly of daratumumab, based on the early clinical data and the good safety profile, and the really unique capacity of this molecule to show activity in a monotherapy setting in very sick patients.

So, we definitely expect a sizeable upfront payment and we also expect a partner to cover for most of the development expenses from here on. And despite a sizeable upfront, in the year of the great interest which is there for partnering dara, we also expect a pretty good milestone and royalty rate from this molecule from the negotiations.

I cannot give you any more sort of color from that, but we have become more robust seeing the very strong data, and also the potential to move towards the markets much earlier than we anticipated some time ago on the basis of potentially monotherapy studies, Thomas. So, that expectation has moved up in our own minds.

So with regard to ASCO, European Hematology Association presentations, I can tell you that the interest level has increased substantially, and it was already very high. I previously mentioned a sky high interest. More parties are coming in as we speak, but we are also progressing discussions with a number of parties very actively. I've said it already during my introduction that this is a very, very active process and management is entirely confident that we can close a deal before year end.

The finally, your third question with the combination studies of dara with Revlimid and then later on with Velcade, Revlimid study already started with the treatment of the first patients and there we started at the 2 mg/kg dose and then move on with the doses upwards, and the same will hold for Velcade.

Great. And then, can I also ask in regards to zalutumumab, I just noticed that the [Hanger] study is now -- well it was set to a primary completion date in July. So should you expect any data read out from that study in near term, or have you any insight to that?

I have some insight to that. Zalutumumab is a very good therapeutic candidate as we both know we had just bad luck in 2010 that we missed the primary endpoint for that study. But this is now classified in the Hanger group in the front line setting with chemo and also radiation.

What I learned from the Hanger is that recruitment is now finished and that an analysis of some data -- of interim data is now expected in early next year, but that is entirely up to the Hanger group, Thomas. We cannot influence that anymore, but recruitment in that study has finished.

Okay, okay. That's great. Thank you.

All right, thanks.

Our next question comes from Samir Devani from Nomura. Please, go ahead.

Hi Jan, hi David. It's been a -- clearly a very good quarter for DuoBody deals and I'm just wondering -- I'm quite interested by the survey results that you presented today, and I was wondering if you could just outline what are the key unique benefits that DuoBody has versus the other bispecifics (inaudible) are telling you?

Absolutely, and I already said it in my introduction, Samir. The DuoBody technology is basically applicable to any type of antibody coming from any technology. Some bispecific technologies you need like the same light chain in order to combine them into a bispecific. We don't need it, so one can start any other technology, combining two different antibody molecules into a bispecific format.

This is one of the only technologies where one can do that in that way. And the efficiencies is very, very robust. We consistently have yields over 95% when you combine the two antibodies and that is unheard of. It's incomparable to any other bispecific technology, and the ending result is that one obtains a fully human -- or at least a whole IgG molecule as an end result, which is seen as the most optimal for therapy.

What it can do, Samir, is described in the context of the Micromet technology where one generates here molecular engineering. Originally, fragments of antibodies with short half lives -- Micromet is using pumps -- or now Amgen, I should say -- pumps to administer these antibodies to patients.

In a more recent presentation from Micromet, it's with -- at conferences et cetera, we have also now focused on whole IgG molecules, which are truly seen by the pharma industry as the most optimal for antibody therapy. And that means that one can dose DuoBody type molecules in a normal way like any other antibody therapeutic, which is a huge advantage over pumps or other very complex ways of administering.

And, finally, these DuoBody molecules completely stable. They have exactly the same stability and PK and PD profiles as normal antibody molecules. This is also very different from some of the -- let's call it artificially glued together molecules from the first generation. So, we really believe that DuoBody is a very strong platform.

We have now closed, since December of last year, three partnerships with top 10 pharmas. The deal terms will move up, actually the deal terms in the Janssen deal, where you look at milestones and other payments to Genmab have more than doubled from the Novartis deal and we expect them to further move up from here.

So this will, in the end, I think, generate some realistic income for the Company and also the three current big pharma DuoBody collaborations will involve like 5 to 7 [FTEs] in 2012. That means Genmab, at least, paid for completely by these partners and the deal is so that they pay for far more than what it actually costs Genmab to have these scientists and technicians [employed].

And that moves up to 7 to 9 FTEs next year, and that will allow me to actually further lower my cash burn and lengthen my cash run rate. So the whole strategy that we have set up in September 2010 is beginning to really work, and you can anticipate more deals coming from the Genmab front on this technology as well as on other technologies.

Okay, great. And then just a couple of questions on the numbers for David. In the cash flow, David, you seem to have benefited from some reimbursement in terms of tax -- corporate taxes and you've released, I think, some provisions. Can you just take us through those two items?

Yes, the actual -- the tax amount is pretty small for our overall numbers. Some of the tax difference year on year, the tax was higher in 2011, DKK5 million, and DKK2 million in 2012. Most of that relates to our subsidiaries, the Dutch facility and the New Jersey facility and the tax is a bit higher in 2011. It's mainly related to timing on some of the restructuring costs. So the DKK2 million in 2012 is more representative of the tax going forward.

The reason we pay tax to those subsidiaries is that they're both on sort of a cost [plus] type profile. So the research center is charging a cost plus basis back to the mother company. That means you get a small element of profit (inaudible) will pay small amount of tax, but it's pretty immaterial in comparison to the total company.

Okay, great. Thanks.

(Operator Instructions)

And we have no further questions at this time. Do you have any closing remarks?

Absolutely. So thank you all for calling in today to discuss Genmab's 2012 second quarter financial results, and we really look forward to speaking to you all again soon. Thank you.