Genmab A/S (GMAB) 2016 Q3 法說會逐字稿

Good day and welcome to the Q3 report 2016 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 any obligation to update statements regarding the future, nor to confirm such statements in relating to 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.

Hello and welcome to the Genmab conference call to discuss the Company's financial results for the period ended September 30, 2016. 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 continue to see solid progress with our two marketed products, DARZALEX or daratumumab and Arzerra or ofatumumab, as well as with our next-generation antibody technology throughout the third quarter. Our collaboration partner, Janssen, filed an application to expand the label for daratumumab in the US and EU in August.

The US application was for daratumumab in combination with lenalidomide and dexamethasone or bortezomib and dexamethasone for patients with multiple myeloma who received at least one prior therapy. This is the same indication that the FDA granted the breakthrough therapy designation for in late July.

In October, the FDA granted priority review status to the regulatory application and assigned a PDUFA date of February 17, 2017. The FDA also granted a standard review period for the use of daratumumab in combination with pomalidomide and dexamethasone for the treatment of patients with relapsed or refractory multiple myeloma who have received at least two prior therapies, including a proteasome inhibitor and an immunomodulatory agent. The PDUFA date for this indication is June 17, 2017. The European application is for daratumumab in patients with multiple myeloma who have received at least one prior therapy.

These regulatory submissions triggered milestone payments totaling $25 million to Genmab. The clinical development program for daratumumab continues to progress, with 28 studies now ongoing compared to 11 at the beginning of the year.

Some of the new studies will investigate daratumumab in disease areas beyond multiple myeloma. For example, (inaudible) is going to run a new clinical study of daratumumab in natural killer B-cell lymphoma, or NKB cell lymphoma. The Phase 2 study will assess the safety and efficacy of daratumumab in relapsed or refractory NKB cell lymphoma, and we are very excited to see development in a new disease area.

We continue to be very pleased with the commercial success DARZALEX so far. Third-quarter sales of DARZALEX were $163 million, an increase of 52% from the second-quarter sales, which were $107 million. In total, net sales were $372 million in the first nine months, with royalty income to Genmab of DKK298 million.

We also saw regulatory progress at our other marketed product, Arzerra or ofatumumab. In August the FDA approved the SBLA for ofatumumab in combination with fludarabine and cyclophosphamide in relapsed CLL. This is the fourth label expansion for Arzerra in the US.

As we disclosed last quarter, Novartis is running two Phase 3 studies of the subcutaneous formulation of ofatumumab in relapsing multiple sclerosis. These studies are now recruiting patients.

In addition to the focus of daratumumab and ofatumumab, we were also pleased to enter a new commercial collaboration for our DuoBody biospecific antibody platform with Gilead Sciences. We initially signed a research collaboration with Gilead in June 2014, and under the new commercial agreement, Gilead has an exclusive license to the DuoBody platform and an option for a second commercial license to create and develop biospecific antibodies for a program targeting HIV. Genmab received $5 million upfront payment in conjunction with the agreement.

For the first license, Genmab is entitled to development, regulatory, and sales milestones of up to $277 million. If Gilead exercises the second license, similar financial terms apply.

In addition, Genmab is entitled to single-digit royalties on sales of commercialized product. The total deal value would be over $550 million to Genmab if both licenses are exercised and all milestones are achieved. The agreement with Gilead is for six commercial DuoBody deals, and this is the first time that DuoBody molecules will be evaluated for HIV.

Our financial results are on target, and they improved revenue for the first nine months of 2016 by DKK331 million or by 59% compared to the same period in 2015. We have also updated our financial guidance again on the base of higher than anticipated DARZALEX sales.

I'm pleased to now turn the call over to David to describe our detailed financial results and guidance for 2016.

Thank you, Jan. Let's move on to slide 4. First, let's take a look at the income statement for the period ending September 30, 2016. Revenue came in for the period at DKK889 million; that's an increase of DKK331 million or 59% compared to the first nine months of 2015. The increase was mainly driven by higher royalty and milestone revenue related to our daratumumab collaboration with Janssen.

You'll see here that we've broken out the royalties from the other revenue, as it's important to recognize that the overall quality of revenue is improving as a higher share now comes from royalty income. Royalties comprised of 39% of the revenue in 2016 compared to just 11% in 2015.

Expenses were DKK544 million in 2016 compared to DKK379 million in the prior period. The increase of DKK165 million or 44% was primarily related to additional investment and an acceleration of our clinical and preclinical pipeline.

Next, as usual, we have to talk about the other income. In 2016 this, of course, was zero compared to DKK176 million credit in 2015. This was related to the one-time reversal of the ofatumumab deferred funding liability, and that resulted from the transfer of ofatumumab collaboration from GSK to Novartis.

Moving to the operating result, we had an operating income of DKK345 million for 2016 compared to a slightly higher amount of DKK355 million in 2015. The decrease of DKK10 million was driven by the one-time reversal of the ofatumumab liability that we just spoke about. Excluding the impact of this one-time reversal, the operating income would have increased by DKK166 million year-over-year.

The net financial items in tax were in income of DKK1 million in 2016 compared to an income of DKK19 million in the prior year. The difference between the periods was mainly due to foreign exchange rate movements, which negatively affected our US dollar and British pound portfolios as well as our US dollar cash holdings in 2016.

That brings us to the net result of DKK346 million in 2016 compared to DKK374 million in 2015. Finally, our cash position increased by DKK449 million over the first nine months of the year. This was mainly driven by the increase -- sorry, mainly driven to -- [via] income of operations of DKK345 million in 2016, proceeds from warrant exercises of DKK184 million, but also partially offset by the purchase of treasury shares for DKK118 million. So this resulted in a cash position of DKK3.9 billion at September 30.

Now let's move on to slide 5 and the revenue. On the left-hand side of this slide, you can see the revenue breakdown by category. In the first nine months of the year, the milestone revenue was the largest portion of the revenue at DKK462 million.

In the first nine months, we achieved six daratumumab milestones totaling DKK399 million, five DuoBody milestones totaling DKK52 million, and an DKK11 million milestone related to our clinical collaboration with Lundbeck. In the same period last year, we achieved three daratumumab milestones for a total of DKK239 million and two DuoBody milestones totaling DKK8 million.

As Jan mentioned earlier, Janssen's DARZALEX sales were $372 million in the first nine months of 2016. And with a current 12% royalty rate, we recorded $45 million or DKK298 million of royalty income. Of course, there were no DARZALEX royalties in the same period last year, as the first commercial sale occurred in November 2015.

Deferred revenue from collaborations was DKK69 million in 2016 compared to DKK218 million in the same period of 2015. This decrease is due to the ofatumumab deferred revenue, as it was fully amortized at the end of 2015. As we previously mentioned, the overall quality of the revenue is improving, and royalty income stream is edging closer -- but not quite there yet -- to the total of the operating expenses.

The graph on the right bridges the revenue between the two periods, and as mentioned, the change is due in largest part -- due to the DARZALEX royalties, as well as the daratumumab milestones. And this is partially offset by the anticipated reduction in deferred revenue.

Next, let's take a look at the expenses and operating income on slide 6. The graph on the left compares the change in expenses between the first nine months of 2015 and the first nine months of 2016. As you can see, there was an increase in the operating expenses of DKK165 million. Over 70% of the expense increase was due to the additional investment in our product pipeline, including the advancement of DuoBody-CD3xCD20, HexaBody-DR5/DR5, tisotumab vedotin, and HuMax-AXL-ADC.

Looking on the chart on the right, as we have already discussed, you can see a decrease in the operating income from DKK355 million to DKK345 million. Again, of course, that decrease was due to that reversal of the GSK liability in 2015. Excluding the impact of this one-time event in 2015, the operating income would have nearly doubled year-over-year.

Now let's discuss the guidance for 2016 on slide 7. This slide shows an overview of our 2016 guidance. We're improving the financial guidance last published on August 9. The improvement is driven by increased revenue, resulting in increased operating income and an increased cash position. The table shows a comparison of the revised guidance compared to the previous guidance for 2016.

The revenue range for 2016 has increased by DKK225 million to a new range of DKK1.2 billion to DKK1.25 billion. The growth is driven by an increase in Genmab's estimate of the net sales of DARZALEX to a new range of $500 million to $550 million in 2016. This compares to our previous estimate of $440 million to $490 million. The higher sales number increases Genmab's projected royalties to a new range of DKK400 million to DKK450 million compared to the prior estimate of DKK350 million to DKK400 million. So that's an increase of DKK50 million.

We've also included a $25 million milestone in the new guidance, triggered by sales of DARZALEX exceeding $500 million in a calendar year. This increases our estimated daratumumab milestones to DKK570 million in the new guidance; previously we'd estimated DKK400 million.

The remaining revenue for 2016 consists of Arzerra royalties, DuoBody milestones, and non-cash amortization of deferred revenue. We expect our operating expenses for 2016 to be in the range of DKK800 million to DKK850 million.

The operating expense guidance remains consistent with our previous guidance number as we continue to invest in our pipeline of products. The four key projects that I mentioned earlier account for DKK319 million of the total expenses in 2016. That's 39% of our total midpoint expense base of DKK825 million. We are also increasing our investment in other preclinical programs to drive even more projects into the clinic in the future.

As a result of the increased revenue, we now expect the 2016 operating income to be approximately DKK375 million to DKK425 million compared to the previous guidance of DKK150 million to DKK200 million. That's an improvement the same as the revenue, of course, of DKK225 million.

We are now projecting a cash position of DKK3.65 billion to DKK3.75 billion at the end of 2016, an improvement of DKK100 million compared to the previous guidance. The increase in the cash position is less than the increased operating income, as we expect to receive payment for the additional milestone after year-end.

Finally, as Jan mentioned earlier, DARZALEX is under a priority review by the FDA with a PDUFA date of February 17, 2017. In the guidance commentary, we have pointed out there are $65 million of milestones associated with the first commercial sale in the US for the Revlimid and Velcade combinations. We have not included these milestones in our 2016 guidance.

Also note, as usual, the 2016 guidance does not include any new potential deals or potential proceeds from future warrant exercises. Now back over to Jan to discuss our 2016 goals. Jan?

Thanks, David, let's move to slide 8. We continue to work towards our goals for 2016 and have checked off a number of the boxes so far. DARZALEX is on the market in both the US and Europe, and we have reported positive interim data from both of the key Phase III studies of daratumumab in relapsed refractory multiple myeloma. And regulatory applications have been submitted in the US and in Europe. We have announced that Janssen will start new clinical trials in multiple myeloma and in solid tumors, and patients are expected to start enrolling soon.

We had expected to report the first data in non-Hodgkin's lymphoma later this year, and this has now been moved by Janssen to 2017. We are looking forward, however, to presenting numerous other data sets for daratumumab at the 58th American Society of Hematology annual meeting this December in San Diego. 17 daratumumab abstracts have been accepted for presentation, including 6 oral and 11 poster presentations.

For ofatumumab, patient enrollment in Phase III clinical studies for the subcu formulation of ofatumumab in relapsing multiple sclerosis by Novartis has been started, with the first patients dosed in one study and expected any other study soon. The US FDA approved the use for Arzerra as extended treatment for recurrent and progressive CLL as well as in combination with fludarabine and cyclophosphamide for relapsed CLL this year. The regulatory application for ofatumumab in combination with fludarabine and cyclophosphamide has also been submitted to the European regulatory authorities, and we await the outcome of that application.

Finally, an interim analysis in the Phase III study of ofatumumab in refractive follicular lymphoma was conducted during the first quarter, and it was determined that the study should continue. Patient enrollment has been completed, and we expect data to be reported next year.

Throughout the remainder of this year, we will continue to strengthen our differentiated product pipeline. We plan to give an update on progress in the ongoing first Phase I/II study of tisotumab vedotin at our capital markets day in New York next week.

In addition, we expect to start the first clinical trial of HuMax-AXL-ADC in 2016. We are working to move the HexaBody-DR5/DR5 and DuoBody-CD3xCD20 programs forward. And you will hear more about these programs at the capital markets day next week as well as part of our discussion of a strong preclinical pipeline.

We have entered a commercial collaboration for the DuoBody technology with Gilead, and we will continue to seek out collaborations for this and our other proprietary technology, the HexaBody platform. We have seen three DuoBody programs from our partner Janssen move into the clinic this year.

Lastly, we will maintain our disciplined financial management. And we'll selectively invest to further progress and broaden our strong, differentiated product pipeline as we work toward creating a sustainably profitable business.

Let's move to slide 9. That ends our presentation of Genmab's Q3 2016 financial results. Operator, please open the call for questions.

(Operator Instructions) Sachin Jain, Bank of America.

It's Sachin Jain from Bank of America. Three questions, if I may. Firstly, Jan, could you give us a bit more detail on the NHL delay? Is there anything specific we should be aware of behind that?

And then two questions for David. Firstly, on the guidance, the $500 million to $550 million for DARZALEX, plus you [have no] acceleration from the third-quarter number in that. Any color on that? And then I guess more importantly, are any European sales included there, and can you give us any color on European progression?

And then, finally, it's a tough question, I guess, but milestone expectations for next year beyond the POLLUX and CASTOR moving parts -- are there any major milestones that we should just be thinking about as we think about next year? Thank you.

Thanks, Sachin. Nice to have you on the call. Let me start with the first question. The delay of NHL news to 2017 -- there's nothing to read into that, Sachin. it's merely a factor of having a lot of news already scheduled for presentation this year at the ASH meeting.

Tomorrow, the abstracts will be coming out online, as you know. We have plenty of abstracts accepted for daratumumab alone for 17 presentations. Three of these will be e-publications, so merely the presentations of the abstracts. And the four key topics will be more data on POLLUX and CASTOR, the two Phase IIIs that read out so well earlier this year on this. The filing have been based in August. And the second real key presentation will be on subcu data with the daratumumab formulation in multiple myeloma.

The third key piece of information will be -- let me think -- will be on the immuno-oncology effects of daratumumab, both in monotherapy and in combination with Revlimid. We are very excited about that.

And then the fourth key piece of information, Sachin, will be on a real clinical practice study and real-life study -- the retreatment of daratumumab in daratumumab refractory patients has shown to work really, really well, which I think will receive a lot of attention.

So we effectively have the luxury, Sachin, of having almost too much data to present on daratumumab. It's an explosion of new studies, a lot of new activities you will see, in addition to the 28 studies that are already announced -- many, many new studies coming online very rapidly.

So I think this was just a timing issue for Janssen. And they will -- they intend to present the data at a medical conference in 2017. Nothing to read into that.

Now, maybe onto David for the second and third question.

Yes, certainly. Starting with your first question there, we have -- as you've said, we've upped our guidance for 2016 to Janssen net sales of $500 million to $550 million. I think that's exceeding everybody's expectations, whether it's our expectations or Janssen's expectations. I think it's a fantastic start for DARZALEX, who had its first full year in 2016.

In terms of where the guidance is for the full year, if you look at the nine months, it's $372 million. If you look at Q3, Q3 was a very nice uplift from Q2 -- $163 million versus $107 million in Q2. That's a $56 million increase or 52%.

One of our challenges is -- at this point is that whilst we've got good data, either from Symphony or IMS to guide us with US of where that's going, it's really a black hole for rest of world, particularly for Europe at this stage. So it's very difficult to gauge exactly where the sales are coming from, if they are repeatable, bolus of patients, and all those types of things that we've discussed before.

However, if you look at that and say, look, we've got $372 million for nine months; and if you said, look, Q4 is going to be exactly the same as Q3, another $163 million, that would take us to $535 million -- which is pretty close to the midpoint of our guidance of $500 million to $550 million.

We've also got the Christmas period coming in at the end of the quarter. We haven't got experience yet of what that will do, if anything, in terms of shipments around that period. So I think we can celebrate a very strong number for 2016. And let's hope that we can get it within that range or even go beyond.

In terms of milestones for 2017, unfortunately we are restricted in what we can say -- how much we can say about advanced milestones. You've heard me say before that milestones will be lumpy. They are lumpy period-to-period, year-to-year. We've now sort of given you that declaration of $65 million of milestones on the back of the POLLUX and CASTOR, our first US commercial sales.

We could hope to look for POLLUX and CASTOR European approval. And as you've seen with the other milestones, if there is a US first commercial milestone, you can assume that then there's also European-related milestones, as there was indeed earlier this year, when the monotherapy was approved in Europe. So hopefully when we give you our guidance for 2017, we'll also be able to give you an idea of the range of milestones that could come in for 2017.

I think the other thing for 2017 -- one would hope that, obviously, with approval in the new combinations with Revlimid and Velcade, that we'll see a continual increase in the US in the sales and the royalty income. And that also has benefit in 2017 from a full-year launch in Europe, but also launching into a wider range of countries as we go throughout the year.

So I think you've seen it with our results already is that we are beginning to see a larger portion of our total revenue coming from the more important royalty income milestones, as we continue the lumpy period to period; revenue moving in the right direction and getting a better quality of revenue.

Can I just had one follow-on on NHL? Jan, I understand the comments that you've got a [retro on news flow] and you're wanting to stagger news flow for the public markets, but just to clarify, will you have -- or will Janssen has data internally by the end of the year to inform on a potential progression to next stage of development? And is that what we should be tracking now? Thanks.

So Sachin, what I can say is that at the capital markets day next week, on Thursday, we will give you further clarity on expansion beyond multiple myeloma. And part of that expansion will be in other hematological cancers. From that you can read that we are pretty enthusiastic, I think, about the potential of daratumumab. So super excited. And I think that we should leave it at this moment. Another week to wait.

Thank you.

Michael Novod, Nordea.

It's Michael from Nordea. Just a few model questions. Just for modeling purposes, inform us on what the exact amount of deferred payments that are left, just to model it, and how many years? And then also on the exact number this year -- just for housekeeping.

And then also, regarding uptake in Europe, I know you don't have much clarity, but can you comment a bit on -- we've seen the prices discussed since the last call being somewhere between 30% and 40% above US pricing. Is that the general pricing you're getting? I know it's launched in 10 countries now. So maybe a bit more clarity on that?

And then the last question on the sub cut. So the data you're going to show at ASH is going to be four-way, a 30-minute infusion or injection. And I think it's 90 milliliters. But the final formulation this going to be 15. How should we think about, say, [figures-wise] that this can actually be done? Maybe you can just give a bit more clarity on the development there?

All right. Thanks, Michael, for the questions. I will let David think a little bit more about questions one through three and take the last one myself right now on the subcu data at ASH.

You will indeed see data from the first study, the powerful study, Michael, where we will show detailed data from a number of cohorts. And that is indeed what we call mix and deliver, where we actually mix the daratumumab in different doses, because we wanted to test the different dose levels with the Halozyme hyaluronidase enzyme.

And that is then infused in 20 to 30 minutes, actually, into the patients. And we see that there's a working study just to estimate the optimal dose. We now know the dose, I can tell you. And the final formulation will be a co-formulation of the enzyme with the optimal dose for subcu daratumumab. And that will then be able to be infused in a much shorter time, probably closer to 5 minutes than to 10 minutes.

And we will intend to do the next studies, which will be a number of studies, very likely, with the final formulation dose. And you will further clarity of that in the new year. That's probably all I can say at this time. Probably you will learn a little bit more from the abstract tomorrow.

Maybe, David, for questions one through three -- the modeling and the number for this year remaining? And then the very challenging, of course, European question -- clarity on pricing, et cetera.

Yes, absolutely, Jan. First off, on the deferred revenue, deferred revenue for the full year is going to be about DKK87 million. In the interim report you can see the remaining deferred revenue is also mentioned on page 19 in the report.

As of September 30, there was DKK252 million of deferred revenue in the balance sheet. Also you can look back at note 2.1 in the 2015 annual report, and that will give you details of the deferred revenue and also give you the breakdown of deferred revenue expected to come out in the future years.

Of course, as we sign new deals -- like we signed the Gilead deal -- then you'll maybe have more deferred revenue items coming in. But since we've actually ceased the GSK ofatumumab, that was a big chunk of deferred revenue, and that's going down.

A lot of the remaining balances is based on Janssen daratumumab and then our DuoBody deals that have been done. So I think a combination, looking at annual report plus our new interim report, you'll be able to get a good guide of where the deferred revenue will go in future periods.

In terms of the European uptake, I think you can sort of do some backtracking on Janssen's Q3 report. You can take a look. At this point, daratumumab is included in the other oncology section of their sales details. But to give you an idea, with the Q3 overall they had $282 million of other oncology versus $109 million in the previous year.

Of course, you do know one fact -- that there was none in Q3 of 2015. So you can see growth there of about $173 million in their other oncology. And that compares to our total DARZALEX sales that we've reported today of $163 million. So you can see the lion's share of the growth appears to be coming, obviously, from DARZALEX. Of course, there could be many other products that I'm not familiar with; there could be ups and downs and that number.

But also, if you look at their growth, at $141 million coming from US; $32 million coming from international making up that $173 million. And then we have another guidance number to look at, which was IMS data for Q3 at $131 million. So you can make some educated guesses and some reverse engineering to probably get some estimate of the European number.

I would expect that that will get easier in future periods, because I would think that Janssen will break out DARZALEX into its own product category. If not in their Q4, I would expect them to do it from Q1 2017. And then those numbers will be out quarterly basis for everybody to see the detail.

We do know that -- and as we've said before -- that most of the European sales are coming from Germany. We know with Germany, with about 80 million people compared to about 320 million in the US -- so you can expect, just all other things being equal, about 25% of the US market. So I think the majority of sales are still coming from Germany at this particular point, but other markets will come on board.

German price, as you correctly mentioned, is higher than the US price. But do remember in Germany, the way the process goes through, that you to launch at a price; 12 months later you go through a negotiation process. And that's something that Janssen will have to go through.

So I can't give you guidance just sort of long-term European pricing, of course. It will vary market to market.

Okay, thank you.

Yan Li, Citi.

Thank you. It's Yan from Citi. I've got three questions, please.

First, could you provide an update on the CD3xCD20 by specific -- it looked like the trial is still on clinical hold? Could you elaborate patients already received the drug -- if they are able to continue on therapy?

And second question, may I just push on the timing of the Phase 3 DARZALEX subcutaneous formulation study? Will it be initiated at the beginning of 2017, or maybe later? And is J&J confident that the Phase 3 will allow a 2019 launch, which is at the earliest when Sanofi can launch the anti-CD38?

And lastly, just on Seattle Genetics: recently they reported promising data at ESMO for their ADC enfortumab vedotin in urothelial cancer, which they partnered with Astellas. And it looks like they will push the program forward. But does this have any impact on the potential opt-in for the tisotumab vedotin? So I was wondering if this has come up in any of the recent discussions with Seattle Genetics?

Thanks, Yan, for the questions. I think I can take them all.

The first question, on the biospecific from Janssen, the CD3/CD123 at AML -- we have no further updates. So there you need to ask Janssen for that. I really don't know that. The trial is, I think, still on clinical hold, and let's hope it will soon be active. Ian said there was one severe adverse event in one patient, which was the reason for the hold, Yan. And I have no further information there. So you need to contact the people at Janssen probably for that to get an update on that.

Then the second question, on the subcu formulation -- that will likely start not at the beginning of 2017, because the formulation is now being made, now we know what the concentration is which we want to use. There is intense debate with the regulators -- between Janssen and the European and the US regulators. So I would say probably closer to the middle of 2017 that it will start.

And then the question associated with that, Jan, is yes, we think we have the data in 2019. That is still on schedule. And the launch we have not given feedback on, but the data will come in 2019. That's all I can say at this time, before the trials have been started.

And then the final question on Seattle Genetics: they had good data at ESMO. And I already said in my introduction script, next week you will see the first preliminary data on tisotumab vedotin. And we hope to surprise you with that data in the coming week.

And we have not had any discussions with Seattle Genetics, as I'm aware of, based on their progress with their ME ADC and data released at ASMO -- that that would have any way, shape, or formed an impact on the opt-in process for tisotumab vedotin. You need a full data set from the Phase I/II study, and we are not there. It is just very early preliminary data, and probably a more full data set next year. So I think that's a little bit preliminary to speak about discussions with Seattle on that impact of another program, Yan.

So I cannot -- unfortunately, I cannot answer two of your three questions. But hopefully for one, I could give you some further reassurance and clarity. And looking forward to cover more discussion next week.

No worries. Thank you very much, Jan.

Sarah Thomas, Deutsche Bank.

It's Sarah from Deutsche. I just have three questions, please. Firstly, on your milestones, your wording says that your sales have -- the milestones because of sales have exceeded $500 million in the calendar year. This sort of implies that it's going to be a recurring milestone when you exceed $500 million in a calendar year. Is that the right way to think about it, or is it just because you expect to hit the $500 million mark?

Then the second question: could you provide any kind of color on the speed of enrollment on -- I can't pronounce it -- also in the first-line interim study? Is there any guesstimate yet of when a potential interim analysis might fall in 2017?

And then final question just on smoldering. I see from the release, you have said you've completed enrollment in this study. So could you please just remind us when we may get first data here? Thank you.

Let me take the second and third question. Johnson is doing an analysis on HALCYON, the VMP plus or minus dara front-line study, which is incredibly important. This has finished recruitment in July.

And the most precise estimates I have heard is around the summer to at the beginning of autumn. So at the end of the summer time frame for an interim, as they project it right now. But that may actually change, Sarah, with more precise modeling. But that's the last thing I've heard from Janssen. No further information there. But that's hopefully sufficient for your modeling of potential data to come in 2017.

And with smoldering, the trial is complete. And a next study will likely be initiated next year with the subcu formulation of daratumumab, probably closer towards the middle of the year than the beginning; and data, potentially, at a medical conference.

I haven't heard, Sarah which medical conference. It's either going to be in the summer time frame with ASCO or EHA, or at ASH. But that has not been decided yet. As I already said to -- in a response to Sachin's question, there's so much data now coming out on that that Janssen is orchestrating the news in a very precise way, to focus the attention of the doctors and of the analysts and other stakeholders very precisely on different data, the data sets.

I haven't heard yet when the smoldering data is going to be presented in full. But I can tell you that we are pretty excited about that data, and we will plan next studies with the subcu formulation also in smoldering.

David, for question one on the milestone -- the $500 million mark?

Yes, I can't give you the exact detail of future milestones, Sarah. But what we have said before is there's just over $1 billion of milestones totally in the Janssen deal. And what we've said before is that slightly more than half of that $1 billion was based on development and regulatory milestones.

Now, to be clear, when we say regulatory milestones, that includes the ones where we are effective, and we get approval, and then we get first commercial sales. So that one we are referring to still as a regulatory milestone.

Then we have the sales milestones, which I refer to perhaps calling them sales hurdle milestones, of which we are now announcing the first one, which is the $25 million when the sales exceed $500 million in a calendar year. So those are hurdles and sort of one-times when you get over that hurdle.

Now, the way that many of the licensing deals work between biotech and big pharma is that you can structure it with the number of sales hurdles. So you're not going to have a repeat when you get $500 million again in a calendar year. You'll get rising ones.

So you might have a company that might set it up as a milestone at $250 million; there's milestone at $2 billion; there's a milestone at $5 billion, or whatever. So you trigger those -- each time you get over that sales hurdle in a calendar year, then you would trigger that milestone.

And that's the way our deal is also constructed, in that fashion. But I'm afraid I can't -- because of restrictions from Janssen, I cannot tell you at this time when the next sales hurdle will come through. But it's great to achieve the first one.

That's great. Thank you.

James Quigley, JPMorgan.

Thank you for taking my questions. On DARZALEX in the US, have you -- or anecdotally, or from speaking to Janssen, seen any increase in prescribing or off-label prescribing for the combinations after the ASCO and ESMO data presentations for POLLUX and CASTOR?

Secondly, on the R&D expenses, this quarter they seemed a little bit lower than certainly I was expecting, which -- or general expenses. What do you suppose it looks like in the next quarter? Is it going to be around about DKK280 million in R&D or just general expenses? Is this now -- the DKK850 million, is that a bit conservative on the expenses?

And finally, on cash flow and cash generation: with the milestone payments and the additional royalties, cash is beginning to pile up. Are you looking at any external opportunities for growth, be it epitopes or other antibodies to in-license to fill that gap in the second -- in the Phase 2 pipeline? Thanks.

Thanks, James. Let me take the first and the third question, and then David on the expenses question -- the Q3 versus Q4 and full-year expenses.

So for the first question, unfortunately, we cannot comment. And we actually have no insight to potential use of DARZALEX in the US outside of the approved broad-line label.

But what we understand from Janssen is that there is a robust sales, not only in the US, but also in Europe for DARZALEX. And it seems to get higher and higher, as our Q3 numbers show, James.

That's what we hear from doctors in speaking from doctors is that they have been excited about the data in POLLUX and CASTOR -- this unprecedented data. Hopefully that excitement level will go up further at ASH, when there is a number of presentations on the further analysis of the POLLUX and CASTOR data, James.

And we have already heard of doctors that they are already using DARZALEX in combination with other agents. But I have no information whatsoever on how that is conflated into sales. You'll have to, I think, watch that over the coming time.

Your third question on the cash pile, yes, we are very well capitalized now. And that cash pile gets bigger. And yes, we will -- we are looking at the landscape of products and also potential technologies, as I said before.

And next week, James, at the capital markets day, we'll give you further feeling of how we think we want to spend our cash. I mean, the short of it is we have a fantastic pipeline. We have an unparalleled strong, world-class pipeline of next-generation therapeutic products. And the strategy of the Company is to identify the next winner or the next one or two candidates for -- to come clear with us in the next three years or so; and then maximize the expansion and the development of those molecules.

And then I can assure you, James, you very quickly begin to use a lot of cash then. You want to hold onto the product ownership rights. And our goal is to hold onto 50% or more of the ownership rights.

And then that means that you can easily spend $200 million, $300 million on a program, on a single program. And that moves through Phase II and then later clinical studies. But then you already are pretty confident that you have a winner on your hands. So we will explain that in more detail next week.

So also for you, one week more, I think, waiting for the capital market day event. And then I will hand over the second question to David to give a little bit more color on the quarterly R&D expense number.

Yes, it would be quite right. We got the total expenses for the year in the guidance range of DKK800 million to DKK850 million. And you are quite right with your calculation.

Take the midpoint there -- DKK825 million. DKK544 million spent at the nine months would mean that there would be DKK281 million to come in the fourth quarter. Now, that gives a comparison to DKK178 million expenses in Q3. And actually, Q2 was higher than that at DKK212 million. So there does need to be in uplift in Q4.

Every quarter we go through internal guidance with all of our finance folks and our project managers and others, and go through and look at what the expenses are to come. We do have quite a number of batches of CMC, the material that we use both for our products in clinical trials and also now spending quite an amount on CMC for our next candidates, HexaBody-DR5/ DR5 and DuoBody-CD3xCD20. So at this point we do have it down as identified items to spend in Q4. And we do expect Q4 to be the biggest quarter for the full-year expenditure, as indeed it was in 2015, with Q4 being the largest expense period.

Is it possible we come towards the lower end of the range, rather, of DKK850 million rather in the top end of the range, at DKK850 million -- DKK800 million versus DKK850 million, then that's possible that we would come in over the DKK800 million, still, though.

In terms of the cash flow, as well, I think Jan is absolutely right in terms of looking at where we are investing the cash flow. We put a lot of extra money into 2016 to develop our pipeline. And we'll be able to share more with you at the capital markets day of where we expect some of that increased investment to go in the future years.

And, of course, remember last year there were some fairly small acquisitions of assets coming into the Company. But we did invest some of our cash last year, be it on things like the DR5 asset, CD19 asset, and also on the biotech relationship. So making good use of our cash to really grow our pipeline.

Thank you.

Jean-Paul Mannie, Kempen.

Thank you very much for taking my question. I have only two left. Jan, maybe -- can you remind us -- on the ofatumumab study in MS, you mentioned the first patient has been dosed. Would that trigger a milestone? I don't really recall.

And second question, maybe also on ASH, you didn't mention the EQ-less study. Should we also expect something there tomorrow in the abstracts? Thanks.

For the first question, the dosing of patients in the MS study, that -- there's no milestones associated with that. Remember that I gave out the milestones for the autoimmune development of ofatumumab with the subcu formulation in the summer of 2010, immediately when I stepped up to the CEO position.

And I've given up the milestones [also] to cap the double-digit royalty. So no milestones to Genmab from the autoimmune studies.

Then the second question from the EQ-less study. There's no data at ASH this year, and likely next data from that study will be at ASCO. That has to do with the same effect as I already discussed to Sachin Jain from Bank of America Merrill Lynch is that we have so many studies now ongoing that Janssen is very carefully spreading the news to different medical meetings. And likely more data on that study next year.

But we -- of course, we did actually already say that we included the data on 100 patients, that pomalidomide plus daratumumab, in that study in second-line or third or MM patients. As you have seen, in October, Jean-Paul, we already got a standard review on that data. That was -- an initial data set from that data on 71 patients presented at ASH last year.

We have now more robust data from that pomalidomide plus dara study in multiple myeloma included in the filing of both Europe and the United States. And we are very pleased with the standard review giving us a PDUFA date of June 17 next year. And from that you can already indirectly conclude that we are pretty excited about the data.

It's just the luxury of having so much data, Jean-Paul, that we cannot present each of these data sets at every conference. We already got 20 abstracts approved. We've never had so many for a single product. And to have 6 orals and 11 poster presentations, I think, actually will be pretty much DARZALEX this year, I assume.

Thanks a lot.

Thank you. There are no further questions in the queue at this time. I will turn the call back to your host for any additional or closing remarks.

So thank you for calling in today to discuss Genmab's financial results for the first nine months of 2016, and we look forward to speaking with you again soon. And that will likely be next week at our capital markets day meeting in New York. And we are very, very excited to have you all on the phone or, even better, live in person in New York. And looking forward to update you on the technologies and on the preclinical programs and the future of Genmab. Thank you very much.