Genmab A/S (GMAB) 2012 Q4 法說會逐字稿

Thank you for standing by, and welcome to the Genmab AS annual report 2012 conference call. (Operator Instructions)

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 must advise you all that the conference is being recorded today, Thursday, the 7th of March, 2013.

I would now like to hand the conference over to your speaker today, Mr. 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 12 months ended December 31, 2012. Joining me on today's call is David Eatwell, our CFO.

Let's move to slide 2, the forward-looking statements. 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. 2012, a Year of Transformation. Last year we made impressive advances with our pipeline, technology, partnerships and financial stability. The early efficacy date that we reported for daratumumab in multiple myeloma was very encouraging and has generated significant interest in the medical community. The clear potential of daratumumab as also picked up by pharmaceutical companies allowing Genmab to secure a sizeable partnership with Janssen Biotech resulting in an upfront payment and equity investments totaling approximately $135 million.

We also signed three new deals for our DuoBody bispecific antibody technology. Together these DuoBody platform deals represent the potential value to Genmab of well over $1.9 billion.

Sales of our marketed product Arzerra rose again in 2012 with an increase in GSK sales of 38% over 2011. We also unveiled a new enhanced antibody technology called HexaBody, which we expect to create new opportunities for Genmab and our perspective partners to explore fundamentally different [shaded] products.

As a result of these accomplishments and our efforts to communicate clearly and transparently to the market, Genmab is now financially stable and our stock price increased 107% during the year. 2012 was truly a year of transformation at Genmab.

Let's move to slide 4. Delivering on our Commitment. The achievements we highlighted on the previous slides are all a part of the strategy we outlined for you back in September 2010. Our efforts to follow this strategy have clearly paid off. We are expecting value from our validated technologies with the Arzerra, daratumumab and HuMax-Tissue Factor-ADC programs while also working to develop exciting new technologies like DuoBody and HexaBody.

The number of countries [where] Arzerra is available continues to rise while we moved daratumumab and HuMax-Tissue Factor-ADC towards the market. And as David will explain in detail later, we are carefully and effectively managing our expense base.

Through these efforts, we have successfully delivered on the three basic tenets of our strategy focusing on our core competence, turning signs into medicine and building a profitable and successful biotech. Furthermore, I'm very pleased that using the determination that is at the hearts of every Genmab employee, we were able to find a buyer for the Minnesota manufacturing facility, delivering on our commitment to settle the matter in the first quarter of this year.

Let's move to slide 5. GSK Arzerra Sales Trends. On this slide you can see the underlying increase in Arzerra sales over time. You can see clearly that sales, particularly in the rest of the world, are lumpy quarter to quarter. This is partly due to other companies purchasing Arzerra for their use in clinical trials.

Taking a longer-term view of the sales, you can see there is a 38% increase in 2012 sales over 2011. We do expect to see modest increases in rest of world sales as Arzerra is launched in additional countries.

Also, keep in mind that while the current Arzerra label is fairly narrow, in the coming 15 months we expect to report data from five pivotal studies in earlier lines of treatments in both CLO and diffuse large B-cell lymphoma. This could potentially lead to significant label expansion and increasing sales.

I'm delighted to now handover the call to David to discuss in more detail our financial results for 2012.

Thank you, Jan. Let's start with the revenue on slide 6. The revenue for 2011 came in at DKK351 million compared to DKK485 million in 2012, an increase of DKK134 million or 38%. This is slightly above our last guidance as we achieved a couple of milestones from Lundbeck and Janssen towards the very end of the year.

The graph on the left hand side of this slide indicates the source of revenue in 2011 and 2012. For 2012 the largest items were DKK252 million of deferred revenue and DKK111 million of Arzerra royalty income. The other category is DKK75 million, mostly related to the reimbursement of development expenses from our collaboration partners. And finally, we also achieved DKK47 million of milestone payments.

The graph on the right bridges the revenue between the two years and shows DKK66 million growth relating to the Janssen daratumumab deal, an increase of the Arzerra royalty (inaudible) DKK36 million and an achieved of a GSK milestone relating to the filing of an NDA for ofatumumab in Japan of DKK20 million. And also on there is DKK20 million of DuoBody income.

Moving on to slide 7 and our expenses. The total expenses for 2011 were DKK600 million and for 2012 we came in at the lower end of the guidance of the expense range at DKK602 million. On this slide, you can see that we have selectively invested more in ofatumumab, daratumumab, and our most advanced pre-clinical program, HuMax-Tissue Factor-ADC. But this was offset by the reduction in the zalutumumab clinical trial expense and this is disciplined spending in all areas.

In the pie chart on the right, you can see the breakdown of the total operating expenses for 2012. The combined development cost of DKK333 million and the research expense of DKK34 million account for over 60% of our total expense base. With the next largest expense being the salary costs at DKK130 million or 22% of the total. As a reminder, all of daratumumab expenses, including the related FTEs, are all now paid for by Janssen.

Moving to slide 8 and the income statement. On this slide, you can see that the DKK134 million increase in the revenue and nearly flat expenses led to a nice improvement in the operating loss of DKK132 million, with the 2011 loss at DKK249 million and 2012 at DKK117 million. And that's a reduction of over 50%.

Interestingly, only the startup years of 1999 and 2000 have an operating loss lower than 2012.

The net financial items and tax were a positive DKK6 million in 2012 compared to DKK33 million in 2011. Most of the year-on-year change was due to non-FX cash movement. Non-cash FX [income] I should say.

Moving on to the discontinued operations, which relates to the Minnesota manufacturing facility. In 2012 the expense was DKK376 million compared to DKK380 million in 2011. 2011 included a non-cash impairment charge of around DKK342 million. And 2012 included a similar charge of DKK331 million. Last week of course, we announced that we had sold the facility, so going forward the annual burn rate of approximately DKK40 million will cease.

And that brings us to the net loss of DKK487 million for 2012 compared to a net loss of DKK596 million for 2011.

I've also shown the cash burn for the year at the bottom of the slide. Actually, in 2012 we increased our cash by DKK411 million. The increase is due to the receipt of the daratumumab upfront payment from Janssen and the issue of 5.4 million new shares. Without the amounts from Janssen, the cash burn would have been around DKK389 million, a decrease in cash used of DKK52 million compared to the cash burn of DKK441 million in 2011.

Finally on this slide, the cash at the end of 2012 was just over DKK1.5 billion.

Now let's move to slide 9 and look at some recent history. Two graphs here showing the progress made over the last five years. On the left, the expense base showing the reduction in expenses of 60% since the peak in 2008. I think we can now safely claim that we have our expense base firmly under control.

On the right, we show the operating loss from continuing operations, again definitely moving in the right direction, a step nearer to becoming a sustainable and profitable biotech company.

Now onto my final slide and a review of what we can expect to see in 2013. On this slide, you can see the new guidance range for 2013 compared to the actual result for 2012. Let's start with the continuing operations.

For the revenue, we have a range of DKK540 million to DKK580 million, a midpoint increase of around 15% compared to the DKK485 million reported in 2012. This includes deferred revenue of DKK295 million and Arzerra royalty income of about DKK125 million. The royalty income comparison to 2012 royalty is impacted by the clinical trial purchases included in the GSK net sales number. And also a year-on-year FX impacts between the British pound and the Danish krone.

Of course, what is more relevant is the expansion of the Arzerra label, and as Jan said earlier, we look forward to the results from five pivotal trials over the next 15 months or so and the potential future growth in GSK sales and Genmab royalties.

For 2013 the operating expenses we'll assume to be in the range of DKK600 million to DKK650 million compared to DKK602 million in 2012. So as promised, we'll continue to be careful with our resource allocation.

Also in 2013 we'll benefit from a full-year of expense reimbursement from Janssen for the daratumumab program. We're still finalizing the transition of certain responsibilities to Janssen and if we carry out additional work, then both our expenses and revenue will increase in 2013. But of course, that won't impact the operating loss or our cash balances.

And that brings us to the operating loss from continuing operations which we have projected to be in the range of DKK40 million to DKK90 million, again another year-on-year improvement.

The discontinued operations is actually an income of DKK40 million and relates to the final few months of the running costs for the Minnesota facility of about DKK10 billion and again on the sale of approximately DKK50 million.

Also on this slide you can see the cash position at the beginning of 2013 was just over DKK1.5 billion and we are projecting that the cash used [all brought] through in 2013 will be lower than in 2012. And the 2013 burn will be in the range of DKK250 million to DKK350 million. Therefore projecting a cash position at the end of 2013, including the facility sale at DKK50 million of DKK1.266 billion to DKK1.316 billion. This means that if we continue to burn at the 2013 annual burn rate at a midpoint of DKK275 million, then we would end 2013 with a cash runway of around 4.7 years, the strongest position we've been in for many years.

Finally as usual, our 2013 outlook does not reflect the addition of any new significant deals.

In summary, satisfying performance for 2012, disciplined resource allocation and excellent cash position and a very respectable cash run rate.

Now I'd like to hand the call back over to Jan to discuss our 2013 objectives. Jan?

Thanks, David. Let's move to slide 11, 2013, A Year of Data and Deals. We expect this year to be very exciting and productive with a focus on the new Arzerra data and additional partnering deals.

For ofatumumab we hope to receive approval in the factor CLL in Japan and will report data from two key studies. The first data we expect this year is from the Phase II study of ofatumumab in combination with bendamustine to treat patients with first and second line CLO. Data from the pivotal study of ofatumumab and frontline CLO will come next. This pivotal study is particularly significant as it could potentially lead to an expanded label for ofatumumab.

We will continue to move the daratumumab forward with Janssen. As you know, there will be an extensive development plan for daratumumab, including the rapid initiation of pivotal studies in several lines of treatment. We continue to be excited about the prospects of this first in class antibody given the very encouraging data and Phase I/II study and believe it could potentially be a game changer for patients suffering from multiple myeloma, the most common type of blood cancer in adults.

We also plan to add to our clinical product pipeline with an IND filing for HuMax-Tissue Factor-ADC in the middle of this year. We have seen excellent efficacy with HuMax-Tissue Factor-ADC in multiple pre-clinical tumor models for a variety of cancers, including pancreatic, lung and cervical cancer. Additionally, we have successfully completed three toxicity studies in monkeys with a final primate study underway in preparation for the IND filing.

Furthermore, we expect to have brought progress on a number of pharma programs in this year including Phase II data for inclacumab or RG 1512, the p-selectin antibody partnered with Roche due to be released at the American College of Cardiology scientific meeting in the coming days.

We expect to further advance our unique HexaBody platform and to expand our DuoBody collaborations. We are pleased to announce that an article describing the DuoBody technology platform in detail will be published next week in the proceedings of the National Academy of Sciences of the USA or PNAS, a highly respected journal. A link to this article will be available on Genmab's website after the publication. We also plan to launch in the coming weeks a DuoBody website to further promote this exciting new technology platform.

Finally, we intend to accomplish all of this while minimizing our operating loss and cash burn. We have worked very hard to create a stable foundation on which our Company can continue to build value for shareholders as well as patients, and I hope that you agree with me that this hard work is paying off.

Let's now move to slide 12. This ends our presentation of 2012 and the results from Genmab. And we are pleased to now answer your questions. Operator, please open the call for questions.

(Operator Instructions) Michael Novod, Nordea.

A few questions. First of all, Jan, can you talk about, or David, any milestones expected with the, say release of the pivotal data for frontline CLL or perhaps for the Phase II data? And also, whether you have any milestones included in the guidance provided?

Then secondly, whether you expect to also sign any deals on the (inaudible) technology which you revealed in December? And lastly, whether you have any comments to the initial data published on GA 101. It's only headline data, but maybe you have some comments.

Why don't I give the first question on the milestones, the first two actually to David? And then I will get back to you on GA 101, Michael.

For the frontline CLL there is no milestone attached to it. That event would already have the GSK milestones that were associated with CLL. Although there will be a small milestone that we have included in our guidance for the hopeful approval in Japan for CLL. Most of the remaining milestones for GSK are attached to the FL indication and it's about $100 million still to come, but that's on FL and that will be a bit further down the line 2016-2017.

And for HexaBody, that was another question for Michael. We haven't included any milestones yet. This is very conservative guidance. As I said to you in my introduction, we are definitely talking to multiple interested parties for access to more technology platforms for DuoBody as well as HexaBody. This is getting very rapidly popular I can assure you, but we have not included milestones here for HexaBody.

And then GA 101?

GA 101, you are referring to the frontline data. The press release recently and the indication from Roche that they would hopefully present more data at ASCO in June of this year. What we know from that study we have not really seen any concrete data, but we do know that that study actually started later than our old frontline study, Michael. And actually seemed to have finished, or rather before our study is predicted to read out in our own (inaudible), it should be around mid this year we believe.

And we actually see that there's a pretty good signal that we may potentially cut a much more robust increase in progression free survival. But of course, nobody has the data seen from our study and neither have we seen the detail data from the Roche study and frontline CLL, but we very hopeful that our data will readout well.

Thomas Bowers, Danske Bank.

First on (inaudible) Roche outlook. It seems that you don't factor in much, if any, impact from the removal of ofatumumab. So I'm just wondering if you could add some flavor on the label situation or maybe it's rather the expectations for Arzerra? And then also, just wondering if you have included any initial impact from Japan this year?

And then next question, could you maybe comment on the FDA breakthrough designation? I guess it's a no comment on whether you have applied, but how do you, based on the preliminary FDA guidance, see ofatumumab fit into this basket, both in regards to [refactory] MM, but also maybe other more orphan C38 positive indications?

And then final question, just on Arzerra, indications for the SC, the autoimmune indications. It has been quiet for a while now but according to clinical trials, the MS studies should read out in not too far away now. So do you have anything more to share, a comment on timelines and expectation, also maybe for potential expansion to other indications in SC?

I will leave the royalty question to David and let me start with the FDA new category of breakthrough status.

We actually feel looking at all of our data for daratumumab that this antibody potentially fulfills the criteria as outlined by the FDA for breakthrough status. We are, together with Janssen, discussing all options for optimizing or accelerating development of daratumumab. We continue to be very excited based on everything we see, Thomas. But we cannot comment on whether Janssen will apply or has applied for breakthrough status.

But what I can tell you is that we will of course update the markets very quickly should there be any concrete information about daratumumab and the breakthrough status become available. So we certainly believe that the drug is doing very well. We hope to release more clinical data at least three medical conferences this year in the coming time.

And so I can also tell you, Thomas, that the clinical studies are focusing very well. Both the Phase I/II dose escalation study, as well as the combination study with revlimid seems to be doing very well. We hope to also release someday near the end of this year of that study and we hope to very quickly give the market a better feeling for the unrolling of a massive development program for daratumumab. I think I'll leave it at that there.

Then to Arzerra, the autoimmune development of partner GSK is very actively working on the subcutaneous application of ofatumumab. As I showed you in slide 11 and our milestone slide for this year, there will be a progress made and updated to the market on the potential of ofatumumab in autoimmune indications.

Yes, the MS study I think has finished recruitment now and we expect to hear updates via GSK or of that clinical study. And I can also tell you that they are very actively planning auto studies in different indications, but hopefully we will -- we can give you a good flavor of that during this year. And the timing is completely dependent to our partner GSK, Thomas. I cannot give you a more precise feeling for timing, but it will be in 2013.

And then David, maybe you can talk a little bit more about the Arzerra royalty outlook we have given now for 2013.

We don't see a great deal of impact from the alemtuzumab availability. It's still available there, it's just a different group from where it was before. On your second question with Japan, Japan is pretty small CLL population, so we have assumed with our forecast overall that we will be successful with approval in Japan, but it's really not making much of a difference on the sales number in terms of our 2013 expectations.

The royalty number overall is sort of a little bit confusing for 2013. There's lots of different numbers floating around. I mean the certain one is that for 2012 GSK had net sales of about GPB60 million. What I'm assuming for 2013 is that that will increase from GPB60 million to GPB70 million. That's an increase of about 17%.

Also what we've assumed is that the clinical trial purchases where people have been buying clinical trial supplies from GSK will be similar year-on-year. There's a number of different variables are there and if you take out the impact of the clinical trial supplies and assume they're flat in 2013, then you're probably in low 20% growth in 2012 and a similar, about 20% growth in 2013.

And then finally, you add the currency on to that, sterling is very strong in 2012, the average rate compared to the krone is about 9.2. Today it's a lot lower than that, about 8.7, so that's also impacting in there as well. So really you can pick anything and look at our results or our forecasts and say we're DKK125 million versus DKK111 million in 2012, that's a 13% growth. Or you can strip out all those other impacts and persuade yourself it's really 19% growth.

But again, as we said earlier, I think the real key for Arzerra going forward is looking forward to these five pivotal trials because as you know, we've got a very narrow double refractory label today. And hopefully many of those five pivotal trials coming out over the next 15 months or so mean that we'll be able to get into a wider and expanded label.

Can I maybe also just follow-up just a question on zalutumumab? You said last year that you expected data from the DAHANCA group early '13. Any updates from that you can share with us?

No, I don't have any further updates, Thomas, on zalutumumab. I know that there will be data presented, but I don't know anything about a timing because this is the DAHANCA group doing that and also responsible for giving us and the market an update on zalutumumab and frontline head and neck cancer. But I'm pretty confident that it will be at a medical conference somewhere in the coming months.

Sachin Soni, Kempen & Co.

My question is regarding the revenue guidance. If I look at the guidance you say that roughly DKK125 million is your Arzerra royalties and DKK295 million is deferred revenue. So is it fair to assume that this 120 delta which you have from the lower end, it's mainly Japan? Or do you have more than just Japan approval in that 120 as well?

I think this is a typical David question, so David, you can handle this one.

If I take the midpoint of the guidance up by 60 and just take the midpoint there, as we've said in our guidance we've got deferred revenue of DKK295 million, that's grown of course because not only of the Janssen deal, but also the DuoBody deals with Janssen and Novartis as well. And as we said DKK125 million for royalties. That brings us to DKK420 million. So that means we've got about DKK140 million to bring us up to the midpoint of other items.

That's going to be split the same as it was in 2012 between reimbursement from our collaboration partners, including Janssen, including Lundbeck, et cetera. Overall that DKK140 million you can assume a split of about DKK100 million reimbursement and about DKK40 million of milestones.

To give you the comparison on that overall, the milestones were DKK47 million in 2012 and reimbursement income was DKK75 million in 2012. Milestones will be lumpy, we did have a proof of concept one from Janssen to DuoBody in 2012. We had two Lundbeck milestones that we met. So it'll be a mix and match on two. So I probably don't want to pin us down any further than that and saying exactly where that DKK140 million will come from, but hopefully that gives you a little bit more clarity of the buildup of 2013 revenue number, Sachin.

And on clinical side, after the frontline Phase III CLL data is out, could that be incorporated in the marketing message, which GSK currently has for Arzerra?

I will handle that one, Sachin. No, we will get the data around middle of this year. That's where we predict the events to read out. As you know, it's an event driven trial. We readout the increase in progression free survival in the former Arzerra patients treated either with chlorambucil or with chlorambucil plus ofatumumab. And we will give you the top line data when we see it ourselves, Sachin. Then the detail data will likely be described at a medical conference. We would hope ASH at the end of this year.

And Glaxo tells me that they need between four and five months to prepare the filing. We will then file a supplementary BLA when the data is good in the second half of this year. And only after we get the label from the authorities, from the US authorities and later the European authorities, we are allowed to -- or Glaxo salespeople are allowed to include it in a marketing message.

So you probably need to take between 9 and 12 months from the time that we get the data, the top line data before you can see it in the marketing methods. And that directly then couples back to our very conservative guidance for royalty numbers for 2013, Sachin. As you are now used to from David and me, we are very conservative and we actually think that this very narrow label, it takes really data in order to make the label broader and then the sales are very actively trending up. But one should expect that from next year on.

Peter Welford, Jefferies.

I think I've maybe got just a couple left. Firstly, just on the revenue outlook again. And sorry, I know this is probably a bit mundane. But just so I can understand the daratumumab part of it. If there were a best case scenario, are there potential milestones that could be paid from Janssen this year or I guess I'm thinking in terms of either starting trials or reading out? Or should we anticipate dara milestones to basically start kicking in from next year onwards?

And then just on the discontinued operations, am I right in understanding, and sorry, I missed the start of the call, but DKK40 million, is that basically a 50 gain offset by 10 cost for the staff that you're keeping on during -- until the transfer to Baxter? Or am I missing something in exactly how that fits in with the outlook?

And then I guess just thirdly, sort of bigger picture. When you now look at the spend obviously you've given for this year, which I think obviously you've given your outlook, and you look at obviously the cash balance, which is, as you said, I think at very comfortable levels, are you now looking at the pipeline and the platform thinking this is a situation where we want to run with it for a while and see where we go on? Or are you looking or ready to potentially bring in new assets and new things that Genmab can do from here? Or is that something more for perhaps a few years' time?

What I can tell you, and then maybe David can later on give some further color there, that in current outlook we haven't included milestones for daratumumab, which you were asking me about the best case scenario. And there is absolute possibility in case the program is more aggressively expanding. Four milestones in this year, but we don't know that for sure, we have not included that in this current projection. David, do you want to give some further color?

I think that's confirmed that there is no daratumumab milestones included in the 2013 guidance. Coming on to your other question, Peter, about Minnesota, the DKK40 million income, it's nice to see an income number there on discontinued operations, that is about DKK50 million. That's a net income DKK50 million coming through, [DKK10] million less there some small sales costs. The DKK10 million is the running costs really for the first few months of 2013. Again, that's sort of a rounded sum or estimate.

You pointed onto the staff. You're quite correct to Baxter doing DKK10 million to take on the 23 staff that are currently at the site. Those staff are still on our payrolls at this particular point in time and will be to the end of March. But we do have an agreement with Baxter, they're fully funding that. So our costs have effectively stopped as of February 28th. The reason for the transition is just purely a practicality of getting them through on boarding process with Baxter and getting them up on their payroll. But there's no cost for that 23 staff as of February 28th.

Can I just follow-up on the dara just a second? When you said it's a program that's expanded aggressively, so perhaps I can ask then if we were to assume Janssen did start a Phase III trial this year, is that the sort of thing that would trigger a milestone? Or is it all data driven?

Peter, we cannot detail any further the -- there's a type of milestone, but we have actually learned a lot from the agreement we previously closed with ofatumumab. And actually what we did is we actually included multiple milestones, triggered by different types of events. And what I can tell you is that definitely the start of a Phase III should definitely trigger a very significant milestone. And indeed, if that would start this year, then you will get milestones there.

And then maybe the bigger picture, the final question for you, Peter. It's a very important one. We have a very good cash position. Conservatively as David has already said in the introduction, we have an over 4.5 (sic - see slides) year of cash run rate at the end of 2013. This is very conservative guidance. This is excluding significant new deals or expansion of deals.

And yes, Genmab is continuously thinking about how to optimally position itself and optimally create really different (inaudible) novel technologies and therapeutic candidates. We're always looking forward of how we can combine our antibody therapeutic candidates with other technologies like payload technologies. And we should be in the position in the coming years to actually see whether we can actually enhance our capability to create better differentiated drugs.

Right now the dominant priority of the Company is to move us to a sustainable, very successful biotech Company, which is there to stay. But we will not shy away from actually bringing in the Company technologies that's good complement on technology platform.

There appears to be no further questions.

Thank you all for calling in today to discuss Genmab's 2012 full-year financial results. And we look forward to speaking with all of you again soon. Thank you.

That does conclude your conference for today. Thank you for participating. You may all disconnect.