Genmab A/S (GMAB) 2017 Q3 法說會逐字稿

Good day, and welcome to the quarter 3 report 2017 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 not to confirm such statements in relation 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 quarter ended September 30, 2017. 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 make progress on our pipeline and financial goals during the third quarter of 2017. The highlights for DARZALEX this quarter included an approval in Japan for relapsed or refractory multiple myeloma and positive topline results from the Phase III ALCYONE study and front line multiple myeloma. The Japan approval was based on data from the Phase III CASTOR & POLLUX studies, reported in 2016. This combined DARZALEX with other multiple myeloma treatments.

Upon the first commercial sale of the DARZALEX in Japan, Genmab will earn milestones of $25 million from Janssen. We were very pleased with the topline results from the ALCYONE study of daratumumab in combination with rituximab, melphalan and Prednisone of VMP. Those CMP alone as front line treatments of patients with multiple myeloma who were not considered candidates for stem cell transplantation.

The study met the primary endpoint of improving progression free survival at a prescheduled interim analysis with an impressive hazard ratio of 0.50. Meaning that treatments of daratumumab in combination with VMP reduce the risk of disease progression or death by 50%, as compared to treatment with VMP alone. The median PFS for patients in the daratumumab treatment arm was not reached while the estimated median progression free survival was 18.1 months for patients who did not receive daratumumab.

Overall, the safety profile of daratumumab plus VMP and the study was consistent with the known safety profiles of VMP and daratumumab. We are continuing to analyze the results of the study and Janssen plans to submit regulatory applications before the end of this year for this key indication.

In addition, new clinical studies for daratumumab continue to be added to the development program, now well over 60 announced or ongoing clinical studies, including several Phase III studies using the subcutaneous formulation. Excitingly, Janssen recently submitted an IND for daratumumab for treatment of rheumatoid arthritis, another new potential therapeutic area. DARZALEX has been launched in the U.S. and 25 European countries and sales and marketed multiple myeloma indications continue be very strong.

With net sales reaching $871 million in the first 9 months of this year, resulting in DKK 707 million in royalties to Genmab. Another key highlights during this third quarter was that Seattle Genetics exercised the option to co-develop this tisotumab vedotin.

Going forward, Genmab and Seattle Genetics will share costs and profits worldwide for the program on a 50/50 basis. We are already working very closely with Seattle Genetics on the tisotumab vedotin program and look forward to a fruitful and energizing collaboration.

Finally, our financials remain well on track. And we improved our revenues by DKK 459 million or 52% in the first 9 months of 2017, compared to the same period in 2016. I will now hand over the call to David to describe our financial results for the first 9 months of 2017.

Thank you very much, Jan. Let's start by looking at Slide 4. Over the next few slides, I'd like to discuss the results for the first 9 months of 2017, and our financial guidance for the year. Revenue came in to the period at DKK 1,348 million. That's an increase of DKK 459 million or 52% compared to the first 9 months of 2016. The increase was primarily driven by higher royalty revenue and milestones related to our DARZALEX collaboration with Janssen. Total royalty is more than doubled year-on-year.

And this year's total royalty income of DKK 743 million exceeded the total expense base of DKK 707 million. Net expense base of DKK 707 million in the first 9 months of 2017 increased by DKK 163 million or 30%.

And this was primarily related to additional investment in our product pipeline and the hiring of new employees. Moving to the operating result, we had an operating income of DKK 641 million for 2017 compared to DKK 345 million in 2016. The increase of DKK 296 million was driven by higher revenue, which was partially offset by increased operating expenses in 2017.

The net financial items were a loss of DKK 237 million in 2017 compared to just a DKK 1 million gain in 2016. As we discussed in Q2, the net loss for the first 9 months for 2017 was driven by foreign exchange movements, which negatively impacted our U.S. dollar-denominated portfolio and our U.S. dollar cash holdings. The exchange rate at the end of December 2016 was pretty much a high for the year at 7.05. At the end of September, the dollar to krone exchange rate had fallen to 6.30. Good news is, as of today, it's back over 6.40. And to give you an idea, for every $0.10 of movement in the exchange rate, it will impact us by about DKK 35 million.

Corporation tax for the first 9 months of 2017 was an expense of DKK 86 million with an effective tax rate of 21%, and that was based on our estimate of the average effective corporate tax rate for the full year. There was minimal corporation tax expense in the first 9 months of 2016 as our loss at that time was projected for the full year.

Finally on this page, our cash position, which increased by nearly DKK 1.3 billion during the first 9 months of 2017. This is mainly due to positive working capital adjustments of DKK 575 million, as in 2017, we received some large milestones that were actually achieved in the fourth quarter of 2016. Of course, in 2017, we also have a DKK 641 million operating income as well as proceeds from warrant exercises of DKK 208 million. And this means, we had a cash position at the end of September of around DKK 5.2 billion. Moving to Slide 5, on the revenue. Our revenue breakdown by category is shown on the left-hand side of this slide. In the first 9 months of 2017, royalty income was the largest portion of the revenue at DKK 743 million compared to DKK 346 million in 2016.

The increase of DKK 397 million was driven by the higher DARZALEX royalties, which were partly offset by lower Arzerra royalties. Milestone income was the next largest portion at DKK 502 million in the first 9 months of '17 compared to DKK 462 million in the first 9 months in 2016. Again, this was driven by DARZALEX. And then deferred income -- deferred revenue from our collaboration agreements was the same in both years at DKK 69 million.

The graph on the right produce a revenue between the 2 periods. And here you can see the DARZALEX royalties grew from DKK 298 million in 2016 to DKK 707 million or an increase of DKK 409 million. The royalties were of course, based on Janssen's DARZALEX sales. As Jan mentioned earlier, $871 million in the first 9 months of 2017 compared to $372 million for the same period in 2016. The increased sales of $499 million was driven by the strong uptake following the additional regulatory approvals in both the U.S. and the EU.

The increased DARZALEX milestones were mainly related to the first commercial sales of DARZALEX in both the second and third indications under the expanded label in the EU.

Offsetting some of those growth items were small reductions due to timing on DuoBody milestones as well as a small reduction in this area of royalties. Next, moving to Slide 6. And the operating expenses and operating income.

The graph on the left compares the change in expenses between the first 9 months of 2016 and 2017. As you can see there was an increase in the operating expenses of DKK 163 million, which was driven by our decision to accelerate our product pipeline. Just under half of the expense increase was due to the additional investment in our product pipeline, including the advancement of tisotumab vedotin, HexaBody-DR5/DR5 and DuoBody-CD3xCD20, as well as advancing the other products in our pipeline.

FTE costs have also increased year-over-year and was -- were undergoing control growth in that hired key personnel to support our product pipeline growth. And to also build out our commercial competencies and strengthen the management team.

Looking at the chart on the right, you can see an increase in the operating income from the DKK 345 million to DKK 641 million. And as previously discussed, the increase of DKK 296 million was mainly due to the higher revenue and partially offset by the increased expenses.

Now let's take a look at the guidance for 2017 on Slide 7. Again, we're maintaining our guidance for 2017, which was originally released in February and was last confirmed on September, the 27. We expect -- continue to expect our revenue to be in the range of DKK 1,950 million to DKK 2,150 million and our projected revenue consist of the DARZALEX royalties of around DKK 1 billion, and that's based on Genmab's estimate of DARZALEX net sales of $1.1 billion to $1.3 billion. And with year-to-date sales of $871 million, we remain well on track to beat our original guidance. We also projects DARZALEX milestones of DKK 800 million in 2017. The remainder of the revenue, mainly consists of Arzerra royalties, DuoBody milestones and deferred revenue.

The overall quality of revenue continues to improve year-on-year, with DARZALEX royalty income stream doubling year-over-year, and the expectation that it will pretty much cover our total expense base in 2017. And this gets us to our aim of being a sustainably profitable company, where royalty from products covers all of our expense base.

We anticipate the operating expenses will still be in the range of DKK 1 billion to DKK 1.1 billion. And again, that's driven by the advancement and continued investment in our pipeline of products. In 2017, we'll spend about DKK 440 million on our 8 key projects, and that's about 42% of our total expense base.

And therefore, we expect the operating income for 2017 to be around the DKK 1 billion. And we also project the cash position to be greater than DKK 4.5 billion at the end of 2017.

Of course, note, as usual, the 2017 guidance does not include any new potential deals or potential future proceeds from warrant exercises. In addition, you were seeing in one of our previous press releases, that the first commercial sales of DARZALEX in Japan drives a milestone of $25 million or approximately a DKK 160 million.

And because we're not certain on the exact timing of that milestone, we have not included that milestone in our guidance at this stage. In summary, increased royalties from DARZALEX in 2017 are enabling Genmab to increase the investment until we selectively advance our pipeline, and it gives us the opportunity to create even more value.

Now back to Jan to discuss our goals for 2017. Jan?

Thanks, David. Let's now move to Slide 8. I'm really pleased with the progress we have made so far towards achieving our goals for this year. We have seen multiple new approvals for DARZALEX in the EU, in the U.S. and most recently, in Japan.

We reported positive topline data from the key Phase III ALCYONE study and multiple new daratumumab trials in a variety of new blood cancer and solid tumor indications, as well as trials with the subcutaneous formulation have been announced this year and started recruiting patients.

Other Phase III studies of daratumumab also continue to make progress with patients recruitment completed in the Phase III CASSIOPEIA study. This study is investigating daratumumab in combination with VTD, it stands for Velcade, thalidomide and dexamethasone in over 1,000 front line multiple myeloma patients. We could potentially see interim data readouts for this and the Phase III Maia study of daratumumab to supplement and dexamethasone next year. We also look forward to many daratumumab presentations at The American Society of Hematology conference due to be held in early December, including data from studies and indications other than multiple myeloma.

6 oral presentations and at least 18 poster presentations regarding daratumumab will be presented at the conference.

This includes presentations from an investigate responsive studies. Some of the key data that will be presented, includes updated data from the CASTOR & POLLUX studies, smoldering multiple myeloma data, long-term efficacy of daratumumab monotherapy, and the Phase III multiple myeloma. The first data on the combination of daratumumab and RVD, which stands for REVLIMID, Velcade and dexamethasone, updated data on the daratumumab subcutaneous formulation, ends the effect of daratumumab and light-chain amyloidosis. A disease for which daratumumab has received often Therapy Designation in September this year. We are looking forward to these exciting presentations, and we very much hope to present data from the important ALCYONE study as well.

Looking at the rest of our pipeline, we are now anticipating that the Phase III results for ofatumumab and follicular lymphoma will be reported in 2018. The data readout for this study is event-driven, and the delay is a result of the events occurring at a slower pace than anticipated. For tisotumab vedotin, we reported excited -- exciting preclinical data from the cervical cancer arm of the Phase I/II trial in solid tumors. This was discussed at U.S. FDA. This led us to announcing an important Phase II study within cervical cancer that provides a potential registrational pathway for this product.

We are furthermore rapidly progressing the HuMax-AXL-ADC Phase I/II trial and are well on track to submit new INDs for proprietary HexaBody and DuoBody projects in this year. We plan to continue to further build an innovative product portfolio by entering new DuoBody and HexaBody collaborations and progressing our partnered programs.

Finally, we will continue to focus on disciplined financial managements with controlled company growth and smart selective investments in the most promising and highest potential programs. Let's move to Slide 9.

That ends our presentation of Genmab's Q3 2017 financial results. Operator, please open the call for questions. Operator?

We will now take our first question from Sachin Jain from Bank of America.

Sachin Jain from Bank of America. A couple of questions for David and then couple for Jan. Firstly on DARZALEX, you shared some statistics on where it's being used on the second quarter call, shared some various lines of therapy, wondering if you could update us on that with latest data? And secondly, on DARZALEX guidance and sort of thinking that into next year, consensus has been above the '17 guidance for most of the year, and you're looking closer to being right. Consensus currently models royalties probably doubling into next year. I was wondering if you could provide any early perspective on that? And that's for sure, guidance will follow later, but any early comments? And then 2 for Jan, any perspective on the BCMA data and ASH abstracts particularly for the ADC. And as we're thinking to '18, thanks for flagging the key DARZALEX data to year-end, but what known DARZALEX pipeline data would you flag as we think over the next 6 to 12 months?

Thanks Sachin. I propose David to start with first 2 questions, and then I will follow up with the other 2 Sachin. David?

Yes, sounds good. Yes, I think last quarter, we talked about the U.S. market data and information that we actually get from brand impact, when we have got updated data as of September. You remembering, there are limited surveys on a number of doctors. So you can get little movements of the data, month-to-month. But it actually gives us a good idea of where DARZALEX is being used. In the second-line DARAZALEX is right in second place,

of course, behind REVLIMID, which is still the leader in the second-line treatment. But we're now above the 20% in the latest month's data with the quarter averaging around the 20% market share overall. The said REVLIMID still the leader there with about 50% of the market share. We are seeing in that, that the combination as you would probably expect that dara, REVLIMID, dex is the most popular population out of our approvals in the second-line, being used more than DVd. But we are seeing now that the dara, Pomalyst, dex is gaining. And actually now, that is used in second place. So in the second-line setting, we're seeing the most of the usage with DRd then DPd and then DVd. But it's mostly picking up in the second-line setting. In the third-line setting, we got over 1/3 of the market share that's sort of similar to REVLIMID's month-for-month, sort of, bounces around a little bit. Again, the dara, REVLIMID, dex is the most popular combination there. But we're seeing that the use of dara, Pomalyst, dex is coming up to a close second behind REVLIMID at this stage with the dara, REVLIMID combination. Fourth-line, of course, we continue to be #1. We are seeing that this, sort of, it continues to be slightly lower usage of the mono and that's switching now into more of the combinations. And again, as you would expect, in that setting that the daratumumab, Pomalyst, dex is picking up share. And so things are moving in the right direction. I think Janssen on their Q3 call have confirmed the same numbers, over 20% in second-line. And I think they actually indicated about 40% in the third-line.

On the DARZALEX guidance for 2018, a little too much to get into detail. At that stage, we want to see more data coming through before we start to make predictions about 2018. Of course, we'll make the prediction that it will rise in 2018.

Of course, on the U.S. market, you've got the continued penetration in 2018. We'll have the benefit of full year impact because you remember that daratumumab, Pomalyst combination was approved roughly midyear of 2017. As far as the European and rest of world area goes, in Europe, you still haven't got all countries that are using the original monotherapy at this stage. Because in some countries, the actual -- getting the actual market approval and pricing approval, it actually takes longer. And then of course, we haven't got many countries at this stage that would be approved in the second-line. So you'll have usage at the early stage in countries like Germany for the DRd combination and DVd combination. But it's going to take some while before you get around the whole of the EU5 and penetration to the other countries. So again, those are, sort of, all positive items that means that we can expect growth in 2018.

Thanks, David. I think, Sachin, I can now follow with the 2 questions you had for me. One is the ASH abstracts, we were indeed quite impressed by the BCMA ADC data from GSK. We don't see that there is a real threat for daratumumab because these were basically paired for line patients, even including patients. This had to actually relapse from daratumumab treatments. And we think that tox profile of that antibody drug conjugated eye, significant eye toxicity is probably not going to be that helpful for positioning that drug in the multiple myeloma population. So we don't think it's a threat to daratumumab. It's probably going to be one line after. The most use of dara is to take place in the second-line -- third-line setting in the future. So -- but we eagerly look forward to the full presentation of that data.

And we think that actually that ADC

is having more potential in some of Car T approach,

it's targeting BCMA because of the quite complex procedure, which is needed to implement that type of therapy. But we, certainly, are going to follow that with interest. And then with respect to the potential data in next year, we are super excited about a 2017 R&D update session, which we will hold on Monday of during the ASH meeting in December. And there, we will flag up, what you can expect in data. But what I can tell you already right now is that it's likely going to be data on tisotumab vedotin and some other cancers. And hopefully, we will flag up in 2018, and start some -- start of new clinical trials in all of tumors with tisotumab vedotin. We're super excited about what we've seen there in cervical cancer. Probably the first data on AXL-ADC, we are very rapidly progressing with the dose escalation. And we have the strongest preclinical data one can wish for AXL-ADC, so probably early clinical data. We'll show some safety data next year, likely in the second half of next year session for AXL-ADC. And then, we are going to the first patients, with 2 novel agents. One is HexaBody-DR5/DR5, this is a proprietary program and DuoBody-CD3xCD20, the both program set very strong preclinical data sets. We will sort of flag up some of the preclinical data as of 2017 R&D update in December. But hopefully show some initial data in the second half of the year on those programs, and that will likely enforce some safety data, which is not, I think, unimportant. Because we're sure for the bispecific, it's activating T cells to kill CD20 positive target session. The problem with some of the CD3 bispecifics is actually neurotoxicity that happens in some of these molecules.

And that is related to the constant arm of the antibody. We have actually silenced that arm in a very, very new way. And we would love to see early clinical data from that -- with that agent, which in monkey experiments to most important CD20 targeted molecule we've ever seen. So we are very excited about it. So life is not going to be boring outside of DARZALEX session, I think in 2018. So get get foot there.

Our next question comes from Michael Novak (sic) [Michael Novod] from Nordea.

It's Michael from Nordea. Just a few follow-up questions, also to DARZALEX. Because you're maintaining $1.1 billion to $1.3 billion as your best estimate for 2017. In the low end, that implies $230 million compared to $317 million in Q3. Does this signal that you are, say, cautious around the quarter 4 number? Or how should we interpret that you don't narrow in the DARZALEX guidance for 2017? The same goes for the cash position. You're maintaining about DKK 4.5 billion, you're rolling it round to DKK 5.2 billion now, should still see some improvement in quarter 4. So is there anything that we're missing or are you just cautious on the tax position as well? And then last -- on the cash position-- and then lastly, on the ALCYONE data, you are mentioning that you are still hoping to be presented at ASH. So should we still expect that the late break is -- will include ALCYONE in that release?

Thanks Michael for the questions. I think I'll give the 2 top questions to David after answering the third question. ALCYONE, we are super excited about the data. We've already said that probably before. I think it's very strong data, and we have a very good feeling about the potential to present that as a late breaker. That will only become known I think in 2 weeks or so from now, but the data is very strong, Michael, and let's hope that it can be scheduled for presentation. Like I said in my introductory remarks, so yes, we are very hopeful. But we get the green light from the American Association of Hematologist. And then I'll leave the 2 first questions to David.

Very good. Thank you, Jan. Yes, you're absolutely right. Our guidance $1.1 billion to $1.3 billion, we're being consistent with that all year. As I said, $871 million for the 9 months, you would have seen the extra press release, we put out after some further clarification from Janssen that the Q3 number did include a retrospective $20 million adjustment, which is why when you looked at the rest of world sales, they were $87 million flat from Q2 to Q3. But despite that, we still have $317 million, of reported sales from Janssen in Q3. So if you look at that and just add that to the $871 million, that was the number I referred to earlier of $1,188,000,000. Now if that $20 million is a one-off then of course, that takes you right up to the midpoint of the guidance of $1.2 billion. So nothing to read into it to sort of to say, look the lower end of the guidance is $1.1 billion. Is there any, sort of, lack of confidence that we're going to have a lower number in Q4, then the answer is no. With the guidance, what we've got is a range. What we do is, we look at the guidance, look at our forecast and say, are we still within range? So at this point, I'm expecting still be -- to be in the range of $1.1 billion to $1.3 billion, but that doesn't say that I expect that there's any risk that we'd be at $1.1 billion. So we look it at today with sort of 0 growth in the rest of world, 0 growth in the U.S. But we will be banging it because the guidance is about $1.2 billion. I don't see any reason to anticipate why there wouldn't be growth in the U.S. in Q3. I've got less visibility on the rest of world sales because we can't get the equivalent of the IMS or the symphony data. But as far as the U.S., looking at weekly IMS sales, we're off to good start. And so I think, we'll be fine, around that $1.2 billion -- somewhere in that $1.2 billion to $1.3 billion range. As far as the cash position, we've got greater than. I know, I haven't defined it how much greater than it could be. One thing to consider, we still won a number of milestones. As I said earlier that we've -- we've got milestones coming so far, the 9-month -- DKK 490 million. We've confirmed in our guidance that we've got approximately DKK 800 million for the year, that means that there's still DKK 300 million to come through. But we're now getting to the point of the year that any milestones achieved from Janssen at this point onwards, are now with the time they've got to pay, it would be similar to last year, that those Q4 milestones wouldn't give us the cash in 2017. But that cash should actually be received in the first quarter of 2018. So nothing unexpected for the fourth quarter. You will, however, see that our operating expenses will be the highest quarter of the year. But that has been the pattern both for 2016 and for 2015.

(Operator Instructions) And our next question today comes from James Quigley from JPMorgan.

On Japan, if -- which we saw DARZALEX be approved in September, so why would it take greater than 3 months to launch to the milestone? And what are the (inaudible) dynamics like in Japan? Is there a preference for Velcade over REVLIMID or the other way around? And how should we think about that? On the milestones -- on the milestone income, you mentioned DKK 300-or-so million left. Is that purely related to sales (inaudible) I assume, breaching $1 billion in the calendar year? Is this correct around -- so probably around about $50 million? Or is -- are there other (inaudible) I could be missing?

Okay. I think -- James, thanks for the questions. So I think I'm going to hand them over both to David. And then let's see what he answers.

Thank you very much. Although the Japan approval is very late in September. So I think it was September 27. So it was right at the very end there. It's probably around 60, 90 days. So it really does mean that it's tipping around the balance of the holiday period when it comes through. That's why when we put the company announcement out, we decided to actually -- unusually for us, actually notify you and tell you what that milestone was just for complete transparency. So we announced that it was a $25 million milestone. In the context of the long term, it really doesn't matter for the company of whether that milestone is achieved in December or whether that milestone is achieved in January. Good news is, I think, to celebrate it's approved in Japan in the 2 indications, DRd and DVd. And as soon as that sales price gets approved in Japan, then we'd hope to start picking up sales. Of course, as far as we're concerned, the earlier, the better both for us and for the benefit of the patients. In terms of the milestones for the remainder of the year, we are confident on DKK 100 million approximately left to come through, which -- you're right, is around $50 million. We have agreed with Janssen that we wouldn't pre-identify it, particular milestones, but we will notify you what the milestone for -- it was for when we actually achieve it. But you're guesses are reasonable.

And maybe to add to that David, the question on Velcade versus REVLIMID, what is most often used in Japan, I don't know that, James. But frankly, in the label, we can -- dara can be combined either with REVLIMID or with Velcade. So we really don't care, actually, which will be the combining drug because dara will always be the backbone there and we've got that label in Japan for patients after one round of prior treatment. So we think that we will do well there. And it's a pretty sizable market, not to be underestimated, Japan.

Our next question today comes from Richard Parkes from Deutsche Bank.

I've just got a few. So I'll fire one. Firstly, I'm just wondering about your plans for marketing of tisotumab in the cervical cancer setting. Obviously, you've started a potentially pivotal Phase II study, so relatively small opportunity in developed markets. But obviously, the drug has got potential in multiple (inaudible). So I'm just wondering what the plan would be in terms of marketing in that -- in the [sure] setting, whether you'd look to do that yourselves with Seattle Genetics or look to partner -- then second question, I just want -- I don't know whether you're able to comment on the ASH abstracts, but I'm just looking for some clarity on DARZALEX in smoldering myeloma. In that abstract, there looks to be very limited, complete responses in that [start] study despite it being the primary end point. So I'm trying to put that data in context with J&J's decision to start a Phase III. And then a final question was just -- and I don't know whether you've published some of this data already. But I'm wondering when we might see data on retreatment with daratumumab. I'm thinking about whether patients might respond if the previously relapsed after a treatment with maybe DARZALEX plus REVLIMID and then re-respond to DARZALEX plus Velcade. I don't know how much of that data is available and when we might see some.

Thanks for the questions. So I think I can probably start with all 3 of them. Let's see whether David wants to add anything. First, with tisotumab vedotin, we are definitely going to do to set ourselves up for marketing of that molecule. We are in a potentially pivotal study starting early next year. And the market is actually quite good outside of the United States. Actually, Japan and also some other territories is a pretty sizable market. And as I already reflected in my answer earlier on to Sachin, is that we are going to see data in other tumors next year that we also anticipate to start studies in other tumors. So the market is potentially much larger than just cervical cancer. We have to wait until next year to actually better -- get a better feeling for that. We are -- at the moment, we are in discussions with Seattle Genetics to see how we should operationalize the commercial activities for tisotumab vedotin and get ready, Richard, but we are actually quite encouraged by what we see also in potential more on the plans during 2018 to work out the further positioning. But we are certainly going to be commercially responsible as is Seattle Genetics. We're going to do it in some territories likely together, and we may split it up in others. So -- but that's too early to say right now. Remember that they've just exercised their option in August and we just started working together, which is going really well, as I said in my introductory [script], but it's still early days. And we are planning new studies, Richard. So more will come in '18 on tisotumab vedotin, but that will definitely get a lot of attention. Then as it relates with the ASH abstract with smoldering data, we think actually the data is actually fairly good because PFS is the most relevant parameter because that will be the primary readout in the Phase III study. We've got an okay from the authorities to move to Phase III. And I think I want to park more comments on that result and to the presentation because it will be pretty obvious when you see the data, the whole data, and the plan for smoldering multiple myeloma there described at ASH. And I don't want to preempt that. But we are encouraged by the -- by discussions with regulators. We've got a green light to move into pivotal on the basis of all the data that we have presented to them. And we are very excited about it, actually. So I want to park that if you permit me to do that. And then the last question, retreatment, there will be a lot of data from the POLLUX and CASTOR studies and then already from the abstracts. From one of the abstracts and the POLLUX studies, you can actually see that patients actually respond better the next -- to the next therapy after they have actually relapsed from daratumumab treatment in the first combination with REVLIMID. This is actually super exciting, and I believe that we are seeing more and more retreatment studies also

(technical difficulty)

and what the lesson is that actually, the patients, many times, respond even better in the second round. So I expect more data on that from the POLLUX study and maybe from some ISS studies also at ASH, so probably a little bit too early, Richard, to say more about that now.

Our next question today comes from Peter Welford from Jefferies.

I think I've just got 3 left, just on the financials, 2. One is on the cash flow statement. The expense on the tangibles was quite a notable increase, I think, in the third quarter. Any insight into that? And should we anticipate some further CapEx projects that are going on there? And then secondly, just coming back to the DARZALEX $20 million adjustment to ex U.S., I wondered if you have any insight into whether or not that $20 million is an adjustment to prior periods and therefore, the $87 million is reflecting the current agreed reimbursed prices in Germany and France or whether or not that $20 million also reflects some of the sales that initially happened during the third quarter itself in those countries at above -- higher pre or prior agreed reimburse prices? And just finally then on tissue factor, just wondering when we could get an update on other indications beyond cervical, the first, I guess, (inaudible) data in ovarian potentially and other indications that we could and should consider looking after that.

Thanks, Peter, for the questions. I would probably take the third question on tisotumab vedotin. What I understand is that we have not yet decided together with Seattle then to present further data. We are treating patients as we speak with other indications. And we may do the same as this year, Peter, that we will probably aim for ESMO in the second half of the year because it's a little bit easier because you can then submit an abstract in May and you can actually include more data. But we haven't fully decided that. So it's either going to be ASCO or ESMO next year to present further data on other tumors but you may actually see initiation of studies in other cancers before that time. And also, that needs to be refined together with our partner, Seattle Genetics. So it's a little bit early days but I would say in the second half, for sure, next year and perhaps at the end of the first half, Peter. Then I'll leave the 2 financial questions to David.

All right. Thank you very much, Jan. First off, on the balance sheet, notice the increase in the tangible assets that related down to expansion of 2 of our facilities. And I'm actually here talking to you today from our new facilities in Copenhagen. And so it was the fit-out of our new offices here to allow for the expansion and addition of new staff both in 2017 and 2018. But also, we've got our new R&D facility in Utrecht in the Netherlands that we'll be moving into in the early part of 2018. So that's where most of the capital expenditure were. That actually came from--a lot of that, of course, is one-off in nature. We won't be moving into new buildings in every year. But it's a positive thing because we are increasing staff and increasing the number of projects and the pipeline that we're working on. On the second question, in terms of the $20 million adjustment that we referred to, Janssen were referring as a retrospective adjustment. So I'm taking that, that really was talking about their prior quarters. You may recall that the German price -- and I believe it was August 3 that the price was adjusted in Germany. So that should mean that the new price was in place for Germany for the most of the third quarter, if not a good part of it overall. And so we should see is that $87 million was depressed by this retrospective amount, most of that I'd be assuming related to prior periods.

Our next question today comes from Anastasia Karpova from Kempen.

And 2 more general questions. Can you elaborate a little bit more on your and J&J's strategy to move daratumumab to maintenance setting, of course, in frontline but also in relapsed/refractory myeloma population? And then second, regarding AXL-ADC, there's a lot of literature showing that AXL as a target is really involved in normal tissues, and you're going against with a very potent construct. What kind of safety issues are you expecting to see in your initial clinical studies? And how do you [plan] to get them?

Thanks, Anastasia, for the questions. I think I can handle them both. The maintenance setting -- I mean, maintenance treatment is an integral part of some of the studies, including some of the Phase III studies, definitely in the CASSIOPEIA study, which has just finished recruitment, as we said in the introductory remarks, and will be a part of some other studies as well. So we will -- we have maintenance arms in those studies, both in the frontline as well as in -- and future other line settings. So in that stance, we hope to get it into the label, Anastasia. And what I can tell you also is that there will be data at ASH from the monotherapy studies in the double refractory population and the so-called SIRIUS study and the 501 study, and you can look at the abstract. I mean, the data is totally stunning already in the abstracts. I mean, when you look at the maintenance treatment, you see that over 1/3 of the patients remain alive after 3 years. And these were patients that, for the majority, were actually double refractory. And second dose was actually triple refractory, like over 60% in the -- of these patients were triple refractory. So they had like a median of survival, Anastasia, of 3 to 5 months. This is actually very good data with long-term treatment, and that will be presented at ASH -- upcoming ASH. So I want to park that there -- not to preempt too much the presentations at ASH that we are super excited about, the potential of maintenance treatment. And it will be built in future arms of future studies. Then going to AXL-ADC, this is a molecule. It's -- which is actually up-regulated in tumors. These become refractory out of small molecule inhibitors, we've given at the Capital Markets Day update last November. We've actually shown that for melanoma. Then they become refractory to BRAF and MEK inhibitors. They up-regulate AXL. So AXL is really up-regulated on tumors. These become refractory to chemotherapy or to small molecule inhibitors. So -- and then up-regulated (inaudible) 100 or more, but we think that we can select a few targets, the antibody drug conjugates, through these tumors with -- that become refractory to such other agents. That's what we have seen preclinically. And I can tell you that from my remarks already at the beginning, Anastasia, that we are moving very rapidly through the dose escalation. You can already conclude that we haven't run into serious safety issues. So -- since the differential is so big between the tumor and the other tissues, we think that it's actually a fairly straightforward therapeutic agent, and we are super excited about what we see now already in the dose escalation. And hopefully, we can share some -- a few in 2018. So -- but let's hope that we get more feeling for the safety and -- as well as for the efficacy path of AXL-ADC, but this is certainly one of the most promising molecules we've ever worked on, in general.

Our next question comes from Peter Sehested from Handelsbanken.

I'll take the easy ones first. Just slightly, could you just update us on the expected timing for the dara data in lung cancer? Is that still mid next year? And the second question, I would actually like to drill a bit on the potential guidance for next year -- not guidance, but how we should think about -- how you think about it. I mean, this year, you issued a guidance which were progressively slow spread around the midpoints. I guess the reason why [perhaps you said] numbers up double in the market for next year, I think that probably reflects, I mean, excitement about the potential for a long duration of treatment. Are your patients treated with dara this year will also continue on treatment into next year and then have new patients coming in? So I guess looking into next year, a lot of moving parts that you have to reflect upon when you think about guidance at the beginning of next year. So just your thoughts on the mechanics. Are we right about the mechanics, re-treatment? Should we expect that you'll probably issue guidance with -- let's say, and more widespread due to higher uncertainties? And finally, just to embed in that, I mean, what is your expectations actually for the year, duration of treatment for those patients who initiated on dara this year?

Let me start with both questions, and then I will ask David to step in on the guidance-related question (inaudible) that we can give you a better and sharper perspective from both of us. So first of all, the -- what you call, easy question on timing, I don't know when we get to see the lung cancer data, but a good guess would be mid next year, if not like around the ESMO, which is in the second half -- early in the second half of next year. That's what we have heard, Peter, and I cannot give you any further detail there. But mid next year is still a good guess for the lung cancer data and potentially other solid tumor data. What I can tell you is that we are increasingly excited about the potential in solid tumors. I've also already mentioned in my introductory remarks that Janssen has filed an IND for rheumatoid arthritis, that we have great preclinical data with daratumumab and then glucose kit RA models. So there is potential in autoimmune diseases. So you have a new thing you can start thinking about for your models in the future. So we are excited about solid tumors as well as about autoimmune diseases there. The depletion of plasma cells actually does make complete sense to us. And luckily, Janssen is biting the bullet and starts clinical studies there now. I think that's probably where -- [so at least, there's add]. And then at the level of guidance for 2018, last year, Peter, we have actually [flagged up] some soft guidance at the R&D update in December, and we will probably do the same this year. So you have to wait a little bit more than a month, probably 1.5 months, to hear more color from that. But definitely, maintenance treatment for daratumumab is definitely, I think, increasingly seen. I already referred to that in my answer to Anastasia's question with the

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of course, not the biggest market. The biggest market is the combination of therapy markets. You will get updates from POLLUX and CASTOR. And we are super excited about what we see there and following up patients longer term on treatment with either REVLIMID or with Velcade. So definitely, that will be factored into the guidance for next year. But of course, what will also be factored in is that we think that we will get online approval in the new year. We hope to file based on ALCYONE this year. And that could go quite quick, and that could, of course, contribute quite significantly already next year, Peter, because the frontline market is likely to be over half of the market. It depends on how good the data are to see whether this combination regimen with VMP, which is very much like in a European regimen, will also be used outside of Europe because that could be the first market in the U.S. where we get a potential label depending on how the regulators look at the data. So a multifactorial model with many moving [benefits, you said] and I can tell you that, that will definitely seem to be moving in the right direction. So that's a good start. And they want to [this or that] and then ask David to give you some further color on how we are going to think about guidance for DARZALEX sales as well as for the company in '18 if David wants to say anything more before December.

I think you said it all there, Jan. I think we will look to give some of that soft guidance at the meeting that we have at the end of ASH. Some of the same themes that were in 2017 will apply. We do expect rising sales and, hence, rising royalty. That means we expect to see a further improvement in our quality of revenues overall. Some of those will be driven by some of the factors that we spoke about earlier. Also, with our expenses, the expenses are driven by the success of our pipeline. So we are moving from having 2 to having 4 products in the clinic in 2018. So (inaudible) is a positive sign for the company as we're taking more products forward and advancing our own pipeline. So beyond that, I think I'd like to leave it until we have our post-ASH meeting.

So I hope you can wait, Peter, for 5 weeks. It will be tough, but then you'll get -- then you'll hear something more from us.

Unfortunately, I work so hard that I've easy time sleeping.

Very good, very good. Good luck with that. Otherwise, give a ring.

Our next question today comes from Thomas Bowers from Danske Bank.

Just a couple of follow-ups. Just first of all, given your comments on the BCMA, ADC and CAR T and the tox profile you mentioned earlier, do you also see a spillover to the bispecific source of BCMA and then to combine with the CD3 target? So we'll [show] and we have to do about it and in regard to the safety profile. And then also, secondly, I want to -- if the tox is actually turning out to be manageable, do you see BCMA as a target that could be moving further up into frontline or second line in the longer term? And then the second question, could you maybe just shed a bit of light on the current price range that we see in rest of world for DARZALEX? And maybe just finally, just on -- again, to follow up on the R&D for arthritis, I'm just wondering, is this just one of the first indications that you -- we could see in R&D for already here in the next 12 months' time? Or will this be the first one and then we will see maybe other things after we have some early proof of concept in the clinic from that story?

Thanks, Thomas, for the questions. I will take the first and the last one, and then I'll ask David to give you a little -- further on the price range. So what we can say about what we know actually in the rest of the world. But first of all, BCMA, ADC has an eye toxicity which is pretty significant, we think. In very refractive patients, we think that will be a challenge, as I already said before in my answer. And then CAR T is obviously quite -- can obviously be quite challenging in some patients. I mean, there's numerous examples of that. I think CD3, BCMA bispecifics are potentially a safer and more effective avenue if the CD3 antibody, Thomas, has been silenced in a proper way that you don't get nonspecific activation of T cells that sometimes happens. And then some of these molecules are pretty much in the public domain, like the MacroGenics CD3, CD19 antibody was killed because of neurotoxicity, because of cytokine release syndrome. So that was clearly not the right balancing of the CD3 antibody. We noted there are different ways used by companies for the silencing of the constant part of the antibody to prevent this neurotoxicity. But I think you have to probably look at individual molecules, Thomas, to really see what the potential is clinically on the longer term. We think that CAR T will continue to be very, very selectively used by only the very refractory patients because it's a laborious procedure that took, I think, Novartis 5 to 7 years to get the whole thing worked out for CAR T and then ending up with an FDA-approved drug, which is great, I think. But it still is a very complex procedure on medical centers. The ADC is potentially, I think, much more

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but the tox profile doesn't look that clean, and that's a -- seen more often with antibody drug conjugates. So we think that they -- the ADC will penetrate probably to a larger market, but it will always be like a niche market given the tox profile there. But that's speculation. And I think on the longer term, one of these molecules, one of these CD3, BCMA-type molecules may actually penetrate to a bigger market. That will take quite some time. So let's first see what the initial data will look like tox-wise. So we're not too worried about it from the daratumumab perspective. And we also have a program, which is a DuoBody program from Janssen with CD3, BCMA targeting. They have -- we actually obtained a nice milestone for this quarter, and then we will get future royalties first. So that's actually a very nice, I think, source of potential income for us in the future. But I think it's a little bit early days there to see how the landscape will change, but we'll follow that with interest. Then the third question, as it relates to rheumatoid arthritis, I think you need to look at that, Thomas, as the first indication because if it would work -- dara would work there by depleting plasma cells and really impacting the disease and the positive [areas], autoimmune disease. So many diseases, like RA, with similar pathophysiology, we are going to -- a CD38 targeting approach could also be used then -- but that is a decision that needs to be taken by Genmab and Janssen, and Janssen will have to pick up the tab for that. And these tend to be much more -- much bigger and much more long-term study, so very expensive study. So yes, this is a -- dipping a toe in the water following very strong preclinical data and kit RA models. And potentially, this is a potential use also in other indications, autoimmune indications with similar pathophysiology, underlying pathophysiology. Then maybe, David, will say a little bit more about the price for daratumumab in the rest of the world.

Okay. Thanks, again, Jan. We don't get a lot of visibility of the individual prices in individual countries, although Germany is one of the larger markets that make up the rest of world sales. And you may recall we did see the -- as expected, after the first anniversary of DARZALEX being launched in Germany, that there was a decrease in price. You'll recall that, that brought the price down from the original launch by 26%. And if you -- depending on the exchange rates, you're talking just under $2,000 equivalent for the German price for a 400 milligram vial. Now in the U.S., in comparison to the price, there was a price increase in early September of 2.5% for DARZALEX. So currently, the U.S. price for DARZALEX for a 400 milligram vial is $1,944. So as we sit today, the German price is slightly ahead of the U.S. price. Now you wouldn't expect that to necessarily continue in every European country, but it will be a blend of prices overall but certainly, with the largest market of Germany, have similar prices between the 2 at this time.

We have a follow-up question today from Michael Novod of Nordea.

Just one follow-up to the royalty rate because you mentioned in your release that you are crossing the next step. So above $750 million in a calendar year goes to 13%. Is that the incremental steps which we expect, perhaps slightly less going up to the 20% peak? And I think, I recall that you earlier have said that there would only be a few 2 or 3 steps -- 3 steps, I guess. So maybe you could just

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should think about this going forward.

Thanks, Michael. This is a question for David, I think.

Yes. Well, Janssen's actually asked us not to give too much details around the individual tiers but as you know that we do have a royalty range. It goes from 12% to 20%. Tiered royalty rises with sales rise. We were able to say that once the sales get above $3 billion, all the incremental sales above $3 billion will be at 20%. And then you've got a mixture, obviously. The lowest tranche, as you know, is already at 12%. And you can assume that the below $3 billion, obviously, is going to be below 20% because the 20% kicks in at $3 billion. So you've got a range in theory, can be as low as 12%. Or I guess if you want to round numbers, it could be as high as 19%. There is a number of steps in there. We haven't said what those steps are or if there are even percentages going through. But when people have looked in the past and sort of said -- well, look, if you're looking for an average percentage -- we've said if you take the 12%, take 9%, take the average of the 2, if you look at those sales that are between 0 and $3 billion as an average for that first $3 billion of sale, averaging those 2 is a reasonable amount. So we'd stick to that comment, but I have to abide by Janssen and not give more details on that, I'm afraid.

Thank you, gentlemen. We have no further questions. At this time, I'll hand back over to you for any closing remarks.

Well, thank you for calling in today to discuss Genmab's Financial Results for the First 9 Months of 2017, and we look forward to speaking with you again soon.

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