Genmab A/S (GMAB) 2013 Q1 法說會逐字稿

Thank you for standing by, and welcome to the Genmab A/S interim report for the first quarter 2013 conference call. (Operator Instructions) I must advise you that this conference is being recorded today, Tuesday the 7th of May 2013.

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 hand the conference over to your speaker today, Jan van de Winkel, CEO of Genmab. Please go ahead, sir.

Thank you. Hello and welcome to the Genmab conference call to discuss the Company's financial results for the three months ended March 31, 2013. 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. We have started the year well with already some notable achievements during the first quarter. Last week we announced impressive data from the Phase II study of ofatumumab in combination with bendamustine. I will describe these results more fully in one of the next slides.

We are looking forward to presenting additional ofatumumab data in the coming time, including the first of five pivotal trials due to read out in the next 15 months.

We have also made commercial progress with Arzerra, with rising sales triggering a royalty payment of DKK36 million in Q1 and the Japan approval, for which we received a DKK20 million milestone payment from GlaxoSmithKline.

The approved indication in Japan is for the use of Arzerra in relapsed or refractory CD20-positive CLL. This is a broader label than in the US and Europe as alemtuzumab a [component] is not available in Japan.

Our second product, daratumumab, has received both breakthrough and fast track designations from the FDA. We are particularly excited about the breakthrough designation, which will help to expedite the development and review of daratumumab. We are looking forward to working the Janssen and with the FDA on the development of daratumumab and hope to bring this product to patients sooner.

In addition, we sold the Minnesota manufacturing facility to Baxter, allowing us to save over DKK40 million per year in operating costs. Finally, our financial results remain on track with a DKK73 million improvement in the operating results, compared to Q1 of last year and we are maintaining our previously announced financial guidance for the year.

Let's move to slide 4. Moving on to ofatumumab, last week we announced the first set of ofatumumab data expected in 2013. Patients with either previously untreated CLL or relapsed CLL, were treated with a combination of ofatumumab and bendamustine in this Phase II study. We believe the results are impressive, with an overall response rate of 95% in previously untreated CLL patients and an overall response rate of 74% in patients with relapsed CLL.

The treatment was very well tolerated by patients in the study, with 87% of the relapsed patients completing the full treatment course. These data clearly underline the potential of ofatumumab and CLL.

Let's move to slide 5. Taking a look at the commercial aspects of ofatumumab, you can see on this slide that sales of Arzerra continue to increase over time. Rest of the world sales remain lumpy quarter-to-quarter, partly due to other companies purchasing Arzerra for use in clinical trials. There was a 65% increase in Q1 2013 sales over Q1 of last year.

If we take a longer-term view of sales comparing the last four quarters to the previous four quarters, we see there was a 46% increase. As a reminder, the current Arzerra label is fairly narrow and we expect to report data from five pivotal studies with street patients at earlier disease stages in both CLL and Diffuse Large B-Cell Lymphoma over the next 12 to 15 months, which could potentially lead to a significant label expansion and increasing sales.

Let's move to slide 6. Focusing in on daratumumab, we continue to be excited about the prospects for this antibody in multiple myeloma. As I mentioned, last week daratumumab received breakthrough designation from the FDA. This program is designed to help expedite development and review of drugs for serious diseases or unmet medical needs where preliminary clinical evidence shows a substantial improvement over existing therapy.

We are thrilled to count daratumumab as one of a small number of drugs to receive the new breakthrough designation. We believe daratumumab to represent the first human antibody to receive breakthrough designation and to have the potential to make a difference in the lives of cancer patients and their families.

We have also reported updated preliminary safety and efficacy data for daratumumab at the International Myeloma Workshop in Kyoto, Japan. In 12 patients treated with doses of 4 milligram per kg and up of daratumumab, 8 patients achieved a clinical response. These responses now include a total of five partial and three minor responses. One of the minor responses reported previously is now considered a partial response.

We also reported preliminary progression free survival data from the study. In the patients treated at the higher dose levels, median progression free survival had not yet been reached at 3.8 months. Daratumumab continues to exhibit an acceptable safety profile. We will present further data from the study of daratumumab and all presentations at two prestigious medical conferences, the American Society of Clinical Oncology Conference or ASCO in June in Chicago and the 18th Congress of the European Hematology Association in Stockholm, Sweden, also in June.

I will now hand over the call to David to discuss in detail our financial results of the first quarter. David?

Thank you very much, Jan. Moving on to slide 7, let's start by reviewing the revenue.

The revenue for Q1 2013 came in at DKK160 million, compared to DKK94 million in Q1 2012, an increase of DKK66 million or 70%.

On slide 7 you can see the bar chart that bridges the revenue between the two quarters and shows DKK39 million of growth relating to Janssen daratumumab deal. Of course that was only signed in August 2012, so nothing in Q1 last year. Also shows the achievement of the GSK milestone relating to the approval of ofatumumab in Japan and that was DKK20 million. Also you can see the increase in Arzerra royalty of DKK14 million and a modest reduction in other income of DKK7 million.

Now let's move to slide 8 and the expenses. The total expenses for Q1 2012 were DKK138 million and for Q1 2013 we came in 5% lower at DKK131 million. We increased investment in daratumumab and our most advanced pre-clinical program, HuMax-Tissue Factor-ADC and this was offset by a reduction in the ofatumumab clinical trial expenses. This reduction though is mostly related to favorable FX movements between the British pound and the Danish krone and also timing and study expenses. We also continued our disciplined spending in all of the other areas.

And as a reminder, all of the daratumumab expenses, including the related FTEs, are now all paid for by Janssen.

Moving on to slide 9 and the income statement. On this slide, you can see that the DKK66 million increase in revenue and slightly reduced expenses led to a nice improvement in the operating result of DKK73 million over last year's first quarter. With the Q1 2012 loss at DKK44 million and the Q1 2013 at an income or profit of DKK29 million. You can also see here the net financial items and tax and they were a positive DKK1 million in the first quarter of this year compared to a negative DKK16 million in Q1 2012. Most of the year-on-year change was due to non-cash foreign currency movements.

Moving on to the discontinued operations, which relates to the Minnesota manufacturing facility. Since we sold the facility earlier this year, we have an income in the discontinued operations for 2013 of DKK42 million. This includes DKK10 million for the final few months of running costs of the facility, plus net proceeds from the sale of around DKK52 million. Going forward of course, we'll no longer have the expense burn associated with the facility, which was about DKK40 million per year. And indeed, you can see in Q1 2012 the expense for the first quarter was DKK10 million in that year.

And that brings us to the net income of DKK72 million for Q1 2013 compared to a net loss of DKK70 million in Q1 2012, an improvement of DKK142 million between the two first quarters.

I've also shown the cash movement for the first quarter at the bottom of the slide. During the first quarter, we increased our cash by DKK38 million in 2013. The increase was primarily related to the proceeds received from the sale of the manufacturing facility. Therefore, we ended the first quarter with cash of just over DKK1.5 billion.

Now let's move on to slide 10, the guidance for 2013. We are maintaining our guidance that we previously announced on March 7th. As a reminder, the cash position at the beginning of 2013 was just over DKK1.5 billion and we are projecting a cash position at the end of 2013 of around DKK1.3 billion. If we continue to burn after 2013 annual burn rate of DKK275 million, then we'll end 2013 with a cash run rate of around 4.7 years.

Finally, our 2013 outlook, as usual, does not reflect the addition of any new significant deals, nor does it include any daratumumab milestones.

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

Thank you, David. Let's move to slide 11. 2013 has already been a very exciting and productive year for Genmab. But there is more to come. For ofatumumab we have reported impressive data from a key Phase II study of ofatumumab in combination with bendamustine to treat patients in first and second line CLL. An independent data monitoring committee has recommended continuation of the Phase III study of ofatumumab used as a maintenance therapy in CLL.

Finally, we have received approval of Arzerra in refractory CLL in Japan. The next step for ofatumumab is to report data from the pivotal study in front line CLL, which could potentially lead to an expanded label.

As already noted, we continue to make progress with the daratumumab program with Janssen. Updated preliminary efficacy data from the ongoing study in relapsed refractory multiple myeloma continues to be encouraging and we also received both fast track and breakthrough designations from the FDA. We look forward to providing additional details of the extensive development plan for daratumumab later this year.

In addition, we are firmly on schedule to file an IND and initiate the first clinical study of HuMax-Tissue Factor-ADC this year. Furthermore, we have seen encouraging data from a large Phase II study of inclacumab, or RG1512, the pre-selected antibody partnered with Roche at the American College of Cardiology scientific meeting in San Francisco in March.

Though the primary endpoint in the study was not reached, a clear reduction in damage to heart tissue was observed in the study and we are awaiting a decision from Roche on future plans for this antibody. We expect to further advance our unique HexaBody platform and to expand our DuoBody collaborations.

During the first quarter this year, Janssen continued to make excellent progress under our DuoBody partnership and activated a fourth bispecific antibody program under the collaboration for which Genmab received yet another $750,000 program reservation fee.

Finally, we continue to carefully manage our expenses, while aiming to reduce our cash burn. We have maintained our previously reported financial guidance for 2013 and as we described earlier, having sold the manufacturing facility, we will reduce expenses associated with running this facility. There is more to come from Genmab later this year and we look forward to sharing our progress with you over the coming months.

Let's move to slide 12. That ends our presentation of the 2013 first quarter results from Genmab and we are pleased to answer your questions. Operator, please open the call for questions now.

(Operator Instructions) Thomas Bowers, Danske Bank.

A couple of questions. First on daratumumab and this breakthrough stage. Jan, I believe in some media you comment a bit on approval timelines, 2016 for daratumumab in refractory patients. So I'm just wondering if this sort of implies the need for another study in refractory patients, even though it stands somewhat in contrast, you can say, to how the FDA thinks of this designation as they presented in Q1, at least for the cancer indications. So is this just to be conservative or -- well, we don't know how the FDA will actually execute on these designations or do you actually have any initial feedback that sort of already outlines certain criteria for daratumumab to get the early approval?

And then my second question is sort of a broad question on Arzerra. Basically I'm just wondering how you see the CD20 market develop over the next, let's say five years time. Do you still believe in the potential in particular the autoimmune indications or have things simply taken too long for Glaxo to grab a significant share of the potential market? So do you see any risk that this could end up like, for example, IL15 did?

And then finally, also on Arzerra. Could you maybe share the plans for the Phase III ibrutinib combination? I believe you have talked somewhat about this. Is that still on the table or -- and if anything we could see materialized near-term?

Why don't we start with daratumumab and the very exciting breakthrough designation we obtained. What I said publicly is that I believe that when everything goes well in the monotherapy study, we will likely have to expand that study with more patients. And in the ideal scenario when everything goes well that we continue to see strong data, that it is data which the authorities are pleased with, I believe that an approval based on monotherapy is possible in the refractory relapsed population of patients.

But this is a guess. The 2016 timeline I've given there was an estimate, Thomas. We haven't yet after getting the breakthrough designation from the authorities, had contacts with them on the exact modifications and amendments of protocols that we need to discuss within the coming time. So there will be more clarity on this issue of timelines and the potential studies that we need to run with daratumumab in the coming time after we have had more in terms of discussions with the authorities.

We are very pleased that the door is now open, that we have a very active and intensive possibility to get feedback from the authorities and that we can also start up what is called a rolling ECTD filing potentially bring in data from patients individual into the application -- of its own application. But we need to get firmer feedback from the authorities, so essentially we have no further news at this time. But we do believe that the fact that we got this designation will speed up the program quite considerably.

So with regard to Arzerra, we believe that the market will actually develop very robustly based on positive data we can potentially obtain in the upcoming five pivotal studies in cancer. The first one is expected to read out literally very soon in the coming time. And since we have gotten very encouraging data in the bendamustine ofatumumab study, which we announced last week in a second line CLL, I think that underlies the real promise of Arzerra being a more efficacious drug in CLL than some other therapies. So we believe that in cancer there is considerable growth to be expected.

But you asked specifically on the autoimmune indications that our partner GSK is running the programs for the subcutaneous formulation. What you've seen, Thomas, is that I put very firmly in the milestones for 2013 that we will comment updates via our partner GSK. We believe that they have robust plans to further develop the drug in different autoimmune indications. We have also said in a Q1 report now that the MS study, the one 196 patient MS study has finished recruitment and that Glaxo expects to comment data in the second half of this year.

What is also in our milestone slide is that we believe we will announce plans for further development of ofatumumab in the autoimmune indications and that contacts the chance that this becomes an IL15 like program, which is put on hold is very slim, if even existing, so we are very enthusiastic about it. But the news will have to come from our partner GSK.

And then finally your third question with regard to the ibrutinib combination studies. We are in active discussions with GSK and with Janssen Pharmaceuticals to plan new studies. And yes, we affirm study schedules, both Phase II and Phase III studies, but we have not yet finalized those discussions. And we expect in the coming months news to be getting into the public domain on which studies are planned and what the order of these studies will be to evaluate the potential of ofatumumab Arzerra in combination with the BTK inhibitor like ibrutinib.

Based on very strong ISS data we are actually 100% overall response rate has been seen in CLL and SLL patients and also very strong pre-clinical data showing that the best possible CD20 antibody to be combined with ibrutinib. This is a potent BTK inhibitor. It's potentially ofatumumab. I hope that answers your questions, Thomas.

Michael Novod, Nordea.

Just to be 100% sure, could you comment on the complete response [technician] you have for your just recently reported data of Arzerra together with bendamustine? Just to be sure that it actually compares to the data we have seen for rituximab combined with bendamustine.

And then secondly, on the cost levels, to reach the mid-range guidance, your costs seem to go up to around DKK160 million to DKK165 million per quarter in the remaining quarters. Could you just comment on what will actually drive that? I know you are starting a HuMax-Tissue Factor, but still it's a significant ramp in costs compared to Q1.

And then thirdly, the broader label for Arzerra in Japan. Could that be something that we see goes forward in two other markets as well as (inaudible) is being phased out? And how do you see that develop?

And then lastly, if you could just comment on what kind of oral presentation, if I heard you right, for daratumumab at ASCO in June?

Let me start with question one on the definition of the complete responses. This was exactly the same way of scoring the responses that has been used before in the rituximab combination studies, so exactly the same definition. I don't recollect the exact criteria, but they were identical to the study's (inaudible) service well used by some analysts, Michael, to compare the data with the previous data with rituximab. So in that sense there's complete clarity and I can follow this up with sending you the exact criteria. I don't have them in front of me.

That's fine.

The second question on cost levels, I will leave that to David. But let me now move forward to the broader label, which we obtained very nicely for Arzerra in Japan. Exactly the same type of label has also been given to us in Argentina. That's another country in South America where we have actually got a very nice broad label. This is basically identical to the Japan label and we believe that it's in essence it's up to the authorities in the different countries, Michael.

But this may actually now happen more often because of the not so ready availability of [compound alemtuzumab] anymore in the different countries. So we now have two countries with a broader label in the (inaudible) refractory or relapse CLL patient populations.

And then finally your fourth question on the oral presentation at ASCO. We will have actually two oral presentations, one at ASCO, one at European Hematology Association. Both providing more data on the monotherapy study. I think predominantly at ASCO we will further detail data in part one of that study, not of part two where we did more extensive dosing. We will further follow-up the patients with regard to progression free survival as well as the different responses and the depth of the responses seen. And then at the European Hematology Association meeting we'll also probably talk more about the PKPD profiles and observed in different patients. But that presentation at ASCO will be scheduled for I think June 3rd, on that Monday.

David, maybe you can come back to Michael's question on the cost levels.

Absolutely, delighted to do so, Jan and Michael. You're absolutely right, Michael. The midpoint guidance for expenses for 2013, DKK625 million, DKK131 million in the first quarter, so that does remain that Q2 to Q4 has got to average out DKK165 million a quarter.

We do see some lower phasing in Q1. If you look at the 2012 expenses, Q1 was DKK138 million and that was higher than in Q2-Q3, but Q4 was very much higher at DKK171 million. So we did see last year 23% of the annual spend in the first quarter and 28% for the annual spend in the fourth quarter. So there is some natural phasing there.

One of the larger items is ofatumumab. I'm expecting overall that ofatumumab expense for the full-year will be about DKK220 million and that's the same level as 2012. That is after a little bit of a lower start, DKK48 million in Q1 of 2013 versus DKK56 million in Q1 of 2012. But all indications at this stage is that we do expect to achieve that number by the end of the year.

One variable there will be exchange rates between British pound and Danish krone and I said, there was a little bit of a mix difference there between the two quarters. But where the pound will go over the next three quarters, I'm not perfectly sure.

Other things that will also mean more expenditure in the later quarters in the year, daratumumab as we get more patients in the 501 monotherapy study that we're running at the moment, that will be more patients coming in and more expense and more CMC, more materials. And also more patients coming in to trial 503, the combination study with Revlimid.

And then a final driver of increased expense throughout the rest of the year will be the start of the trial for tissue factor ADC, particularly around start-up of the trial in the latter part of the year and also CMC the material batches, the materials that we'll be buying in this year are ready to supply the trial in 2014. So I still expect us to be around that guidance range at a midpoint of DKK625 million for the full-year 2013.

Michael, I also have some answer for the response definition guidelines. Use the IWCLO updated NCI working group guidelines as published by Harlech in 2008. So that's exactly the same guidelines as were used by Roche in their rituximab studies.

(Operator Instructions) Sachin Soni, Kempen & Co.

My question is regarding Arzerra sales in the US. It has stayed pretty much stable and I just wanted to understand, do you expect some growth in US as well as we go forward? Or would it be coming largely this year from rest of the world? And maybe with level expansion next year it grows in the US as well.

I think it's difficult to predict from quarter-to-quarter because we have such a narrow label at this time. What will be very important, Sachin, is how the clinical data will read out, especially in the pivotal studies. The good thing is that we all see pivotal data and front line CLL very soon now. And based on the very impressive data we obtained in front line and second line CLL combines Arzerra with bendamustine we actually think that we are eager to look forward to that data.

I think it will be the expansion of the label -- potential expansion of the label which will drive further sales. It's difficult to judge from quarter-to-quarter what will happen in the US versus other territories, but what I can tell you is that we are already on the market in over two dozen countries. That will now very rapidly be expanded by GSK, so we will get more and more countries on the market with a very narrow label, but a true increase of sales we expect from the broader label in these different territories.

And I think what is key for that is that we see good data in the pivotal studies and that is I think where the market should focus on, not on the very narrow label we have currently. And there will probably be some growth quarter-to-quarter and we also believe that the (inaudible) will grow quarter-to-quarter, but it's very difficult to actually expect a substantial improvement there in sales without a broader label.

And if I may ask, what's your expectations regarding Japan? So would it be launch like -- is it fair to say that we go back and look at (inaudible) launch and the same in Japan and compare it to that? Or do you have a little bit heightened expectations for this one? Or lower?

I mean in Japan we expect that Glaxo will actually launch mid this year, probably early Q3, if not a little bit earlier. There's not very many patients in Japan with CLL, but we got a nice broader label. And also with the new clinical data at least underlining the promise of Arzerra being a [battle] drug, that's model drugs.

In CLL you would hope that certainly there is some good pickup, but as I already said, Sachin, there is not very many patients in Japan, but I think the important thing is that this is the first country in Asia and there is actually this will be used to rollout the drug over different auto territories in Asia. I think it's a stepping-stone there and we certainly would hope to see some pickup in sales. But again, we have a very narrow label at this time and the important fact to focus on is the potential for broader label and more rapidly increasing sales once we have a broader label for Arzerra.

My last question is on the platforms. Shall we still expect potential partnering on next generation technologies? And if so, would it be -- what scale would it be of? Would it be more like the one which you did with Seattle Genetics? Or more on where you would go access to your platform -- or to big pharma to your platform? What can we think of there?

What you can think of there is that probably a combination of both, Sachin. We have a lot of interest now for our platform -- our DuoBody technology platform. We have put in the milestones that we will expand on the partnerships there. And we fully expect that to happen also this year.

There's also a lot of interest for the HexaBody technology platform, the new platform that we unveiled in December last year. But there I would say well, maybe one should expect partnerships based on that platform, making that platform available to other partners from early next year on because of the fact that due to timing it usually takes after one reaches agreement on principal terms, seven to eight months. It will be difficult to hit that this year, but there will certainly be uses of that platform.

And with regard to your question of Seattle Genetics type of deal, yes we're also very actively looking at other technologies, which can complement our own antibody technologies to together create better win-win type combinations like we did (inaudible) the tissue factor ADC program together with Seattle Genetics.

The markets should open up to potential deals, partnership deals and that's a context because Genmab's business development group is very active right now. We have a number of pre-clinical programs. It's our key entrance to other companies and what I always try to do, Sachin, is to create win-win type deals as we have successfully done over the last two and a half years. And I fully expect that to happen also this year.

So it will be a combination of deals, providing our own capabilities to big pharma and also smaller pharma and biotech partners in order to create revenues. I've described that a DuoBody platform is already getting more and more traction and momentum. Janssen has four programs active now. We got yet another $750,000 on a bank account because of a new program being activated. The current programs run very nicely, so we also expect milestones to be triggered at some point. And we expect also to initiate new partnership agreements within this year. So it should be a good year for Genmab this year.

Samir Devani, Nomura.

Just a couple of questions left. Jan, can I just press you a little bit more in terms of timing for the front line CLL data? Is it fair to assume -- I know you said it's due very soon, but is it fair to assume that you're too late now for a late break for ASCO?

I can tell you that we are definitely too late for a late break at ASCO because you already should have submitted the data, Samir. And by definition this is such a materially important type of data for both us and GSK, we'd have to press release that, the Company announcement. But you didn't see that up to now.

But what I can tell you is that we firmly expect that data in the coming months and so we're very excited about seeing that data also based on the, I think, very promising data we have obtained last week, together with GSK, in the Phase II study combining Arzerra with another (inaudible) chemotherapeutic bendamustine. But you can fully expect to see that data in the coming months. We cannot exactly time that because this is event driven, but what I can give you, Samir, is that we didn't submit a late breaking upside here because then you would have seen a Company announcement.

And then just secondly, just thinking a little bit more strategically, we've seen some of the larger biotech companies in this sector strategically bolster their balance sheet. And I obviously understand that your balance sheet's quite strong at the moment, but is that something that you considered doing?

At this moment we have no plans for that, Samir, because we have a pretty strong balance sheet. David has already described the financials with an increasing revenue stream potentially for Arzerra, as well as daratumumab coming closer to the market in the coming time. And increasing partnership revenues we are not considering a financing at this moment.

But never say never in biotech. What I said publicly is that we have absolutely an ambition. We've got one of the leading antibody engines and antibody companies in the coming time. And one could potentially think of either acquiring products, which we could then optimize, for example, with our HexaBody platform.

We are testing out a number of programs at this moment or potentially acquire a technology, such as an ADC technology (inaudible), not a payload technology, which could actually further strengthen Genmab's robust antibody technology engine. That would be a type of activity where one could ideally want to see a strengthening of the balance sheets. But at present we are not considering that.

There are no further questions. Please continue.

So thank you all for calling in today to discuss Genmab's 2013 first quarter financial results. And we look forward to speaking with you all again soon. Thank you.

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