Genmab A/S (GMAB) 2015 Q2 法說會逐字稿

Good day and welcome to the Genmab 2015 second-quarter financial results conference call. Today's conference is being recorded.

During this telephone conference, you may be presented with forward-looking statements that include words such as believes, anticipates, plans, or expects. Actual results may differ materially, for example as a result of delayed or unsuccessful development projects. Genmab is not under an obligation to update statements regarding the future, nor to confirm such statements in relation to the actual results, unless this is required by law.

At this time, I would like to turn the conference over to Jan van de Winkel. Please go ahead, sir.

So hello and welcome to the Genmab conference call to discuss the Company's financial results for the quarter ended June 30, 2015. Joining me on today's call is David Eatwell, our CFO.

Let's move to slide 2. As already said, 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. The most significant accomplishment in the first half of 2015 was the submission of a BLA to the FDA for daratumumab in double refractory multiple myeloma. The submission was based on positive results from the Phase II study of daratumumab in double refractory multiple myeloma, which were reported earlier this year.

As a reminder, this is the indication for which daratumumab received a breakthrough therapy designation from the FDA in May 2013. Our partner, Janssen, started the submission of a rolling BLA on June 5 and completed the submission just a month later on July 9.

Janssen has requested priority review for the application and we will receive notification whether this has been granted within 60 days from July 9. If priority review is granted, we would expect to receive a potential approval within six months, in accordance with FDA guidelines. An approval of daratumumab and the first commercial sale of the drug would trigger a $45 million milestone payment from Janssen to Genmab.

So far this year, we have received $25 million in milestone payments from Janssen, $15 million upon completion of the BLA submission in July, and $10 million for progress in the Phase III study of daratumumab in combination with VELCADE, melphalan, and prednisone, or VMP, versus VMP in front-line multiple myeloma.

An application for European regulatory approval for daratumumab is well on track and we expect it to be filed in the second half of 2015. The daratumumab development program contains -- continues at a very rapid pace. Patient recruitment has been completed in the Phase III study of daratumumab in combination with Revlimid and dexamethasone versus Revlimid and dexamethasone in relapsed or refractory multiple myeloma.

This study is called Pollux or MMY3003. The primary endpoint in the Pollux study is progression-free survival and it is difficult to accurately predict when the study will read out. However, an interim efficacy analysis has been specified in the study protocol and agreed to the regulatory authorities, with a stopping boundary defined for superiority.

We have also reported regulatory news for the Arzerra program. Our new partner, Novartis, submitted regulatory filings for Arzerra as maintenance treatment for relapsed CLL with the FDA and with EMA in July. Positive topline data from a Phase III study of ofatumumab in combination with fludarabine and cyclophosphamide, or FC, in relapsed CLL will announce in April and full data have been presented at the 20th Congress of the European Hematology Association in Vienna in June.

Pending discussions with the regulatory authorities, these positive data could potentially form the basis of applications to further expand the Arzerra label.

Moving on to our earlier-stage pipeline, at the American Society of Clinical Oncology meeting in June in Chicago we presented the first preliminary clinical data from 24 patients in the Phase I study of HuMax-Tissue Factor-ADC in solid tumors.

The data showed that HuMax-Tissue Factor-ADC can be dosed safely in therapeutically meaningful doses and encouraging efficacy was seen, with 25% of the patients experiencing clinically meaningful long-term disease control. One cervical cancer patient obtained a partial response and significant drops in a key tumor biomarker were observed in four out of six ovarian cancer patients.

The second part of this study is now being expanded in an additional 50 patients leading to the entire study, with both parts one and two enrolling around 110 patients.

We continually look for opportunities to strengthen our product portfolio through partnerships and the acquisition of products from other companies. As discussed last quarter, we entered a commercial DuoBody technology agreement with BioNovion in the field of immuno-oncology in February.

In May, we signed a similar agreement with BioNTech. Together with BioNTech, we will jointly research, develop, and commercialize bispecific antibody products within the field of immuno-oncology using our DuoBody technology platform.

We paid BioNTech an upfront fee of $10 million and may pay an additional near-term payment of up to $5 million if certain BioNTech assets are selected for further development. The rights to the products will be shared 50-50 if we select a product candidate for joint clinical development.

The BioNTech deal marks our third collaboration in the field of immuno-oncology and we remain excited about the potential of using our versatile and robust DuoBody technology to produce bispecifics in this key cancer therapeutic area.

Similar to our acquisition of antibodies directed to DR5 from iDD Biotech in March, we have now licensed rights to antibodies targeting CD19 from Bristol-Myers Squibb. We paid BMS a one-time fee of $4 million for the license.

CD19 is a clinically validated target that is expressed on certain hematological cancer cells that includes non-Hodgkin's lymphoma and chronic lymphocytic leukemia. The next steps are to create and test the most promising therapeutic candidates for clinical development by using our next-generation antibody expertise.

Finally, as David will discuss in greater detail, our financial results are on track and we have improved the operating results for the first half of 2015 by DKK147 million compared to the first half of 2014.

I will now hand over the call to David to discuss in more detail the financial results. David?

Thank you, Jan. Let's move to slide 4.

Over the next few slides, I would like to discuss the results for the first half of 2015 and take a look at the guidance for the full year. Let's start by taking a look at the income statement for the half year.

Revenue for the half came in at DKK281 million, a decrease of DKK82 million, or 23%, compared to H1 2014. This decline was anticipated and mainly related to the timing of daratumumab milestones, as well as lower reimbursement income under the daratumumab collaboration with Janssen. I will show you more details on the next slide for the revenue.

Expenses came in lower than last year, at DKK245 million compared to DKK298 million in the first half of 2014. I expect the expenses to increase in the second half as investments in new projects start coming through.

Next, the DKK175 million of other income relates to a one-time credit due to the transfer of ofatumumab collaboration from GSK to Novartis, under which we agreed with GSK that they would forgive Genmab's long-term liability.

Moving to the operating income for the first half, 2015 came in at DKK212 million, compared to DKK65 million in the same period last year, an increase of DKK147 million. The increase was driven by the reversal of the ofatumumab liability I just mentioned and lower operating expenses.

The net financial items and tax were a positive DKK22 million in H1 2015, compared to just DKK7 million in 2014. The improvement was mainly due to foreign currency related gains. That takes us to the net result, which was DKK234 million, compared to DKK72 million in the first half of 2014.

Finally, our cash position increased by DKK297 million so far this year, mainly due to income from warrant exercises. This resulted in a cash position at the end of the quarter of just under DKK3 billion.

Moving to slide 5 and the revenue, this slide shows the breakdown of revenue by category. In H1 2015, the largest portion of revenues was deferred revenue from our partnerships with GSK, Novartis, and Janssen, and that was DKK144 million.

Milestone income is the next largest portion of revenues. In H1 last year, we collected a large milestone from our daratumumab collaboration from Janssen of $22 million or about DKK119 million. In addition, we also had a small milestone from our DuoBody collaboration with Janssen.

As Jan mentioned earlier, we achieved two daratumumab milestones, although only the $10 million milestone is reflected in these results as the $15 million BLA milestone was achieved in July.

As previously discussed, milestones will be lumpy quarter to quarter and year to year. At DKK42 million, the Arzerra royalty was DKK10 million lower in the first half of this year compared to H1 2014. Sales of Arzerra continue to be negatively impacted by increased competition in the refractory and front-line CLL markets.

The cost reimbursements to Genmab were also lower compared to last year, as Janssen is now executing and fully funding all of the new daratumumab studies.

The graph on the right bridges the revenue between the two periods and, as mentioned, the change is mostly due to the quarterly timing of daratumumab milestones and a reduction in the daratumumab reimbursements.

Next, the expenses and the operating income on slide 6. The graph on the left shows the changes in expenses, and as you can see, the reduction was mainly due to lower development expenses for ofatumumab, again related to the transfer of ofatumumab to Novartis. You'll recall that we renegotiated the agreement and no longer fund any of the development cost for ofatumumab.

However, the ofatumumab savings will be invested to strengthen our pipeline and we have already added new projects this year following deals with BioNovion, BioNTech, and acquisition of the DR5 and CD19 antibodies.

Looking at the chart on the right, you can see the significant increase in the operating income to DKK212 million, mainly due to the reversal of the GSK liability.

Now let's discuss the guidance on slide 7. We are maintaining our guidance, which was last published -- or last updated on May 20. This slide shows the overview of the 2015 guidance, compared to the actual result for 2014 and 2013.

The revenue range for 2015 remains at DKK650 million to DKK725 million. However, we are increasing the projected daratumumab milestones from DKK180 million to DKK240 million, increasing them to DKK200 million to DKK260 million. This is just due to the positive impact of exchange rates. You will recall that the milestones are in US dollars.

As a reminder, the daratumumab milestones are associated with clinical progress and assumed regulatory filings in the US, which we achieved in July, and in Europe, but do not include any commercialization milestones. As Jan stated earlier, a $45 million milestone payment will be due from Janssen upon the first US commercial sale of daratumumab. As the timing of this is uncertain, this milestone is not presently included in our 2015 financial guidance.

As Arzerra continues to face intense competition and taking into account the sales for H1 2015, we are reducing Arzerra royalties from DKK125 million to DKK100 million. Aside from these two changes to the components of revenue, the overall revenue guidance remains the same.

We expect operating expenses for 2015 to remain between DKK600 million and DKK650 million, a growth of 7% at the midpoint of the range compared to 2014. As I mentioned earlier, the expenses will increase in the second half of 2015 due to additional investment in the pipeline, including Tissue Factor ADC trials, progress of AXL-ADC, and accelerating the progress with our newly acquired antibodies and immuno-oncology partnerships.

The operating result guidance is a range of DKK200 million to DKK275 million. The operating results includes the reversal of the GSK liability of DKK175 million, but does not include the large milestone associated with the first commercial sale of daratumumab.

We expect our year-end cash position to be in the range of DKK2.8 billion to DKK2.9 billion, including the March and May warrant exercises, but not including any further exercise receipts.

Also note that, as usual, the 2015 guidance does not include any new potential deals, although the recent deals that have been announced have been absorbed into our current guidance.

Now I would like to hand back to Jan to discuss our 2015 goals. Jan.

Thank you, David. Let's move to slide 8.

Our goals for the year are focused on the marketed and late-stage clinical products, advancing our pipeline, and progressing our next-generation antibody technologies. We have made very solid progress towards achieving our 2015 goals through the first half of the year.

As highlighted earlier, the first regulatory application for daratumumab has been submitted. Further new studies in multiple myeloma will be started by Janssen and we will begin to see progress in other disease indications. Regulatory applications to expand the label for Arzerra were submitted by Novartis and we reported positive data from a Phase III study in relapsed CLL which could form the basis of future label expansions.

In addition, we reported the first encouraging efficacy and safety data from the HuMax-Tissue Factor-ADC program and presented exciting preclinical data on HuMax-AXL-ADC at ASCO in Chicago.

We have entered two new collaborations for our DuoBody technology in the important immuno-oncology fields and hope to enter new collaborations for the HexaBody technology this year as well.

Finally, we remain focused on controlling our financials and selectively invest in our pipeline, in which we increasingly hold onto product rights in order to ensure we effectively reach our goal of becoming a sustainably profitable Company.

Let's move to slide 9. That ends our presentation of Genmab's Q2 2015 results. Operator, please open the call for questions.

(Operator Instructions). Sarah Potter, Deutsche Bank.

This is Sarah Potter from Deutsche Bank. I have got three questions, please. Firstly, on Arzerra, I wondered if you have any updates on the progress of this into Phase III via GSK, particularly in light of the recent news from Roche.

Secondly, on daratumumab, I was wondering if you have a latest estimate of how far you think you're ahead of the competition. On [H one] clinical trials [a] competitive yours appear to have started more PK studies?

And then, thirdly, a little bit further away, but is there anything specific we should expect at ASH this year? It looks like your NHL study is yet to start, so is there likely to be any data by then? Thank you.

Thank you for the questions, Sarah, and welcome back. Let me start with Arzerra question. We have no further updates from GSK on the Arzerra -- I should actually say the ofatumumab subcu program in autoimmune diseases.

There is one Phase III ongoing and recruiting patients in pemphigus vulgaris, and we have no further updates on GSK on the next steps for NMO and for MS at this time. As soon as we hear that, Sarah, we will definitely inform the markets and we were certainly encouraged by the positive data with the Roche CD20 program.

Then to something more positive and more exciting, I believe daratumumab, the second question, we have all seen the MorphoSys data at ASCO, which were underwhelming, in our opinion, and also they are clearly now at least 2-1/2 to three years behind in development relative to daratumumab.

Also we have seen that [rituximab], the Sanofi program, is also at least two years behind because they are still working on dosing and on PK analysis of their antibody, so we believe that we are at least 2-1/2 to three years ahead of the competition. Sarah, I have highlighted already the finished recruitment in the Pollux study, one of the important Phase III studies with Rev-dex combination in the relapsed refractory setting, which is one of the most important settings, and I've also pointed out the interim analysis for efficacy, which has been specified in the protocol, so we are very excited about the rapid progress.

Janssen will further expand the clinical program. We added another study in Japan in this Q2 report and there are more studies upcoming essentially with all the combinations you could potentially think of with other drugs, Sarah, so we are really putting -- pushing the speed for daratumumab at this moment.

In that context, we will anticipate a very exciting presentation -- set of presentations at ASH. We have submitted north of 10 abstracts on daratumumab, and in total Genmab with its products has submitted over 20 abstracts to ASH -- we don't know whether they are all accepted -- with other products, as well as for daratumumab.

For daratumumab, the key ones for the field to watch are the more extensive data sets with Rev-dex DARA in the Phase I/II study, Sarah. Secondly, a very robust data set with a larger group of patients treated with Pom-dex DARA after at least two rounds of prior therapy. After seeing some encouraging data at ASH last year for both of these studies, which were updated with some patients at EHA this year in Vienna, we hope to have really full presentations with that very important combination data sets.

And on top of that, you may actually anticipate to see some new studies on the mechanism of action of daratumumab. It further solidifies the very broad mechanism of action of the drug, so we got actually increasingly excited about the potential of DARA to become potentially a game changer in hematological cancers.

With regard to the non-Hodgkin's lymphoma study, you were right pointing out that this study has not started yet and that's because we prioritized getting ready for launch, doing the filings and the preparations for filing and the expansion in multiple myeloma. But that study will start pretty soon.

What you may have seen is today we got an orphan drug designation from the US FDA for follicular lymphoma, and I can tell you that other applications for orphan drug designations are in preparation or already ongoing, so we already have two for daratumumab and there may be more in the coming time, Sarah. So this is clearly a program which is accelerating from here on and also accelerating very far beyond what you see the competition do.

That's great. Thank you.

(Operator Instructions). Sachin Jain, Bank of America.

Sachin Jain from Bank of America, just two high-level questions. First, you referenced the Rev-dex data and ASH. How do you intend to use that commercially? I think you have alluded previously to getting on guidelines, but I wonder if that data set is filable.

Secondly, as we move towards hopefully US launch, just a high-level question of what hematology products that have launched historically do you think are a fair benchmark as we think about daratumumab launch and commercial benchmarking that. Thank you.

Let me start with the first question. The Rev-dex data is Phase I/II data, which will be presented at ASH, and what I have also referred to is the Rev-dex DARA relapsed refractory Pollux study. That is, of course, a Phase III study, which has finished recruitment. And recruitment has been very, very rapid in that study.

So the data presented at ASH will just be used to, I think, further flag up to the market the potential of combination therapy involving daratumumab and not use any other area commercially. But that clearly will boil down to the Phase III studies and there are several Phase III studies with Rev-dex DARA ongoing at this moment. One of them already finished recruitment, the very large study.

Then with regard to the US launch, it is very difficult to say too much by me at this moment, apart from the fact that Janssen has stated in an R&D update -- R&D and business update in May this year that they are very ready. At the moment that we get the potential approval from the US FDA, they are very ready to launch almost immediately, and I think it's too early to benchmark, to talk about benchmarking at this moment.

But daratumumab has a very large amount of enthusiasm, as you and I know, on the drug. So it can potentially after launch move quite rapidly into the market, and what I can tell you is that Janssen is fully up to speed with the commercial material and gets everything ready to get on the road as soon as we get the approval. I want to leave it with that.

Thank you.

Sachin Soni, Kempen & Co.

My question is regarding interim readout for Phase III studies. I know timing cannot be revealed, but can you give hint what would trigger an interim readout? So, is it like 50% of the patients have been followed up at a certain level? So what exactly would be the trigger for an interim readout? Thanks.

Hello, Sachin, and good to have you on the line. I cannot give you too much details because our partner, Janssen, does not want me to give the exact definition, but what I can say, I can guide you in the direction.

It is after a certain number of events when we see a certain percentage increase or larger percentage increase in PFS in the DARA containing arm versus the control arm, which will be, for example, Rev-dex in the Rev-dex DARA study. Once that increase is seen, which is significant, then we will approach the authorities both in the US and in Europe and actually discuss the potential for a filing based on that data.

And for your reference, what we can do is make available studies with the control arms, different control arms, so that you know roughly the type of PFS we are aiming for in the control arm and then you can look at other drugs to see what they roughly have used in interim analysis of large Phase III trials for percentage increase. And this will be very much along the same lines.

And as I said in my introduction, this has been agreed. The exact percentage increase has been agreed already by the authorities both in the US and in Europe and I cannot give you any further color on that. I am sorry.

No, no, that's fair. A percentage increase, I am comfortable with. My question was regarding the number of events. So it's like that study is for 550 patients, so the number of events you are looking for, is it like almost half of the patients would have seen that or is it a set of 300 patients?

(multiple speakers). It is likely a smaller set even of patients, but I cannot give you the exact number.

Perfect. That is good enough. Thanks a lot, Professor.

Michael Novod, Nordea.

It is Michael from Nordea. Just one question. I am sorry if it is repetition. I was disconnected.

So, I just wanted to get a feeling on how you see Arzerra. I know, of course, all eyes are on DARA, but we have just seen another set of disappointing, say, guidance on Arzerra. So how do you want us to look at this compound not necessarily this year, but in the next, say, two-, three-year perspective? Should we just continue modeling flat to declining performance or do you see any kind of light at the end of the tunnel?

Thanks, Michael, for the question. Good to have you on the call.

We continue to be excited about Arzerra. There is, of course, increased competition. What we see right now is especially in Europe, so outside of the US. As you could see from the Q2 report, we see a real impact of other drugs, and clearly we know that ibrutinib is impacting the CLL landscape and there's also the Arzerra sales potential, but we have actually very strong data in the maintenance, I think very strong data in the OFC Phase III clinical trial and some Phase IIIs ongoing.

So we actually in the long run tend to be more positive, so not flat sales potential, but actually increasing sales potential, but a lot of that, Michael, is dependent on how the competition and the landscape have actually developed. But what is probably more important from what I feel about it is how our partner, Novartis, feels about the potential of Arzerra and they actually -- the tone gets more and more positive, actually, working with the development teams.

It is, of course, a difficult proposition, because it gets more competitive. Also, other drugs are moving into the CLL area right now, and probably at this stage I would like David to give his angle on how we as a Company see the sales for Arzerra develop and build up over the coming time. David?

Yes, I think we have got a couple of things. I think Novartis is just getting their feet under the table, if you like, so I think it is a complicated transition with all of these drugs moving from Novartis to Glaxo and from Glaxo to Novartis.

So I think we will begin to see the pickup of the Novartis sales team and get them really with the expanded labels particularly in the first round with the maintenance of setting in CLL. That will add and give them something further to sell as well, beyond the refractory and beyond the front line.

Then as we got into slightly longer term, the CLL OFC in the relapsed setting as well, so that again could be an expanded label coming through in the future. Then I think we've also got the FL Charles to read out, but beyond that, then I think it is Novartis hopefully thinking about starting this in combinations with some of their own drugs, and if they start some new trials now, that could also be potential for the future of Arzerra as well.

Interesting to see with Roche Gazyva, that's also not really picking up very fast with its new indications and new label as well. But I think we are getting to a point now is that there is very small glimmers of light. I think if you look at the quarterly data now, particularly in the US, it has been rising since Q3 2014 very small amounts. Some of that will be currency, but at least it seems to have now stabilized in the US, and for the last three or quarters now, we're seeing a very small move upwards on the US market for Arzerra. Europe has been declining, although you do have those clinical trial purchases in 2014 which interrupt the numbers. There haven't been any clinical trial purchases that I am aware of in 2015.

So I think it's going to be a competitive market, but I think we still got a good drug with Arzerra and I think expanding these labels will give more for the Novartis salespeople to actually go out and sell and get some market share.

And to end this discussion in a more positive note, Michael, I can tell you that we have submitted eight abstracts, the majority being on clinical studies with Arzerra and some novel combinations and some very, very exciting ones and also new exciting data on the mechanism of action of Arzerra versus other benchmarks, CD20 antibody.

So we believe there is potential, but the complication is a new partner who needs to get up to speed. I think that's progressing well, but it never goes as rapidly as one would hope, and, of course, a changing landscape. We should probably keep it with that.

Okay, super. Thank you very much.

(multiple speakers) the expanded Zydelig label as well, not on our label, of course. But that could also expand sales as well with Zydelig.

Thanks, David.

(Operator Instructions). As there are no further questions in the queue, I would like to turn the call back over to you, Jan, for any additional or closing remarks.

All right, thank you for calling in today to discuss Genmab's second-quarter 2015 financial results. We look forward to speaking with you all again soon.

This will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.