Genmab A/S (GMAB) 2015 Q3 法說會逐字稿

Good day and welcome to the third-quarter report 2015 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 Mr. 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 period ended September 30th, 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. We have made substantial progress across all areas of our business this year, with more to come. Starting with daratumumab, we have announced very exciting news on the regulatory front. The BLA submission for daratumumab in double refractory multiple myeloma, this was completed in July, was granted priority review by the FDA in September, and given the PDUFA date of March 9th, 2016.

As we discussed last quarter, if daratumumab is approved, the first commercial sale of the drug in the US would trigger a $35 million milestone payment from Janssen to Genmab.

During the third quarter, in September daratumumab was also submitted for regulatory approval in Europe, triggering a $10 million milestone payment from Janssen.

Just a few weeks later, the EMA's Committee for Medicinal Products for Human Use or CHMP granted the daratumumab MAA accelerated assessment. The CHMP grants accelerated assessments when a medicine is expected to be of major public health interest, particularly with regards to therapeutic innovation.

What makes the designation especially exciting for daratumumab is that this is the first time in history that the CHMP has granted accelerated assessment for a product on the basis of Phase II data and also from a single arm trial. Daratumumab is continuing to progress all our regulatory applications for daratumumab. For example, Janssen recently submitted a regulatory submission in Canada.

Also worthy of note is that patient recruitment is now completed in the second Phase III study of daratumumab, the Castor or MMY3004 study, in combination with Velcade and dexamethasone versus Velcade and dexamethasone in relapsed or refractory multiple myeloma.

Both the Castor study and the Phase III Pollux study, which finished recruitment in May, include interim efficacy analysis with stopping boundaries defined for superiority.

In terms of Arzerra, last quarter we announced regulatory submissions for the product as maintenance treatment for relapsed CLL in the US and in Europe. The FDA has granted priority review for this application and has assigned a PDUFA date of January 21, 2016.

Regarding other indications for ofatumumab, Novartis now intends to file the regulatory application for ofatumumab in combination with fludarabine and cyclophosphamide OFC in relapsed CLL in 2016 rather than the end of this year, due to the transfer of the ofatumumab collaboration from GSK to Novartis earlier this year.

Speaking of the transfer for ofatumumab collaboration, in August Novartis and GSK announced an agreement to transfer all the remaining rights for ofatumumab, including rights in the autoimmune disease area, from GSK to Novartis.

The agreement is subject to clearance under the US Hart-Scott-Rodino Act and other customary closing conditions. Novartis has indicated that they expect to start Phase III studies of the subcutaneus formulation of ofatumumab in multiple sclerosis in 2016 and we have therefore updated our goals to reflect that this milestone will not be achieved this year.

Other key highlights during the third quarter include effective progress with our DuoBody technology platform, announced a new commercial collaboration with Novo Nordisk. We granted Novo Nordisk rights to use the DuoBody platform to create and develop bispecific antibody candidates for two therapeutic programs.

Genmab received an upfront payment of $2 million from Novo Nordisk and is entitled to potential development, regulatory and sales milestones of up to approximately $200 million or $250 million of product program depending on whether Novo Nordisk opts to take the program forward on an exclusive basis. Genmab will also be entitled to single-digit royalty.

The Novo Nordisk DuoBody program targeted disease area outside of cancer.

We've also seen significant recent progress in the DuoBody platform collaboration with Janssen. In September, we achieved milestone for preclinical progress totalling $1.25 million and this was followed in October by another $8.5 million in milestones.

Janssen has activated a total of 11 of the 20 possible programs under the collaboration and clinical candidates have already been selected for five of these programs. The progress in our existing DuoBody collaboration as well as on new collaborations this year with Novo Nordisk, BioNTech and BioNovion, signals the broad potential of our DuoBody platform.

Finally, as David will discuss in detail, our financial results are well on track for the year and we have firmly improved the operating results for the first nine months of 2015 by DKK151 million or by 74% compared to the same period in 2014. We are also improving our financial guidance for the year.

I will now hand over the call to David who'll further discuss the financial results and guidance. David, it's up to you.

Thank you very much, Jan. Let's move to slide 4. Over the next few slides, I'll discuss the results for the first nine months of 2015 and review the guidance for 2015 and talk about a few pointers for 2016.

Let's start by looking at the income statement on slide 4 for the period ending September 30th, 2015. Revenue for the period came in at DKK558 million. That's a decrease of DKK77 million or 12% compared to the nine months of 2014. This decline was anticipated and mainly related to lower milestone revenue and lower reimbursement income under the daratumumab collaboration with Janssen and I'll show you more details of the revenue on the next slide.

The expenses also came in lower than last year at DKK379 million for the first nine months compared to DKK431 million in 2014. I do expect the expenses to increase in the fourth quarter of this year and also to increase in 2016 as we invest in the clinical pipeline and accelerate the preclinical projects.

Next, the DKK176 million of other income. This relates to the 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 result for the first nine months, we had an operating income in 2015 of DKK355 million, compared to DKK204 million in the same period last year, an increase of DKK151 million. The increase was driven by the reversal of the ofatumumab liability that I just mentioned as well as the lower operating expenses.

The net financial items and tax were a positive DKK19 million in the first nine months of this year compared to DKK28 million in 2014. The difference between the two periods was mainly due to realized and unrealized losses on marketable securities as well as a benefit from foreign currency related gains.

So that takes us to the net result which was DKK374 in the first nine months of 2015, compared to DKK232 million in the first nine months of 2014.

Finally, our cash position increased by DKK545 million over the first nine months of the year. This was mainly due to income from warrant exercises. This means we ended the quarter with a cash position of over DKK3.2 billion.

Now let's move on to slide 5 and the revenue. This slide shows the revenue by category and a bridge of the revenue between the two periods. In the first nine months of 2015, the deferred revenue from our collaboration partners was similar between the two periods. However all of the other categories decreased year on year.

The bridge on the right of the chart shows you the key changes. Daratumumab milestones, as we said before, are lumpy period to period and so far in 2015 we've achieved $35 million of milestones compared to $47 million in the same period last year. Daratumumab reimbursement income was also lower this year as Janssen are now running all of the new studies.

At DKK61 million, the Arzerra royalty was DKK17 million lower than the first nine months in this year compared to the same period in 2014. Sales of Arzerra continue to be negatively impacted by increased competition in the refractory and frontline CLL market, particularly from sales from Imbruvica.

And finally, DuoBody milestones are also DKK18 million lower in 2015, but will catch up in Q4. As Jan already mentioned, we've achieved $8.5 million of milestones in October. That's about DKK55 million.

Let's move on slide 6 now and the expenses. The graph on the left shows the change in expenses. As you can see, the reduction was mainly due to lower development expenses for ofatumumab, related to the transfer of ofatumumab to Novartis. However, the ofatumumab savings are being invested in strengthening the pipeline, including tissue factor ADC and AXL-ADC and we've already added new projects this year following deals with BioNovion, BioNTech, as well as the acquisition of DR5 and CD19 antibodies.

Looking at the chart on the right you can see a significant increase in the operating income to DKK355 million, mainly due the reversal of the GSK liability that we discussed earlier.

Now, let's move to the 2015 guidance on slide 7. We're basically improving the financial guidance we published on August the 19th, due to a nice combination of increased revenue and lower operating expenses.

The slide shows the overview of the improved 2015 guidance compared to the previous guidance for 2015, as well as the actual result for 2014. We've increased the revenue range for 2015 by DKK75 million to a new range of DKK725 million to DKK800 million.

The revenue increase includes an increase in our projected daratumumab milestones to a new range of DKK240 million to DKK300 million. And that's up from the prior estimate of DKK200 million to DKK260 million and that's due to an inclusion of an additional milestone related to clinical progress in non-multiple myeloma indications and as well as positive exchange rate impact on milestones achieved during the third quarter.

As a reminder, the daratumumab milestones are associated with clinical progress and regulatory filings in US and Europe, but do not include any commercial milestones. Remember that the $45 million milestone payment will be due for Janssen upon the first US commercial sales of daratumumab. As the timing of this is uncertain, the milestone is not presently included in our 2015 financial guidance.

Here you can see we've also reduced our estimate of Arzerra royalties from DKK100 million reduced down to DKK80 million as Arzerra continues to face intense competition.

Finally, we've also increased our estimate of DuoBody milestones in 2015. And our projected revenue for 2015 consists primarily of non-cash amortization of deferred revenue totaling DKK285, as well as the daratumumab and DuoBody milestones and royalties on sales of Arzerra.

The operating expense for 2015 will decrease slightly. We're now expecting operating expenses to come in between DKK550 million and DKK600 million. That compares to the previous estimate of DKK600 million to DKK650 million, so an improvement of DKK50 million.

As I mentioned earlier, the expense will increase in the fourth quarter of 2015 and in 2016 due to the additional investment in the pipeline, including increased tissue factor ADC trials, progress of AXL-ADC, as well as accelerating the progress of our newly acquired antibodies and our new partnerships.

As a result with these changes, we now expect the operating results for the year to be in the range DKK325 million to DKK400 million compared to DKK200 million to DKK275 million in the previous guidance. The increase of DKK125 million means that we will now exceed the DKK265 million reported in 2014. The operating result includes a reversal of the GSK liability of DKK175 million.

We now expect our year-end cash position to be in the range of DKK3 billion to DKK3.1 billion, slightly up from the old guidance which was DKK2.8 billion to DKK2.9 billion. This range includes proceeds from the warrant exercises in the first nine months of 2015 of DKK598 million.

Also note that as usual the 2015 guidance does not include any new potential deals.

Now let's move to slide 8. Whilst we're still assembling our 2016 budget, I thought it'd be helpful if we gave you a few early pointers for 2016. As you know, we've held our expense base incredibly consistent over the last five years. And while we continue to be very disciplined, expect us to increase the investment in our clinical projects and selectively accelerate preclinical projects in 2016 and in future years.

Also remember that 2015 is the last year for the amortization of the GSK deferred revenue. Now, that will be DKK208 million in 2015 and go to zero in 2016. Also remember that the DKK176 million reversal of the long-term liability is a one-off credit. So that means that credit was in 2015 and won't be repeated in the 2016.

Also as I've said many times including today, milestones will be lumpy period to period and year to year. So if we achieve the DKK45 million daratumumab first commercial sale milestone in 2015, it will be of course also achieved in 2016.

Finally, the most existing item, the daratumumab royalties. Timing of US and European approvals are of course uncertain, but as hopefully we approach the approval, I'd like to give you some guidance on the royalty percentages.

There are several royalty tiers and we previously mentioned that they are double-digit. Today, we can confirm that the starting royalty is 12% and the highest royalty rate is a very healthy 20%. Of course that'll be glad to discuss our full guidance for 2016 with you when we issue our full-year results early in 2016.

Now, back to Jan to discuss our goals for 2015. Jan?

Thank you, David. Let's now move to slide 9. We've worked hard this year to effectively brining all aspects of our business forward from a marketed and late stage clinical products, to a early stage pipeline and on generation antibody technology.

We've met many of the goals we set for ourselves at the beginning of the year and will continue to work on progressing our pipeline. We were very proud that our big pharma partners were able to submit regulatory applications for both daratumumab and ofatumumab.

Multiple new studies have been started by Janssen both within and outside the multiple myeloma disease area. This year we have reported positive data from the daratumumab, ofatumumab and HuMax tissue factor ADC program.

We very much look forward to present additional data on the key daratumumab monotherapy studies, especially on daratumumab impact on overall survival and even more on clinical data obtained in combination with pomalidomide, with carfilzomib and on daratumumab's immune (inaudible) effects on cancer therapy at the upcoming American Society of Hematology Annual Meeting in Orlando in December.

We have entered three new collaborations for our DuoBody technology, seen robust progress in our existing DuoBody collaboration with Janssen and singed a new HexaBody research agreement.

Finally, we remain focused on our financials and plan to selectively invest in our state-of-the-art product pipeline in which we increasingly hold on to product rights in order to ensure that we effectively reach a goal of becoming a sustainably profitable Company.

Let's now move to slide 10. That ends our presentation of Genmab's Q3 2015 results. Operator, please open the call for questions.

(Operator Instructions) Michael Novod, Nordea.

It's Michael Novod from Nordea Inc. Just a few questions. Maybe first to the royalty on dara. Could you elaborate a bit on the structure that royalty? You start at 12%, you end at 20%. But is that a percentage of the total sales of dara or do you have certain bridges where you only get the higher royalty on the incremental sales, that would be very helpful. And then secondly on DuoBody, do you still expect J&J to start the first clinical trial here in 2015 or will it be moving to 2016? And lastly on the non-MM milestones, could you just try to elaborate a bit more on what kind of clinical progress this is related to? Thank you very much.

Hello Michael, this is Jan. I will take question two and three, and then I will hand over the royalty question to David.

Let's start with the easy ones, DuoBody, the first clinical program for the EM1 molecule, Michael, is firmly scheduled to start in 2015 and of course it is not under our direct influence because it's Janssen going to operationalize that. But it's very firmly slotted for this year, for 2015. There's a number of DuoBody programs slotted to move to the clinic also next year. So I fully expect, Michael, they will be able to actually dose the first patient this year.

Then that non-MM milestones, we have a number of milestones outside of multiple myeloma. I can tell you that we are dosing patients with non-Hodgkin's lymphoma and the milestones will be triggered by clinical progress in the different indications for non-Hodgkin's lymphoma and they are also fully on schedule as you have seen, Michael, from the increased guidance to be had this year.

Then maybe on to David for giving Michael a little bit more color on royalty structure for daratumumab. David?

Sure. Thank you, Michael, for the question. Unfortunately with Janssen, they don't want to give us too much detail about the royalty milestones overall, but we felt that this was getting material enough as we approach approval that we really did need to try and give you at least some guidance of where the royalties could go.

So the royalties overall, there's a number of different tiers and those tiers rise as the sales numbers rise. That's what I'm saying is that the first tier starts for the royalty rate of 12%, then there will be a number of tiers that the sales numbers increase in each year and then the highest rate that we can get is going to be 20%. So when you look at sort of a sales, if you sort of came up with a sort of $3 billion or $4 billion of sales if we're lucky enough to get that high, then you're going to have a whole mixture of tiers which will then be an average of these numbers, there will be an average between the 12% and the 20% depending where that sales number is, whether it $2 billion, $3 billion or $4 billion. But these tiers are all relevant within what the analysts are forecasting is that peak sales, we will be hitting the 20% royalty.

So it's not something which is on such a high sales numbers that you will have never achieve any sales at 20% royalty. Unfortunately, I can't say with restrictions from Janssen, I can't say much more than that on the royalty overall.

Okay, but the average royalty will never hit like say 20% I guess? It will be mix of --?

No, I think that would be mathematically impossible. You obviously -- you ended up with hundreds of millions in sales, if you get very close to it. But if you look at sort of the sales ranges, I think a lot of you guys are using sort of a mid sort of teens at a reasonable number at $3 billion and that doesn't embarrass me too much.

Okay, thank you very much.

Thanks Michael.

Sarah Potter, Deutsche Bank.

I was wondering specifically if you can give us an update on where you are with subcut daratumumab?

And my second question, just a financial one please, you talked about shifting of your R&D cost into 2016. Which programs does this relate to?

And then finally just a broader one on daratumumab ahead of the launch, you've danger running trials in combination with a lot of different therapies including [pomalidomide]. I presume you're not going to run Phase III studies with all of these different drugs? So is there a process to get this data either on the label or perhaps in the drug compendia or something and over what timeframe could we think about this data being able to be marketed? Thank you.

Let me probably handle all the three -- no, just the question one and three and I will hand over question two to David. So subcu daratumumab is going to start eminently either this week or the next week so this will start very quickly, Sarah. And we are very enthusiastic about the subcu formulation. And the trial will be a Phase I study, it is already visible on clinicaltrials.gov and it will be followed, assuming possible data by Phase III study, a launch Phase III study for the subcu formulation. So we are very, very close to it being initiated.

And then with regard to the combinations, I can tell you there's now 13 active studies with daratumumab and that number, Sarah, will more than double in the next 14 months and it will be a combination of Phase II studies with many combinations with known drugs that [sell us] that new agents or recently introduced agents in the landscape for treatment of multiple myeloma and also will contain Phase III -- formal Phase III studies and it depends a little bit on the combination that Janssen will chose a Phase II or Phase III approach.

And certainly for Phase II studies, they could be used indeed for compendia listings and then hopefully then lead to reimbursement in the United States. But it will also include formal Phase III studies and I think over the coming months you will get further clarity on the massively expanding programs for daratumumab and as I already indicated in the introductory remarks.

Actually the (inaudible) will have far north of 10 presentations of daratumumab, the number of all presentations and many more. Most of presentation, so it will be more or less (inaudible) daratumumab presentation and we can't wait to see them Sarah. So we're very excited about that. But maybe I can hand over the second question to you David?

Yes, sure. Thank you. Yes, in terms of the timing on the cost overall in the big picture, it's not too dramatic in whether the cost comes in sort of late 2015 or early 2016, but just to give you some ideas on that, we've got the midpoint of our expense base for 2015 of DKK575 million. The largest portion of that is just spend on our external development and external research cost, that accounts for nearly half of our total expenditure and that's where we're seeing some of that timing change. It's not cancellation, it's not delay, it's not anything going wrong with those particular projects, but the largest portion of expenditure within our development is tissue factor and AXL-ADC, most of the timing differences related to CMC batches for the materials for those projects and those sometimes be difficult to exactly when they're going to come out from the contract manufacturers. And there's a couple of those and some [talks work] that is slipping slightly into 2016.

So not delays on projects, just purely timing of it, but we will expect to see acceleration of tissue factor ADC and AXL-ADC in 2016.

And maybe to add to that Sarah, beyond an AXL and tissue factory we have like an amazing (inaudible) robust pipeline. Over 75% of our wholly-owned or 50%-owned programs are based on the DuoBody platform, about 10% on the HexaBody platform and the rest is ADC. So no naked antibodies and all state-of-the-art preclinical pipeline. And we have a very robust I&D engine, we have more than 10 I&D candidates slotted over the next four years. So we have one or more I&D firmly slotted for coming four years. So we'll hope to give you further insight into our pipeline probably at the R&D update on December the 8th in Orlando after ASH and we very much look forward to indeed selectively accelerating some of these programs into the clinic building furthermore value for patients as well as for the stakeholders. That's probably what I can say at this moment.

That's great. Thank you very much.

Thank you.

(Operator Instructions) Peter Welford, Jefferies International.

Just a couple. Firstly, just on the comments that David made about the spends going into 2016, I appreciate you doing (inaudible) withdrawn at the moment on sort of guidance for 2016, but I guess can you just quantify well when you say the expense ramped up significantly in 2016, what order of magnitude in your mind, you're considering given expense has been relatively flat over the last few years?

Secondly then, just on daratumumab, do we understand then the Phase II in non-Hodgkin's lymphoma began recently this quarter? Because I guess I'm a little -- it stands in the release as though there is a milestone triggered by a trial of multiple myeloma sorry. But you haven't disclosed the milestone, is that because the events happened, we're yet to actually receive the sort of financial part of it or if actually you could just sort of clarify that slight misunderstanding?

And then finally just on the Janssen DuoBody program, are you including already in your outlook a milestone if there is one for the first clinical program beginning, which I think Jan said was going to be this year?

And also, if I could push you I guess if you're asking within at the end of 2016, how many programs from the DuoBody could be in the clinic, what sort of ballpark would be potentially achievable? Thank you.

Well, Peter, why don't we start with number two and four and then give one and three to David? So daratumumab non-Hodgkin's lymphoma, we are recruiting and treating patients. And milestones will be triggered by clinical progress. I cannot say anything further in this different indications. And there will be more than one milestone in the given guidance, updated guidance that we expect that to be had this year, beta. So we've rapid progress the daratumumab all over. I can probably not add anything further.

Then the last question, to a little bit speculation on how many of the DuoBody programs could be in the clinic by the end of 2016, I would say at least two, probably more.

And then David maybe you can address the spend question on in 2016, give Peter a little bit better feeling if you can on the acceleration of spending in 2016 without giving the guidance today.

Yes. I can't give the guidance today because we haven't really gone through our budget yet nor have we presented that through to our Board of Directors but we got our internal budget meetings all set up for the next week, which we'll go through that and some of the timing of it overall.

Now to give you an idea, our largest spend today is on tissue factor ADC and AXL-ADC. Those two together are about DKK100 million out of the DKK575 million. So to sort of keep it in context, even if we were to double the expenditure on both of those projects, it's not going to be a ridiculous amount of money that we're going through. Some of our spend in 2016, 2017 and beyond is really going to depend on the clinical progress.

So I guess in some ways the more we spend in 2016, 2017, 2018, the better news it will be because it will mean that we're actually making clinical progress and adding more things into the clinic. So I don't think I can really say much more about 2016 at this point, but it's not going to be anything crazy. We're not talking about doubling the total fee, the total spend or anything close to that.

I think the other question around the DuoBody milestones, they are very difficult to project. I mean daratumumab milestones as project but we're very much closer to those of what's happening and what's going on with the project.

With DuoBody, some of those are more difficult to actually assess when they're going to happen and as we've seen up till the nine months we have $1.25 million of DuoBody milestones and then in October we had $8.5 million of milestones. So we do have a range, an upper and lower range, in for the fourth quarter of DuoBody milestones.

And that's what apply with our guidance. Even at this late stage in the year, we still do work with ranges. So whether the EM1 DuoBody project, if that starts in the clinic whether it starts in December or whether it starts in January won't make too much difference to these numbers in total.

Maybe I can add something to that, Peter. We actually make substantial cash with the DuoBody platform already. This is definitely north of $50 million since June 2012. This year we earned $13 million for the -- in combined payments for the DuoBody platform, but we are not yet at the end of the year. As you see, we have actually increased these numbers in our new guidance at least today. So this will become a very significant contributor to our cash flow over the coming time.

That's great. Thank you.

Thanks.

As we have no further questions, I would like to turn the call back to Mr. Jan van de Winkel for any additional or closing remarks.

So thank you for calling in today to discuss Genmab's financial results for the first-nine month of 2015. We look forward to speaking with you again soon.

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