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Edited Transcript of GEN.CO earnings conference call or presentation 14-Aug-19 4:00pm GMT

Q2 2019 Genmab A/S Earnings Call

Copenhagen Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Genmab A/S earnings conference call or presentation Wednesday, August 14, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David A. Eatwell

Genmab A/S - Executive VP & CFO

* Jan G. J. van de Winkel

Genmab A/S - Co-Founder, President & CEO

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Conference Call Participants

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* Connor McGuinness Meehan

Morgan Stanley, Research Division - Research Associate

* Emily Field

Barclays Bank PLC, Research Division - Research Analyst

* Graig Suvannavejh

Goldman Sachs Group Inc., Research Division - Executive Director & Senior Equity Research Analyst

* James Patrick Quigley

JP Morgan Chase & Co, Research Division - Analyst

* Kennen B. MacKay

RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research

* Michael Novod

Nordea Markets, Research Division - Director of Healthcare, Healthcare Analyst & Sector Coordinator

* Michael Werner Schmidt

Guggenheim Securities, LLC, Research Division - Senior Analyst & Senior MD

* Peter Verdult

Citigroup Inc, Research Division - Director

* Peter James Welford

Jefferies LLC, Research Division - Senior Equity Analyst

* Wimal Kapadia

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

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Presentation

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Operator [1]

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Welcome to 2Q report 2019 conference call. During this telephone conference, you may be presented with forward-looking statements that include words such as believes, anticipates, plans or expects. Actual results may differ materially, for example, as a result of delayed or unsuccessful development projects.

Genmab is not under an obligation to update statements regarding the future nor to confirm such statements in relations to actual results, unless it is required by law. Please also note that Genmab may [hold] your personal data as indicated by you as part of our Investor Relations outreach activities in order to update you on Genmab going forward. Please refer to our website for more information on Genmab and our privacy policy.

Now I would like to hand the call over to your speaker today, Jan van de Winkel. Please go ahead, sir.

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [2]

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Hello, and welcome to the Genmab conference call to discuss the company's financial results for the quarter ended June 30, 2019. Our CFO, David Eatwell, is joining me on today's call.

Let's move to Slide 2. As already said in the introduction, we will be making forward-looking statements. So please keep that in mind as we go through this call.

Let's move to Slide 3. The second quarter of 2019 brought transformational change to Genmab as we began the process of becoming a dual-listed company, a process which concluded with great success in July as Genmab is now trading on both the NASDAQ Copenhagen Stock Exchange and the NASDAQ Global Select Market in the U.S. I'm very proud to share with you that with the closing of our offering, Genmab achieved the largest biotech IPO by market cap in 20 years, the largest IPO of American Depository Shares by a European Healthcare Company and the second largest U.S. IPO ever by a biotechnology company. This tremendous accomplishment will not only allow us to achieve our ambitious 2025 vision of having our own product on the markets and the pipeline of knock-your-socks-off antibodies. We believe that it will increase Genmab's feasibility as a world-class innovation powerhouse within the biotech industry and among key thought leaders in academia and in the financial community.

We also build upon our already successful relationship with Janssen during the quarter with the signing of an agreement to collaborate exclusively on the next generation CD38 antibody product candidates, HexaBody-CD38. We saw encouraging preclinical data from HexaBody-CD38 in multiple myeloma, lymphoma and leukemia models and believe it has significant potential to extend upon us of CD38 targeted therapies beyond what is currently available to patients.

Additional developments for our pipeline occurred in May, with the first patient dosed in the first-in-human Phase I/II trial of DuoBody-PD-L1x4-1BB in solid cell tumors. This is a product candidate we are codeveloping with BioNTech, and we are looking forward to watching its progress through the clinic.

More recently, at the beginning of July, Horizon Therapeutics submitted a biologics license application for teprotumumab, a product that Genmab created for the treatment of active thyroid eye disease. If approved, teprotumumab will become the third product originally created by Genmab to enter the market.

Of course, DARZALEX also experienced significant momentum over the past few months. First and foremost, with the highly anticipated approval from the U.S. FDA based on the Phase III MAIA trial of daratumumab combined with lenalidomide and dexamethasone in patients newly diagnosed with multiple myeloma who are ineligible for autologous stem cell transplants. The combination of lenalidomide and dexamethasone or Rev/Dex is broadly used in the U.S. for this patient population, and we are extremely pleased that these patients will now have the opportunity to add DARZALEX to their treatments.

As important as this approval is, it was not the only key recent development for DARZALEX. The U.S. FDA also granted priority review to the supplemental biologics license application based on impressive data from the Phase III CASSIOPEIA study. This combined daratumumab with bortezomib, thalidomide and dexamethasone as treatment for patients newly diagnosed with multiple myeloma who were candidates for autologous stem cell transplants. U.S. FDA set the PDUFA date of September 26. And while mostly a European regimen, we very much look forward to the possibility of this combination becoming yet another option for multiple myeloma patients in needs.

And then just after the end of the quarter, we reported topline data from the Phase II GRIFFIN study of newly diagnosed patients with multiple myeloma ineligible for high-dose chemotherapy and autologous stem cell transplantation who were treated with either daratumumab in combination with lenalidomide, bortezomib and dexamethasone or VRD versus VRD alone. The study met its primary endpoint, demonstrating a higher percentage of stringent complete responses for the patients who received daratumumab as part of their treatment. This data builds on the efficacy and safety data for daratumumab as a frontline treatment for transplant-eligible multiple myeloma patients as seen in the CASSIOPEIA study, and it also underlines Janssen's decision to begin the Phase III (inaudible) and Phase III SAPPHIRE studies of daratumumab in combination with the same therapies, VRD, for certain frontline multiple myeloma indications.

In mid-July, Janssen also submitted applications for approval of the subcutaneous formulation of daratumumab to regulatory authorities in both the U.S. and in Europe. Should these submissions lead to approvals that would provide patients with the subcutaneous delivery option that reduces treatment time from hours to just 5 minutes, not only would this be more convenient for patients but as we saw with the COLUMBA study data presented at the 2019 ASCO Annual Meeting in Chicago and the 24th European Hematology Association and our Congress in Amsterdam, infusion-related reactions are both mild and significantly reduced with this formulation of daratumumab.

Lastly, sales of DARZALEX continue to be very strong. With net sales reaching over $1.4 billion in the first 6 months of 2019, resulting in DKK 1,169 million in royalties to Genmab.

I'm now pleased to hand over the call to David to present our financial results for the first 6 months of this year. David?

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David A. Eatwell, Genmab A/S - Executive VP & CFO [3]

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Thank you, Jan. Over the next few slides, I'll highlight the results for the first 6 months of 2019 as well as this year's financial guidance.

Starting with the income statement. The revenue for the period came in at DKK 1,365 million, that's an increase of DKK 174 million or 15% compared to the first half of 2018. The increase was primarily driven by higher DARZALEX royalties driven by year-on-year increase in DARZALEX sales of 49%. And that was partly offset by the Arzerra one-time payment of $50 million or DKK 304 million in 2018.

As anticipated, the total expenses for the first half of 2019 were DKK 1,254 million, an increase of DKK 522 million or 71%. And this was driven by the advancement of our clinical products including enapotamab vedotin and tisotumab vedotin as well as our other pipeline products and new CTAs. As planned, we also increased the number of employees to support our pipeline expansion.

For our operating result, we had an operating income of DKK 111 million in the first half of 2019 compared to DKK 459 million in the same period in 2018. The decrease of DKK 348 million or 76% was driven by higher operating expenses and the one-off payment from Novartis in Q1 [2019]. The net financial items were a net income of DKK 93 million in the first half of '19 compared to DKK 132 million in the first half of 2018. The main driver for the variance between the 2 periods is foreign exchange rate movements, which positively impacted our U.S. dollar denominated portfolio and cash holdings for both periods but to a lesser extent in 2019.

The corporate tax expense for the first half of 2019 was DKK 47 million compared to DKK 132 million in the same period in 2018. The estimated annual effective corporation tax rate for the first half of '19 was 23% compared to 22% in the first half of 2018. And that brings us to the net result, which was a net income of DKK 157 million for the first half of 2019 compared to DKK 459 million in the same period of 2018.

Now we move on to Slide 5 and the revenue. The revenue breakdown by category is shown on the left-hand side of the slide. In the first half of 2019, royalties were the largest portion of revenue at DKK 1,181 million compared to DKK 709 million in 2018. The increase of DKK 472 million or 67% was driven by the higher DARZALEX royalties, which were partly offset by lower Arzerra royalties. There were no license fees in the first half of 2019 compared to the DKK 336 million shown in the first half of 2018. The decrease, again, was driven by the one-off payment of DKK 304 million from Novartis, which occurred in Q1 2018, and that was due to the amendment of the Arzerra ofatumumab license and collaboration agreement.

Reimbursement income accounted for DKK 164 million in the first half of '19 compared to DKK 106 million in the first half of '18, an increase of DKK 58 million or 55% driven by increased activities under our collaboration agreements with Seattle Genetics and BioNTech.

The graph on the right bridges the revenue between the 2 periods. The largest increase was DARZALEX royalties, which grew from DKK 695 million in the first half of 2018 to DKK 1,169 million in H1 2019, an increase of DKK 474 million. The royalties were based on Janssen's DARZALEX sales of $1,403 million, and that's in the first half of '19 compared to $943 million in the same period in 2018. The substantial increase of $460 million or 49% was driven by continued strong uptake in the U.S., EU and Japan.

The cost reimbursement increase, again, was primarily driven by the advancement of our collaboration products with Seattle Genetics and BioNTech. And for the last time, the largest decrease in revenue was the one-off Arzerra payment from Novartis.

Next, the expenses and operating income on Slide 6. The change in expenses between the first half of 2018 and 2019 is aligned with our strategic focus to achieve our 2025 vision, and you can see the growth drivers in the graph on the left-hand side of this slide. There was an increase in the operating expense of DKK 522 million, which was driven by the accelerated investment in our clinical and preclinical product portfolio. In fact, 63% of the total expense increase was due to the additional investment in our pipeline of products, including the advancement of enapotamab vedotin, tisotumab vedotin and advancing the new programs to IND in 2019 and beyond. The FTE costs have also increased year-over-year as well, and we continue to undergo controlled growth to support our robust product pipeline and continue efforts to build commercial capabilities. We had 478 FTEs at the end of June, an increase of 55% from the end of June 2018.

Looking at the chart on the right, you can see a decrease in the operating result from an operating income of DKK 459 million to DKK 111 million that we discussed earlier.

Now let's discuss the 2019 guidance on Slide 7. We are updating and slightly improving our 2019 financial guidance, which was initially published on February 20, 2019. Starting at the top of Slide 7, we have a table that shows a comparison of the revised guidance compared to the previous guidance for 2019. We now expect our 2019 revenue to be at DKK 4.8 billion. This is an improvement or an increase of DKK 200 million and is due to the higher royalty income from DARZALEX sales. We also anticipate our operating expense fees will be DKK 2.75 billion, an increase of DKK 150 million, driven by the advancement of our product pipeline as well as the addition of new projects. I will discuss both of these items in more detail in just a moment. Taken together, the result is an operating income of DKK 2.05 billion, an increase of DKK 50 million compared to the previous guidance.

Now if we move to the bottom of the page, we can take a closer look at the key elements of our revenue. Our projected revenue consists of DARZALEX royalties of nearly DKK 2.9 billion based on Genmab's net DARZALEX sales of $3 billion in 2019. This increase from our previous guidance of DARZALEX royalties of just under DKK 2.7 billion is due to the positive impact of exchange rate movements. We expect DARZALEX sales to rapidly advance in 2019 with a growth in the U.S. market share both in the frontline and the second line setting where we anticipate long duration of treatment and increased net numbers of patients on treatment. In Europe and the rest of the world, we'll also continue to see more countries coming on stream and expect to see the continued introduction in frontline multiple myeloma with daratumumab plus VMP.

As a reminder, the average royalty for the $3 billion of sales is just under 15%. But all sales above $3 billion will have the royalty rate of 20%. You will also note that the anticipated DARZALEX royalties continue to exceed the total expense base.

We continue to project daratumumab milestones of DKK 1.5 billion in 2019, which relates to sales-based milestones. This includes a $150 million milestone for exceeding $3 billion of sales in a calendar year as well as a milestone for exceeding $2.5 billion of sales in a calendar year. So expect to see these milestones to be achieved towards the back end of the year in Q4 2019. The remainder of the revenue mainly consists of cost reimbursement income related to our collaborations with Seattle and BioNTech, DuoBody milestones and Arzerra royalties.

Now let's turn to Slide 8 and look at the expense detail. On the top of this slide, we show that we're investing in 3 main areas: project investment, personnel cost and business support. In line with our previously communicated strategy to achieve our 2025 vision, the largest cost of nearly 60% of the total is our project investment. And this directly relates to the success and the advancement of our pipeline. The next largest cost is the personnel cost. At the end of 2018, we had around 377 FTEs. But we anticipate that this will increase to about 560 by the end of this year. Again, the investment and increasing resources is directly driven by the success of our pipeline. The business support investment relates to all of the other support functions and growth as across all support areas and includes enhanced technologies and systems and early investment in commercial as well as investment in other functions.

Moving to the bottom of the slide, I've broken out our most significant area of investment, the project cost, into more detail. On the left, we have a pie chart with our total project investment of DKK 1, 625 million. About half of that amount will be invested in our 2 most advanced projects: tisotumab vedotin and enapotamab vedotin. In comparison, for the next 8 projects, including several projects already in the clinic, we'll invest around DKK 625 million. Interestingly, if you add these together, then we'll invest DKK 1.4 billion in our top 10 programs, which continues to be about 50% of our total expense base.

On the right-hand side, we've broken out our next largest cost of the FTEs and show you the increase of 180 that I mentioned earlier. 73% of the increase relates to R&D employees, 18% for business support functions and 9% for our earlier investment in medical affairs and commercial functions. As you would expect in 2019, we're continuing to project to be cash flow positive. And our -- the priority for capital allocation is to continue to increase the investment in our preclinical and clinical pipeline and invest to achieve our vision for 2025. Note that as usual, our 2019 guidance does not include any new potential deals.

Now I'd like to turn the call back over to Jan to give you an update on our 2019 goals. Jan?

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [4]

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Thanks, David. Let's move to Slide 9. We continue to experience solid progress across all areas of development during this year. We have met 2 of the 3 goals related to daratumumab with the approval in the U.S. based on data from the MAIA study and the data from the Phase III COLUMBA trial. This was announced in the first half of 2019. All that remains is the U.S. FDA decision on the submission based on the CASSIOPEIA data. And as I mentioned, we anticipate this by the end of September.

We also expect to announce daratumumab data presentations at upcoming medical conferences, including 13 Janssen submitted presentations at September 17 International Myeloma Workshop, which takes place in Boston. Data from the CASSIOPEIA, MAIA, COLUMBA and PLEIADES trials have been accepted for presentation. And excitingly, the important GRIFFIN data will be featured during a plenary session at this meeting. One of 4 daratumumab abstracts accepted for oral presentation during the event. For ofatumumab, we anticipate data from the 2 large Phase III trials of the subcutaneous formulation in relapsing multiple sclerosis or MS. If the data is positive, it could give ofatumumab new life as potential treatment for relapsing MS.

As I stated last quarter, along with Seattle Genetics, we are continuing to move the tisotumab vedotin program forward with the start of new studies, and we have already completed enrollment of the Phase II trial in recurrent or metastatic cervical cancer. While the first half of 2019 was mostly focused on daratumumab news, we also look forward to the rest of the pipeline growing, potentially exponentially during the second half of this year with a number of key data sets expected to be presented at upcoming medical conferences. We also expect to file at least one more IND or CTA in addition to the CTAs already submitted for DuoBody-PD-L1x4-1BB and DuoBody-CD40x4-1BB.

So as you can see, as exciting as the first half of 2019 has been for Genmab, this momentum will continue as we move into an equally news-rich second half of the year, both for daratumumab as well as for a number of our proprietary clinical programs.

Let's move to Slide 10. That ends our presentation of Genmab's Second Quarter 2019 Financial Results. Operator, please open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Kennen MacKay from RBC Capital Markets.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [2]

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Congrats on the recent progress, the [up to guidance] and the U.S. [listing]. My question primarily relates to Arzerra in MS. After our recent initiation, this is one of the major steps of the pushback from investors, not because my estimates are too high but because investors think they are high enough. Could you maybe talk a little bit about sort of differentiation within the MS market if the Phase III trials are successful? And maybe provide any sort of anecdotes for competing in this market on convenience and just sort of how that competitive dynamic shakes out?

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [3]

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Thanks, Kennen, and welcome to the team. Thanks for the initiation. We are delighted to have you on board as a covering analyst, and I'm delighted to give you an answer on the MS perspective for -- of ofatumumab.

We think that this molecule is highly differentiated from Ocrevus, another CD20 antibody by Roche because it's a fully human antibody with -- can be given subcutaneously, is a much higher affinity antibody, you need about 3.9 or less of the antibody per year than you need for Ocrevus, with very, very good Phase II data. As a subcu formulation, we believe that, actually, the convenience of a subcu formulation is going to be massive in MS because this is a chronic disease that you cannot cure, but you can only control that with drugs. I think there is a need for new drugs. And that need is, I think, underscored by the very rapid penetration with Ocrevus, which Roche has observed over the last 2 years as you and I know. And I think with a potentially differentiated profile, I think ofatumumab could actually do quite well. And I think I've seen your projections, and I know that Novartis already calls ofatumumab a potential candidate blockbuster very, very quickly on all of their presentations.

We actually can't wait, Kennen, to see the data from the 2 large ASCLEPIOS trials that we expect very soon now. And we are convinced that when the product is differentiated from Ocrevus, it shows good efficacy and very good convenience that will actually do quite well in the MS market. I think there's not many other, I think, examples I can give you from other products in MS with a similar profile. We are a subcu formulation versus an IV formulation, can be used, as I say, a benchmark. But I think Ocrevus is, I think, showing us that a new product in a very competitive market can actually do quite well.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [4]

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Congrats again.

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [5]

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Thank you, Kennen.

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Operator [6]

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Next question comes from the line of Jame Quigley (sic) [James Quigley] from J.P. Morgan.

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James Patrick Quigley, JP Morgan Chase & Co, Research Division - Analyst [7]

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I've got a question on DARZALEX in transplant patients. So the GRIFFIN data was reportedly strong. The (inaudible) level was a little bit more relaxed than in other trials. Given this and given the U.S. doctors' commentary around the strength of RVd in transplant patients, do you expect any pushback from U.S. doctors? And then secondly, with the PERSEUS trial looking to read out in 2029 as per clinicaltrials.gov, and Sanofi seems to think that you've -- J&J may have left the door open a little bit for this population. Do you have any comments there on why J&J waited for the GRIFFIN data rather than starting a Phase III like they did with CASSIOPEIA? And also, what impact would CASSIOPEIA potentially have given that VTD is a European regimen?

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [8]

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Thanks, James, for the question on the GRIFFIN data. We believe that data is incredibly strong, which is underscored by not only the primary endpoint hits, and we used indeed a different significance level because this was a Phase II trial. This is basically set up in order to see whether we have clinically meaningful difference with daratumumab in relation to VRD, and this is not a Phase III like the PERSEUS trial. But I can tell you that all the secondary endpoints were hit very, very nicely. And you will see that very soon, I think, in the -- at the IMW conference in Boston in the second week of September, but this will be featured. The [Adcetris] may also become available before that time change, and the data is just nothing short of stunning. So we think that, actually, the GRIFFIN data can, when published, leads to (inaudible) listing and potential can also lead to doctors having the option to potentially use it, actually before the process trial reads out. Janssen, of course, cannot promote for the drug until we have a formal label for dara plus VRD. I think that Sanofi's comments should be taken with a grain of salt. I mean, that's what I wish, of course, they could see there. I think that given that the GRIFFIN data follows the very strong CASSIOPEIA data, CASSIOPEIA is more difficult for me to give you an estimate from because this is a very much European-type regimen. But of course, the doctors could see that when the GRIFFIN data follows the same trend as what was seen with CASSIOPEIA in another image, I mean, the doctors may also decide, once these data are published and then the public domain from GRIFFIN, to simply use VRD in the frontline setting. And I think we will have to see, James, how this will pan out. But I think the coming 2, 3 weeks will be very, very exciting as we see it for the potential in frontline with DARZALEX.

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Operator [9]

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The line of Wimal Kapadia from Bernstein is open.

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Wimal Kapadia, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [10]

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Wimal Kapadia from Bernstein. My question is on the subcu. Could you just walk me through exactly how the administration works in terms of pretreatment and waiting times? I think there's been some suggestion taking into account all the time required outside of the 5-minute injection can still be relatively lengthy. So could you just remind us of the details, please?

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [11]

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I don't have that exact data here, Wimal, available. But I do know that you need to predose with corticosteroids but only for the, I think, the first 2 injections. From the third injection on, corticosteroid predosing is not used by all the doctors in the COLUMBA trial. And I think that Janssen is certainly looking into whether we actually do need to predose with corticosteroids and other drugs before the subcu administration. So I think that may very quickly change, that we need that predosing. And then what I want to remind you of, Wimal, is that is -- of course, that is only relevant for the monotherapy use of daratumumab. Because in many of the combination therapies, dexamethasone is already used, or steroids are already used. And that doesn't -- basically, it doesn't change the treatment combination. So only for monotherapy, the first 2 doses, I think, are a little bit more lengthy than the 5-minute injection with daratumumab. From the third dose on, I think many doctors already stopped the predosing and just immediately give the drug. And in combination therapies, it's not -- the discussion is not relevant because the corticosteroids are (inaudible) used already in combination with -- like Revlimid and other drugs.

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David A. Eatwell, Genmab A/S - Executive VP & CFO [12]

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(inaudible) have accomplished with subcu, I think you have lower infusion-related reactions compared with the IV as well, so hopefully, that will be less of a challenge going forward.

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Operator [13]

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The line of Matthew Harrison for Morgan Stanley is open.

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Connor McGuinness Meehan, Morgan Stanley, Research Division - Research Associate [14]

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This is Connor Meehan on for Matthew Harrison. We were just wondering about -- or sorry, 2 questions, quickly. We were just wondering quickly about DARZALEX and amyloidosis and about the timing of the Phase III and what you guys would think is a good result? And then just one quick question on AXL after that.

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [15]

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So thank you, Matthew. Also, welcome to you. Thanks for setting up coverage and welcome here to the coverage covering team. Amyloidosis, the ANDROMEDA trial is rapidly progressing. It could actually lead to an interim -- potential interim leadout -- readout in the coming months before the full readout of all the data. I don't want -- do want to remember you that of the 19 Phase III trials with DARZALEX, [should] all the 6 that are flatout, all have readout on the very positive interim. So the same could happen for the ANDROMEDA study. And in a positive scenario, Matthew, that could already happen in the coming months.

And what would we expect? I mean, the data up to now from the (inaudible) patients is incredibly good. Very, very high levels of a percentage of patients getting into very dramatic hematological responses. So we would expect the data to be very good based on the (inaudible) data and based on the data already presented from, I think, 3 -- a total of 3 Phase I/II studies earlier on.

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Connor McGuinness Meehan, Morgan Stanley, Research Division - Research Associate [16]

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Thanks for the warm welcome. Just quickly on the actual antibody, could you guys just provide some background on your conviction in the long expansion cohorts, and I guess why you've chosen that over other disease types? And would you guys expect to see responses here, or are you looking for durability in stable disease? Would you see those 2 things as positive?

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [17]

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Yes, I can give you some perspective, but I can tell you that, actually, in the coming months, we do expect to present data from the [LEN] cohort. This is purely data-driven, Matthew. So what we have done is we look at different tumors as overexpressed AXL based on very strong preclinical data that once tumors overexpress AXL, they become refractory to chemotherapy and to immunotherapy as well as to small molecule inhibitors. And they are very difficult to control, and we've gotten some very strong preclinical data that AXL-ADC or enapotamab vedotin is a very potent killer of those tumors. With overexpressed AXL in lung cancer that was already quite clear during the dose escalation. And we have expanded the expansion cohort by a very large number of patients, and we hope to present you the initial, I think, 26 or so patient's worth of data and then we will -- we hope to present definitely at a response-rate level. And I think it's a bit too early to look at durability, Matthew. But you're also developing an assay to actually screen patients for AXL expression, potentially for the next clinical study, and I think that will all become quite clear at the data presentation at an upcoming medical conference, and we will flag that up to you in the coming weeks.

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Operator [18]

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The line of Michael Schmidt from Guggenheim is open.

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Michael Werner Schmidt, Guggenheim Securities, LLC, Research Division - Senior Analyst & Senior MD [19]

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I had a couple of pipeline questions as well. The first one is on tisotumab vedotin. I know you mentioned you have fully enrolled the Phase II study cervical cancer. But I was just wondering if you could just briefly update us on your activities in other accounts or types and maybe help us understand what the gating factors are to potentially advancing the ADC in other cancer types as well?

And then the second question was on the DR5 HexaBody. I know you guided to, first, presentation of first clinical data later this year there. So just wondering if you could help us guide expectations around the quantity of the clinical data potentially, and maybe what tumor types might be most responsive to DR5 at -- based on preclinical data?

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [20]

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Thank you, Michael and also, you, a warm welcome for joining the covering team of analysts and for the initiation report. We're very pleased with that. So welcome. The tisotumab vedotin studies in cervical cancer, you will see more and more of our studies coming online. We started the Japanese study, and we finished recruitment in the 204, potential pivotal study as we flanked up. We're also doing a basket study with 4 tumor, solid tumors, where we expect, actually, data early next year. Seattle Genetics is operationalizing that study with 4 different solid cancers, and they are doing a second study with ovarian cancer also based on signals we've already seen in the Phase I/II setting, and we hope to present data from the basket study in the first half of next year. And also very early next year, we hope to potentially give you the primary readout of the Phase II cervical cancer study.

And the tumors chosen here -- were in the basket study, were chosen based on the -- either the very strong preclinical data for pancreatic cancer but for the other 3 tumors were chosen because of the data we observed in the Phase I/II trial, the Phase I/II setting. So they are all tumors with -- can very, very strongly [upregulated] tissue factor that target tisotumab vedotin, and there's a very good correlation between tumors overexpressing tissue factor and the ability of tisotumab vedotin to kill those tumors effectively. So more data in the beginning part of next year for both the basket study, Michael and for the cervical cancer potential pivotal Phase II.

Then as it relates to HexaBody-DR5/DR5, we are doing dose escalation studies in 7 different tumors. All tumors we have previously, other companies, there've been a total of 5 companies with 9 compounds targeting DR5 in the clinic in the years before. And we have chosen tumors, Michael, where other companies at least got some initial positive results. So we have 7 -- a basket of 7 different tumors. We're doing different dose frequencies and different dose levels evaluated in these different tumors. You may see, before the end of the year, some early indication of the dose escalation part of the trial, Michael. But more full data expected in 2020 at the medical conference.

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Operator [21]

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The line of Peter Verdult from Citi is open.

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Peter Verdult, Citigroup Inc, Research Division - Director [22]

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It's Peter from Citi. A question for Jan and a request for David, please. Jan, on the CD3xCD20 biospecific, from the [post presentation] that we've seen so far, stacks out well against the (inaudible) asset and the (inaudible) assets. But it looks comparable to the Roche assets that's been taken forward into development at the Roche Group. So just -- can you remind us, are you going to have an oral presentation at ASH? And how you see your biospecifics stacking up against what we see as the best-in-class one right now, which is Roche? And then lastly, is it still possible that we could see a partnership on this asset side by year-end, talking about signing a partnership deal with your (inaudible) rights? Just wondering whether the temperature is still hot there.

And then David, just on the request. You usually provide a helpful quarterly update on U.S. penetration rates for DARZALEX by line of therapy, wondering whether you would be willing to provide that for Q2 or anything on early data on metrics from the first month launch in the U.S.?

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [23]

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Well, thanks, Peter for the questions, and I will start with the CD3xCD20 biospecific. This antibody, preclinically as you rightly state, is basically about a hundredfold more potent preclinically than the Regeneron molecule and one of the Roche molecules, (inaudible) , and it is similar in activity to the RG 6026 molecule from Genentech. We believe that this molecule is actually more potent than the Roche and Regeneron molecules, it's the furthest advanced in the clinic, and we base that on studies in monkeys, where we showed, actually, at much lower doses, much more long-term depletion of the target cells, Peter. And it's actually so potent that it happened at much lower doses. So we can actually give subcutaneous injections without any complex formulation. So we believe it's highly differentiated from the lead Regeneron and Roche progress that you referred to the RG 6026 program that recently ran into some severe cytokine release syndrome toxicity as you know. And also, the efficacy at the latest data sets from Roche was underwhelming. So the molecule which looks similar preclinically doesn't look that good in the clinic, we believe. So we actually believe that we have a highly differentiated molecule plus huge attention from different companies and speaking with us about potentially partnering that molecule already flattened to the markets, Peter, that we need a partner because I think we need to -- we are going to go for the full market. We're not going for a niche market with this molecule. We believe that we understand the CD20 field very well, and we have a differentiated molecule, and we need a very, very, I would say, aggressive and very capable partner to be the military style move in that molecule because we are a little bit late, of course, on Regeneron and Roche for that CD20 market. But I can assure you that the interest level is very, very high.

A partnership before the year-end, I think that's a little bit too quick. It is definitely possible. But I would say though, a potential partnership in 2020 is more likely, Peter, given how sometimes these partnership discussions can take time, and we have done a number of them now. So I think it's unlikely to happen before the end of the year. But definitely, the interest level is sky high.

What level of presentation? We have submitted an abstract to ASH, and we haven't heard back from ASH. So I don't know, Peter, whether it will be an oral presentation or what type of presentation. We will flag that up to you and to the market once we hear from the American Society of Hematology. That's probably where I should leave that at. And David, the floor to you for the second question from Peter.

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David A. Eatwell, Genmab A/S - Executive VP & CFO [24]

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Thank you very much, Jan. Thanks for the question, Peter. So each quarter, I'll only go through -- give you a few highlights on the IQVIA brand impact data. As a reminder, that's 3 months rolling average data, and we do now have that market survey data for June.

So overall, market share continues to grow for daratumumab. We're now at the end of June at 18% market share. That compares to about 15% at the beginning of the year. Obviously, if this was the June data, really too early to see any impact of MAIA DRd in the frontline setting and overall in the frontline multiple myeloma, which is about 3%. So that's the big area that we have the opportunity to grow with these new approvals in the newly diagnosed patients.

What we're quite excited about for the June data was the second line setting. We're continuing to see inroads and gains in the market share. To give you an idea, at the end of 2018, we had a market share of 27%. That moved nicely up at the end of March to 29% and quite a nice leap at the end of June to a now 34% market share. Also, consistently, we're seeing throughout all of the periods not only reaching new highs in the market share but also that the new patient start data is consistently higher than the market share. So that's, of course, indicating to me that we've got further to go with the patient stacking, with higher NPS coming through. That means that market share should continue to grow.

And that second line is quite important for us because of the long duration of treatment, that means that the patients are staying there a long time. And get the patient stacking, we're getting more sales through from those U.S. patients.

In terms of the third line setting, that's more sort of consistent, that's bouncing around somewhere between the 45%, 48%. The June number was 45%, which I think is about where we were expecting. And in that third-line setting, the most popular regime was the [Dara Pomalyst Dex] combination, that was about 20% of that 45%.

Fourth line, staying consistent. March was 39%, and it was 40% for the June period. So again, staying fairly consistent there. We said at the beginning of the year, really, the place for us to win in 2019 was the gain in the market share, and that's what we're seeing. I was very pleased with the 34% at the end of June. We said we were probably likely be around flattish in the third line and maybe slightly declining in the fourth line, and that seems to be coming out. Of course, the big thing for the second half of 2019 is our MAIA, daratumumab, Revlimid Dex combination, too early to really see any data movement on that yet, but we [were] watching IMS and Symphony data over the next few months and hope to see some inroads in the newly diagnosed multiple myeloma setting.

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Operator [25]

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The line of Peter Welford from Jefferies is open.

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Peter James Welford, Jefferies LLC, Research Division - Senior Equity Analyst [26]

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Just real quick question on the operating spend, please. Just curious how much of the increase the OpEx is related to FX as well, both on the other hand, actually underlying increases? And I wonder -- I appreciate you're probably going to stay and wait until the December update. But can you give us just sort of big picture, your thoughts, I guess, on going into 2020? How we should think about the spend, I guess, relative to what we see this year, obviously with regards to year-on-year? And also, when should we start thinking about, I guess, potential initial spent for tisotumab, assuming that the data are positive, if then for the commercial operations? Obviously, you've yet to sort of build out. So just point of clarification on ANDROMEDA as well on amyloidosis. You mentioned the interim. But just to be clear, is that study fully recruited yet? It isn't marked with a tick on your report.

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [27]

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Peter, I think you sneaked in a few more questions. So I will start at the last one. The ANDROMEDA study has a interim which can be run actually in the coming months, potentially. So that is in the trial description. And I'm not sure that, that is fully enrolled. But the interim can definitely be run. And so then, I will probably pass the other 3 questions over to David.

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David A. Eatwell, Genmab A/S - Executive VP & CFO [28]

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Yes. In terms of the operating expense, we did actually plan a slightly higher FX rate for the operating expense compared to the revenue when we did the original guidance. So not too much of that increase going up DKK 150 million is down to FX. The main 3 things that are really driving that is one of our existing programs at CD3xCD20, and that's just the advancement and good progress that we're making with that particular program. The rest of the -- most of the expense increase is down to 2 particular projects which were new and were not included in our internal budgets or our external guidance. The first one is the HexaBody CD38 with Janssen, our next-generation CD38. That deal, as you know, we announced on June 11. So we are ramping up expenditure on that program both on the preclinical and starting the commitment for CMC cost.

And the second one was the BliNK CD47 license that we announced on July 12. That's where we're licensing that CD47 to go into a biospecific using our DuoBody technology and again, we're ramping up expenditure on that program in the second half of 2019 and we're beginning to make some commitments around that program.

So really, it's one program advancing, 2 new programs which are an addition. And as always, when we issue our guidance, the guidance does not include any new potential deals. So I guess, really, all positive on the expense side. It's increased investment. It's increased investment in the R&D for potential new products and potential new R&Ds to come forward in the next year or so.

And in terms of next year's, we're probably a little early to get into next year's expenditure. As we've seen for this year, 60% of our total expenditure is our project investment. I'd expect, again, in 2019 that the largest proportion will be on those projects. And again, very much like this year, it'll be heavily weighted to the most advanced programs. Good news with tiso, of course, that we are sharing those costs on a 50-50 basis. You won't see that in the operating expense line but of course, you do see it as a credit coming back from Seattle Genetics in the revenue line.

The other expenditure is really going to depend on the level of progress of a particular program. So they're difficult to predict at this stage. Everything is continuing very nicely at this particular point. They're very novel, they're very differentiated programs. It really depends if they're continuing to bounce. If we can find the therapeutic windows, if there is no tox profile, then we're very happy to increase the expenditure or as we prefer to look at it, increase the investment in those programs as we go forward.

Of course, we've got the 2 BioNTech programs. Again, we are sharing those costs on a 50-50 basis with BioNTech. So that does help to defer the net cost of those programs at the end of the day.

On tiso, the first commercial with -- starting to become true in the U.S. on the -- as a reminder, Seattle Genetics will take the lead on the U.S. market. But that means that we will be contributing to some of their cost for the program. And of course, the whole thing on a global basis is 50-50. But we are building up our commercial. I mean, it's relatively small numbers. As you saw on the headcount chart, out of our 180 employees, just 9% of those are in medical affairs and commercial. And we do see sort of medical affairs growing before the commercial. We have got some strategic commercial people that we hired. Of course, we're a little ways away from actually getting into the sales force and particularly with Europe. That will come a little later for tiso so not really much impact in 2020. Hopefully, that will give you some answers.

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Operator [29]

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The line of Michael Novod from Nordea is open.

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Michael Novod, Nordea Markets, Research Division - Director of Healthcare, Healthcare Analyst & Sector Coordinator [30]

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Just a follow-up to Wimal's question on the subcu. [If you could just] talk about the [premedication], but there was also a discussion at ASCO around post monitoring, around 3 hours from KOLs that J&J requires 6 hours of post monitoring from the -- with the first subcu infusion. And thereafter, it's up to the patient's discretion. Can you just explain what is, say -- why that monitoring is required for the subcu? And then just a small one for David. Why don't you use a higher dollar for the milestones when you do it for the royalties?

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [31]

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Thanks, Michael, for the question. I think it is just safety in the COLUMBA study, Michael, for the -- for watching for the infusion-related reactions. But I must say that I don't know the exact reason for the 6-hour monitoring period, but I understand from Janssen is that it tends to get shorter and shorter and shorter. A bit more experience on physicians with the subcu formulation. But we may have to ask you -- to follow up with you, Michael, to give you further perspective on that. David?

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David A. Eatwell, Genmab A/S - Executive VP & CFO [32]

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Yes. We thought it was about 3 hours for that monitoring. But again, with the subcu, we get lower infusion rate reactions. I know it's really -- nearly all of them are related to the first (inaudible), so I think still there's a huge advantage with the subcu, once you get to the second, third and beyond infusions. So I think that will really cut down the time compared to where we are today with the IV format.

In terms of milestones, you're absolutely right, Michael, I left those in at the -- around DKK 1.5 billion. As you know, those 2 sales-related milestones in total are $250 million. As I said, they're going to come in right at the end of the year. I don't know where the U.S. dollar/Danish kroner exchange rate is going to be at the end of the year. But the complete transparency, look, if you take that $250 million, use the exchange rate we had at our original guidance of 6.00, that gives you the DKK 1.5 billion. If we use $650 million, the same as I've done with the royalty income, then that would give us DKK 1,625 million, so that will give us DKK 125 million upside, not too material on the total revenue that we have in guidance of [DKK 4.8 million]. But sure, we get both of those milestones, the rate stays at 6.5, then we'll have a little upside here at DKK 125 million.

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Operator [33]

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The line of Graig Suvannavejh from Goldman Sachs is open.

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Graig Suvannavejh, Goldman Sachs Group Inc., Research Division - Executive Director & Senior Equity Research Analyst [34]

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Congrats on all the progress and on the IPO. Two questions if I can. Just one, on the next-generation anti-CD38 HexaBody, can you remind us on where there is the ability to improve over DARZALEX and what you're trying to achieve there? And when we might see some data from that program? And then secondly, just on teprotumumab. Can you remind us what the financial arrangement is with Horizon on that candidate, and how are you seeing the opportunity?

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [35]

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Thanks, Graig. Nice to speak with you. Let me address both questions. The next-generation CD38 HexaBody is super potent in killing CD38 positive target cells, Greg, including cells that cannot be hit by daratumumab because daratumumab is very sensitive to certain threshold level of CD38. And this CD38 HexaBody molecule can actually much more potently kill cells, not only multiple myeloma cells which cannot be killed by daratumumab anymore but also cells from leukemia and lymphoma tumors, and we tested a very large battery. Hopefully this year, you will see some preclinical data. We are preparing the molecule for the clinic, for evaluation in the clinic. We do 2 trials initially. One in multiple myeloma, one in diffused large B-cell lymphoma, where it's a huge unmet medical need. Now we have very strong preclinical data, and we hope that we can actually move the molecule in the clinic in 2020.

So it will take some time before you see data from the clinical study, Graig. But hopefully, some preclinical data this year at a scientific conference.

Then the second question on teprotumumab. We originally created that molecule for Roche, under a Roche interaction. It's a partnership that we set up in 2002, and we got a very nice single-digit royalty, mid-single digits royalty from Horizon for teprotumumab if that molecule hits the market, which we hope it will be quite soon. So it can become a nice income driver for Genmab.

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Operator [36]

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The line of Emily Field from Barclays is open.

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Emily Field, Barclays Bank PLC, Research Division - Research Analyst [37]

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I was just wondering if you could comment on just sort of how you're thinking about your growing cash balance, particularly in light of the funds raised via the IPO in the U.S. and just how you're thinking about using these proceeds because obviously you have so much going on with your internal pipeline. Just how you -- I would assume that it's going to be used a decent amount to acquire external assets, just sort of what your overall philosophy towards M&A is in the context of your growing cash.

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [38]

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Thanks, Emily, for the question. I will start with this answer, and then I will ask David to chip in also. First of all, we will use the cash to accelerate all programs. As we are already doing, as David said, this year, with some new molecules we bring into the pipeline, Emily. But the whole strategy of the company is actually focused on identifying the next 2 clear winners, clinical winners and then maximize the potential. And then if one does, [then we] can easily spend $400 million to $500 million per program if you do military-style, parallel clinical development. And that's the #1 goal for the company. But of course, you're also looking at scouting opportunities to in-license either products or technologies as we have done with the partnership with Janssen on the next-generation CD38 antibody and with the BliNK CD47 antibody recently. We have done the Immatics partnership last year, Emily. And you will see -- you can expect to see more partnerships, strategic partnerships of the company where we would potentially also spend more and more capital on. We also watching the landscape very, very carefully for next-generation technologies, which we think would complement our technology base, Emily. And of course, with the cash now on the bank, we actually -- we can actually move very swiftly and very quickly to actually broaden the technology base of the company, both product-wise and technology-wise. And you'll see examples of each one of those in the coming time, I believe. David, you want to give further color?

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David A. Eatwell, Genmab A/S - Executive VP & CFO [39]

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I think you sort of summarized it well there, Jan. I think [our role], it just gives us that ability, increases our financial strength and strategic flexibility. So we can maximize the value from any partnerships and also commercialize select products as we desire. But with that additional capital that we've got, it means we can negotiate from a position of strength-only deals that we do. Jan mentioned CD3xCD20, it gives us the capabilities and the choices and also means that we can go into any negotiations that would go into -- on an equal footing. No great change to the strategy overall. No great plans for large M&A. So it's really more of the same and continue with our financial discipline.

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Operator [40]

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The line of James Quigley from J.P. Morgan is open.

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James Patrick Quigley, JP Morgan Chase & Co, Research Division - Analyst [41]

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On DARZALEX guidance, you kept it flat at $3 billion. Now that you've got the approval from (inaudible), can you tell us when you originally expected the approval in the guidance? And on top of that, if you back out what you implied from the J&J sales, it's around about an $80 million one-off, so how does that factor into the guidance?

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [42]

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I think, James, I'll have to pass these questions to David. David?

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David A. Eatwell, Genmab A/S - Executive VP & CFO [43]

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Sure, yes. A lot of different moving parts and bits and pieces that are in there. I mean, we're quite pleased with where we are at the half-year point. We've got about, Janssen's net sales, about $1.4 billion. As you know, the target for the year is $3 billion. So that means we got to get $1.6 billion in the second half. It's great to have that contribution at that pricing accrual adjustment in there. It means that I wouldn't expect any change to that or any -- a repeat of that in the second half, overall.

But I think we're well-positioned here, with that $80-odd million of price adjustment, we do get to keep that, we do get royalties on that. So that does help with our overall target for the year. But really, the same thing as we said at the beginning of the year, we're looking for the U.S. to grow from $1.2 billion to about $1.7 billion, growth of $500 million in 2019. We expect most of that growth to come from the second line, and we talked about the gain in market shares earlier. The newly diagnosed multiple myeloma, approved on June 27, would I have liked it to have been approved a month or so earlier? Sure. But I think it's approved now. I mean originally,, we said around $200 million of incremental expectation in the frontline. We do, remember, have the advantage in the frontline setting.

So for the second half of 2019, all of these new patients coming in postapproval are going to be on the higher dosage of daratumumab. Remember, we've got weekly dosing and biweekly before we go onto the once every 4 weeks. So that means dollar value per patient is always the highest in that first 6 months, and that means every frontline patient on DRd is going to be a high contribution patient for us in the second half. So we still expect a nice growth coming in the U.S. from the frontline setting.

In terms of the rest of world, we've been pleased with some of the data we've seen so far. What they learned -- launched in frontline multiple myeloma with DVMP, that's going very well. We're seeing further penetration in Spain and Italy. As you know, they were fairly late to get their approvals. Earlier this year, we even saw the U.K. get approval in second line with a combination with Velcade. And then the France reimbursement was agreed towards the end of June, and I think that now means there's an opportunity in France with the reimbursed price both in monotherapy and the combination with Velcade and the combination with Revlimid, that we can start to see France moving up as one of the EU5 countries but really moving up the ranking tables to probably where it should be.

Further growth from Japan as well to look forward to in the second half. As Jan mentioned earlier, we have filed for DVMP in the frontline setting in Japan, and when we saw the original launch in Japan, it picked up very quickly, it was adopted very quickly in the relapse setting. And then finally, we also had approval in China for the monotherapy. I'm not going to project what the Chinese sales were, if we find that places like Japan [I find that] difficult to predict, I think China will be even more difficult. But having the approval in China is a great start.

So a lot to look forward to in the second half and I would say with that pricing adjustment for around the $80-odd million in there as well, as I said, we get to keep that, and we're still looking forward to get that $3 billion of net sales in 2019.

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Operator [44]

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The line of Wimal Kapadia from Bernstein is open.

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Wimal Kapadia, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [45]

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This is actually one from James' original, first question at the start of the call. Do you happen to know how much of the Revlimid first line use is in monotherapy versus in [combination with] Velcade? So what I'm really trying to get is a sense of the DRd opportunity versus the future DVRD opportunity, just based on the current split.

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [46]

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Do you know that's a -- do you have an answer for Wimal?

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David A. Eatwell, Genmab A/S - Executive VP & CFO [47]

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No, I haven't got accurate data on that, Jan. I think the other open question will be, we'll need to see the more detailed data for it, is that the DRd combination going to be cross-trial comparison. But is it going to be comparable with RVd? So I don't think it's just necessarily are you going to go from Rd to DRd? Are you -- could possibly going to go from RVd to DRd? And I think that will be another comparison that's made as well. But I think the data we've seen from there has been very impressive. The PFS numbers, the SCR numbers, the NRP negative key numbers, whichever sort of scorecard you look at it on, and I think DRd is an excellent combination in the frontline setting. And we do have the dara RVd combination trials ongoing and the GRIFFIN data, which you'll see in more detail coming up in not-too-distant future. So I think DRd should take -- I'm anticipating a good market share for DRd in the frontline setting.

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Operator [48]

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There are no further questions at this time. Please continue, sir.

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Jan G. J. van de Winkel, Genmab A/S - Co-Founder, President & CEO [49]

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So thank you for calling in today to discuss Genmab's financial results for the second quarter of 2019. We look forward to speaking with you all again soon.

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Operator [50]

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Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.