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Edited Transcript of GEN.CO earnings conference call or presentation 22-Feb-17 5:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Genmab A/S Earnings Call

Copenhagen Feb 22, 2017 (Thomson StreetEvents) -- Edited Transcript of Genmab A/S earnings conference call or presentation Wednesday, February 22, 2017 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jan van de Winkel

Genmab A/S - President, CEO

* David Eatwell

Genmab A/S - EVP, CFO

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Conference Call Participants

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* Sachin Jain

BofA Merrill Lynch - Analyst

* Thomas Bowers

Danske Bank - Analyst

* Michael Novod

Nordea Markets - Analyst

* James Quigley

JPMorgan - Analyst

* Carsten Madsen

SEB Enskilda Inc. - Analyst

* Jean-Paul Mannie

Kempen & Co - Analyst

* Peter Sehested

Handelsbanken Capital Markets - Analyst

* Peter Welford

Jefferies LLC - Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the annual report 2016 conference call. Today's conference is being recorded. During this telephone conference, you may be presented with forward-looking statements that include words such as "believes," "anticipates," "plans," or "expects". Actual results may differ materially, for example, as a result of delayed or unsuccessful development projects. Genmab is not under an obligation to update statements regarding the future, nor 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 Mr. Jan van de Winkel. Please go ahead.

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Jan van de Winkel, Genmab A/S - President, CEO [2]

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Hello, and welcome to the Genmab conference call to discuss the Company's financial results for the period ended December 31, 2016. Joining me on today's call is David Eatwell, our CFO. Let's move to slide 2.

As already said, we will be making forward-looking statements, so please keep that in mind as we go through this call. Let's go to slide 3.

2016 was a phenomenal year at Genmab, one in which we saw all our efforts over the past several years truly pay off. We have two antibodies on the market in multiple territories. Our pipeline is strong and poised for further growth.

At this pivotal time for the Company, we are also strengthening our executive management team with the addition of Dr. Judith Klimovsky in a newly-created position of Chief Development Officer. Judith is an extremely accomplished drug developer, having had a distinguished career at Novartis, BMS and Merck. We are thrilled to have Judith join the team, and I believe she will play a key role in helping us achieve our 2025 vision.

We are also adding further positions to our clinical and medical team as we move forward with our very exciting, innovative pipeline. Just yesterday, we welcomed Dr. Tahi Ahmadi to the Genmab team as our Senior Vice President Oncology and Translational Medicine. Tahi comes to us from Janssen, where he played leading roles in the clinical development of daratumumab and ibrutinib.

We also plan to add further talent to our team to ensure we can deliver on our ambitions to create a sustainably profitable biotech where royalties or revenues from product sales cover our cost base. Although we are not quite there yet, we are getting closer, with royalties covering 68% of our operating costs in 2016 versus only 16% in 2015. For the fourth year in a row, we are profitable, with profit in 2016 at the highest level in Genmab's history. Let's move to slide 4.

We have already achieved great success with our marketed products and I believe there is more to come. Both daratumumab and ofatumumab remain in clinical development for new indications. Our clinical pipeline is rounded out with several other products as well. Two of these, tisotumab vedotin and HuMax-AXL-ADC, are being developed by Genmab, and several others are being developed by partners, including two DuoBody programs run by Janssen.

We have a very robust, innovative pre-clinical pipeline as well, with over 20 projects ongoing. Two of these projects, HexaBody-DR5/DR5 and DuoBody-CD3xCD20, are IND candidates for this year. We also expect to file multiple other INDs between 2018 and 2020. At Genmab, we recognize that the key to our success is to ensure our pipeline is filled with differentiated antibody products that offer the greatest possibilities for clinical and commercial success, and we continue to look for our next winning products. Let's now move to slide 5.

Let's now take a look back at our achievements in 2016. DARZALEX continued to be a shining star throughout the year. We announced the first European approval for the drug in relapsed and refractory multiple myeloma in May.

Following positive data from the Phase III CASTOR & POLLUX studies, we submitted new regulatory applications in the US and in Europe in August. Just three months later, the FDA approved DARZALEX in combination with other backbone therapies for patients with multiple myeloma who have received one prior therapy. This second FDA approval came almost exactly one year following the first approval of DARZALEX in November of 2015. The FDA had awarded DARZALEX with its second Breakthrough Therapy Designation for this indication last July, which I'm sure played a role in its speedy review.

The first regulatory submission for DARZALEX in Japan was also submitted last year, and we look forward to the outcome of that application.

The progress of DARZALEX resulted in achievement of a number of milestones in our collaboration with Janssen. In total, Genmab earned $160 million in milestones from Janssen in 2016. We also earned DKK458 million in royalties under this collaboration, based on $572 million in net sales of DARZALEX by Janssen. This was around double our original expectations of $250 million to $300 million in sales for DARZALEX for 2016, and we are delighted with the launch and the continued sales development.

We also saw progress with Arzerra last year, achieving FDA approvals in two new CLL indications and one approval in one new CLL indication in Europe. We were very encouraged to see that the Phase III studies with the subcutaneous formulation of ofatumumab for the treatment of relapsing multiple sclerosis were started by Novartis in 2016, and we are optimistic about the significant potential of ofatumumab in this indication.

In addition, we continue to make progress in other areas of our business. We entered a new commercial agreement with Gilead Sciences for our DuoBody bispecific antibody technology; two DuoBody programs under our collaboration with Janssen are in Phase I clinical studies; we added a second antibody-drug conjugate to our own clinical product pipeline last year as well; the first-in-human Phase I/II study of HuMax-AXL-ADC in solid tumors is now well underway; lastly, as David will describe in detail, we continue to perform well financially. We improved our revenue by DKK683 million in 2016 compared to 2015, and we crossed the DKK1 billion mark for operating profit in 2016.

I will now turn the call over to David to describe our financial results and guidance for 2017.

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David Eatwell, Genmab A/S - EVP, CFO [3]

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Thank you very much, Jan. Over the next few slides I'll discuss the results for the full year 2016 and provide you with the guidance for 2017. So, let's move to slide 6.

Revenue for the year came in at DKK1,816 million, an increase of DKK683 million, or 60%, compared to 2015. The increase was mainly driven by our higher milestone and royalty revenue related to our DARZALEX collaboration with Janssen.

Total royalties comprised of 29% of the revenue in 2016, compared to just 8% in 2015. So, not only was 2016 the highest total revenue ever recorded by Genmab; the quality of revenue also improved. The increase in DARZALEX milestones was driven by the first commercial sales in the second and the third indications in the US, and the net sales of DARZALEX reaching $500 million in a calendar year.

Expenses were DKK763 million in 2016, compared to DKK579 million in 2015. The increase of DKK184 million, or 32%, was primarily related to additional investment and an acceleration in our clinical and pre-clinical pipeline.

Next, there was no other income in 2016, compared to the DKK176 million in 2015. This credit was due to the one-time reversal of the ofatumumab deferred funding liability, and that was resulting from the transfer of the ofatumumab collaboration from GSK to Novartis.

Moving to the operating result, we had a record-setting operating income of DKK1,053 million for 2016, compared to DKK730 million in the prior year. The increase of DKK323 million was driven by higher revenue, which was partially offset by the increased operating expenses in 2016 and the one-time reversal of the ofatumumab liability in 2015.

The net financial items were an income of DKK77 million in 2016, compared to an income of DKK28 million in 2015. The difference between the two periods was mainly due to foreign exchange rate movements, which positively affected our US dollar-denominated portfolio and cash holdings at the end of 2016.

Corporation tax for 2016 was an income of DKK57 million, compared to just DKK6 million in 2015. As a result of significant milestone income in 2016, we actually ended the year in a taxable income position. However, the tax expense was offset by the reversal of some of the deferred tax assets in the balance sheet, leading to a tax income of DKK57 million for the year. That brings us to the net result of DKK1,187 million for 2016, compared to DKK764 million in 2015.

Finally, our cash position increased by DKK429 million in the year, mainly due to income from our operations and proceeds from warrant exercises of DKK209 million, which were partially offset by the purchase of Treasury shares for DKK118 million. This resulted in a cash position at the end of the year of DKK3.9 billion. Now, let's move to slide 7 and the revenue.

Our revenue breakdown by category is shown on the left-hand side of this slide. In 2016, milestone income was the largest portion of the revenue, at DKK1,187 million. We achieved daratumumab milestones totaling DKK1,096 million, DuoBody milestones totaling DKK80 million, and an DKK11 million milestone from Lundbeck. Last year, or 2015, we achieved daratumumab milestones totaling DKK587 million and DuoBody milestones of DKK119 million.

As Jan mentioned earlier, Janssen's DARZALEX sales were $572 million in 2016, which resulted in royalty income of DKK458 million to Genmab. Following the initial FDA approval on November 16, 2015, the sales in that year were $20 million, resulting in an income of DKK16 million to Genmab.

Deferred revenue from our collaborations was DKK93 million in 2016, compared to DKK292 million in the same period of 2015. As previously discussed, this decrease is due to the ofatumumab deferred revenue that was fully amortized at the end of 2015. And as Jan mentioned earlier, the overall quality of the revenue is improving, and the royalty income stream is edging closer to the total operating expenses, with a ratio of 68% in 2016 versus 16% in 2015.

The graph on the right bridges the revenue between the two periods, and as I discussed before, the change is due in large part to the increase in DARZALEX milestones and royalties, which were partially offset by the anticipated reduction in the deferred revenue and DuoBody milestones.

Next, the expenses and the operating income on slide 8. The graph on the left compares the change in expenses between 2015 and 2016. As you can see, there is an increase in the operating expenses of DKK184 million, which was driven by our decision to accelerate our pipeline. Over 85% of the expense increase was due to an additional investment in our product pipeline, including the advancement of DuoBody-CD3xCD20, HexaBody-DR5/DR5, tisotumab vedotin, and HuMax-AXL-ADC.

Looking at the chart on the right, as we've already discussed, you can see an increase in the operating income from DKK730 million to DKK1,053 million. Again, the increase was mainly due to the higher revenue, partially offset by the increased expenses and the reversal of the GSK liability in 2015. Excluding the impact of that one-time reversal, the operating income would have increased by DKK499 million year over year.

Now, let's move on to the guidance for 2017 on slide 9. This slide shows an overview of the 2017 guidance compared to the actual result in 2016. We expect our 2017 revenue to be in the range of DKK1,950 to DKK2,150 million, compared to the DKK1,816 million in 2016.

Our projected revenue for 2017 consists of DARZALEX royalties of around DKK1 billion, and that's based on Genmab's estimate of DARZALEX net sales of somewhere between $1.1 billion to $1.3 billion. We're also projecting DARZALEX milestones of DKK800 million in 2017. Now, that, of course, will be nearly DKK300 million lower than 2016, as so many milestones were achieved late in Q4 of 2016. The remainder of the revenue mainly consists of Arzerra royalties, DuoBody milestones, and deferred revenue.

The overall quality of revenue is again improving in 2017, with the DARZALEX royalty income stream doubling year on year and just above covering all of the total operating expenses for 2017. We anticipate that our operating expenses will be in the range of DKK1 billion to DKK1.1 billion, compared to our operating expense of DKK763 million in 2016.

The increase of approximately DKK287 million, or 38%, is driven by the advancement and continued investment in our pipeline and products, including those four key products that I mentioned earlier. But also, we've now started upping the spend on our next four key products in our pre-clinical pipeline, and those will feed INDs in 2018 and 2019. In 2017, we'll spend about DKK440 million on these eight key projects, and that's about 42% of our total expense base.

We expect the operating income for 2017 to be in the range of DKK900 million to DKK1.1 billion, compared to the DKK1,053 million reported for 2016, which is tremendous considering the large milestones that were achieved in 2016 rather than in 2017.

We project a cash position of more than DKK4.5 billion at the end of 2017, compared to the DKK3.9 billion at the end of 2016. So, we continue to remain -- to be very well-capitalized.

Also note, as usual, the 2017 guidance does not include any new potential deals or potential proceeds from future warrant exercises. In summary, another record year in 2016, and increasing royalties from DARZALEX in 2017, enabling Genmab to increase the investment to selectively advance our pipeline and create even more value.

Now, I'd like to hand back to Jan to discuss our 2017 goals.

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Jan van de Winkel, Genmab A/S - President, CEO [4]

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Thanks, David. So, let's now move to slide 10. Looking at our goals for 2017, we are anticipating another exciting year for Genmab. We hope to see additional regulatory approvals for DARZALEX in the US, Europe and Japan. This could potentially bring the product to a wider variety of patients around the world.

Over the past year, the number of daratumumab clinical studies has more than tripled, and we expect the number of studies to increase further with the start of a number of new trials this year in a variety of new blood cancer and solid tumor indications as well as progressing into the subcutaneous formulation.

Finally, for daratumumab, we look forward to data from the Phase III ALCYONE study which evaluates daratumumab in combination with VMP, which is standing for Velcade, melphalan and prednisone, versus VMP alone in front-line multiple myeloma in the second half of this year. Excitingly, the Phase III Maia study, evaluating the effect of daratumumab with Revlimid and dexamethasone versus Revlimid and dexamethasone alone in front-line multiple myeloma, has also finished patient recruitment in December last year, and an interim analysis for that study is expected to read out in 2018. This year we also expect to report data from studies of daratumumab in indications other than multiple myeloma.

We also look forward to the Phase III results of ofatumumab in follicular lymphoma in 2017. Our pipeline will be further strengthened by a number of advancements, including further clinical data from the Phase I/II tisotumab vedotin trial, progress in the recently-started HuMax-AXL-ADC Phase I/II trial, new IND submissions for HexaBody and DuoBody projects, and the continued overall progression of our robust, differentiated, pre-clinical pipeline. Furthermore, we plan to continue to build our portfolio by entering new DuoBody and HexaBody collaborations and progressing our partnered programs. Finally, we will continue to focus on disciplined financial management with controlled Company growth and smart investments. Let's move to slide 11.

That ends our presentation of Genmab's full-year 2016 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). Sachin Jain, Bank of America.

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Sachin Jain, BofA Merrill Lynch - Analyst [2]

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Sachin Jain from Bank of America. Thanks for taking my questions -- three, if I can. Firstly, on full-year 2017 DARZALEX sales guidance, I wonder if you could just touch on two aspects. What's assumed as an inflection for new indications for the European launch, et cetera, that you reference? And just a very broad question -- I mean, it's clearly below consensus. Just your perspective on where you think you differ and how conservative the guidance that you're providing is. Obviously you beat last year's guidance that was provided at this time, quite substantially.

Secondly, just wondered, David, if you can give us some color on what composes the DKK800 million in DARZALEX milestones. Is that predominantly ALCYONE's success, or are there material commercial milestones in there?

And then finally, for Jan, you've mentioned data in other indications. I had a specific question on NHL. Is there any additional color there, and are there any milestones assumed within the guidance for success in NHL? Thank you.

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Jan van de Winkel, Genmab A/S - President, CEO [3]

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Thanks, Sachin, for the questions. I think I will delegate the first two to David in a minute. Let me start with the third question, Sachin, on the NHL data. There's no further news there. The study is progressing and we are confident that Janssen will at some point present the data at a medical conference, also within 2017.

The exact planning, we have no further color on, Sachin, at this moment. But what you will see is a very robust expansion into other blood cancers this year as well as in solid tumors. You've already seen several studies announced with Opdivo as well as with Tecentriq, and those studies are progressing well, as I hear. We are now already moving in north of 10 solid tumor indications, combining DARZALEX with checkpoint blockers. And as I've said earlier publicly, it's that you can expect other studies and also with other checkpoint blockers --

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David Eatwell, Genmab A/S - EVP, CFO [4]

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Do you mind if I say that one of them's over $2 billion sales?

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Jan van de Winkel, Genmab A/S - President, CEO [5]

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Sorry?

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David Eatwell, Genmab A/S - EVP, CFO [6]

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Sorry, Jan.

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Jan van de Winkel, Genmab A/S - President, CEO [7]

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So, you can expect other studies to be moving into gear, Sachin, this year, also with other checkpoint blockers. And then, having said that, I will move to questions one and two for David on the guidance for 2017, and how conservative that is.

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David Eatwell, Genmab A/S - EVP, CFO [8]

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That's fine. That's great. Thank you very much, Jan. Yes, as you said, we've got, for 2017, a pretty exciting DARZALEX number for, really, its second full year of sales -- $1.1 billion to $1.3 billion. That's quite a growth. That's doubling up on the sales of $572 million for 2016. So, I think it's a pretty exciting launch and a great trajectory for a drug of this type, and a pretty amazing launch going through overall.

In terms of the consensus, I mean, we don't manage our guidance to the consensus numbers. We did collect in a consensus number of 15 different analysts. There is a whole range of numbers there. They're coming out with a sales number for 2017, average for the consensus, of $1.4 billion. But there is quite a range within that. It is a simple average overall. I think the highest one that is in there has got a sales number projection of over $2 billion for 2017. So, I think, if you take out some of the outliers, then maybe it gets a bit closer to the top end of our number. But regardless, it is our number, it is our estimate, and we're not managing through the consensus.

In terms of some of the things we were considering when we were looking at those range of numbers, of course you've got overall -- we got the, after one prior line, the combo treatments. Those were approved in the US towards the end of 2016. So, we'd anticipate and expect some good growth in the US sales based on a full-year sales detailing of those wider patient population than there is in the fourth-line.

Also, we've got the mono rollout for a full year into Europe. That was only approved in May of 2016. And that will be rolled out to more countries as we go throughout the year.

And then we would anticipate the European, after one prior line approval in Europe. Of course, in Europe it does take a time for things to get rolled out in the individual countries. So, it won't be instant sales gratification within Europe.

Other things going on in Europe -- as you know, when you launch in Germany you come through as a sort of non-negotiated price, and after one year you will go in through a price negotiation. And I don't know where that price negotiation in Germany will end up, but I would probably wager that the German price negotiations usually mean a lower price rather than a higher one coming through.

So, there's a lot of different moving parts that are there. I think $1.1 billion to $1.3 billion in its second year is a fantastic number. In terms of the other questions, in terms of the milestones, we have an agreement with our partner, we can't give too much detail about the exact milestones in advance of their achievement. But I think it is safe to assume that it is a pretty high probability that we will get the European combination after one prior line approval, and you can expect that there would be milestones attached to that. But, again, it is lower milestones in 2017, simply because so much was approved in the last, I would guess, about five or six weeks of 2016.

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Sachin Jain, BofA Merrill Lynch - Analyst [9]

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Sorry, I don't know whether you can answer the follow-up, David, or not. Is ALCYONE's success upside to that milestone number or not? And if you can't answer, I understand.

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David Eatwell, Genmab A/S - EVP, CFO [10]

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Most of the milestones that you've seen in the past have been on filings and on then first commercial sale. So, not many of our milestones with Janssen in the past have been driven on data.

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Sachin Jain, BofA Merrill Lynch - Analyst [11]

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Very clear. Thank you very much.

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Operator [12]

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Thomas Bowers, Danske Bank.

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Thomas Bowers, Danske Bank - Analyst [13]

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A couple of questions from me. Just going back to the royalty income, I'm trying to compare your net sales guidance. It seems like you're still at 12%, up to the $1.3 billion in net sales. Is that a correct assumption?

And then, second question -- can you maybe just update on the presentations for this year? I mean, I guess the deadline has now passed for ASCO, so what have you submitted here? And then also, in regard to tisotumab, I'm just trying to figure out -- we expect detailed Phase I data, most likely at ASCO; and then should we expect some proof-of-concept data in the second half of the year? Is that a correct understanding?

And then my third question, just on the tax rate. I'm just wondering how we should think of this in the longer term, of course once you're done with the tax-deductible losses. Is that -- and in addition to that, where is the lion's share of the daratumumab IP located? Thank you.

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Jan van de Winkel, Genmab A/S - President, CEO [14]

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Let me take, definitely, the second question, and then delegate the other questions -- the first one on the royalty income and the royalty tiers -- and I think your assumption is incorrect. I can already say that there. But let me delegate that to David.

But let me say that, for ASCO, we have submitted a number of abstracts on dara. I cannot go into further detail there. But also some -- I think, some very exciting new data, which hopefully will be accepted for presentation. That is up to the conference, Thomas.

We also submitted abstracts on other programs, but not on tisotumab vedotin. We will likely send that data to ESMO or another conference in the second half of this year. The study is progressing really, really well. So, in the second half is where you can expect data for -- more robust data for tisotumab vedotin, after the initial data we showed at the Capital Markets Day, Thomas, last November.

That's probably all I can say at this moment, without knowing what will actually be accepted at ASCO, but there are abstracts in addition to dara on a number of other programs, but not tisotumab vedotin, submitted by us and by Janssen, and by Novartis.

Maybe, David, you can give some further color on the royalty income and the assumptions for this year, and then also on the tax rate -- the third question from Thomas.

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David Eatwell, Genmab A/S - EVP, CFO [15]

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Very good. Yes. In terms of the royalty tiers, our partner has asked, and actually it's in our contract, that we don't give information out on the future expected royalty tiers that we go through, but in our range that we've previously discussed, which is 12% to 20%. However, when we do cross a tier and we start reporting in that new tier, we will inform the market when we cross through on those.

And obviously there's two variables when calculating the royalties or putting them in the guidance. One would be around the royalty rate and the tiers -- the sales number -- but also the TO convert it back into Danish krone as well. However, having said that, with the royalty tiers, for those that haven't had a chance to read the full report yet, you will see in the report where we talk about the Janssen collaboration on page 24 of the annual report, that we have actually been able to give the Street now more guidance on where the top tier comes in. So, the 20% royalty, which is the highest tier, will be payable on net sales above $3 billion achieved in a calendar year.

So, hopefully that will give everybody a bit more clue now, especially where some of your models go out further, with sales numbers getting up into the $8 billion or $10 billion. You can see a substantial amount of the sales will come through at that 20% royalty rate when sales exceed $3 billion.

In terms of the tax rate, of course [in there] we have a number of NOLs and deferred tax asset, which you can see, that are detailed within the annual report. Of course, in Denmark, we do have set-off limits, so we can't utilize all of the previous tax losses against the current tax. There is that 60% limit that we have in Denmark.

And your other, in terms of the daratumumab IP -- that is located in Denmark, so we do collect the DARZALEX, both milestones and royalty income -- they are income that come through, and will come through at that 22% tax rate in Denmark.

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Jan van de Winkel, Genmab A/S - President, CEO [16]

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Thanks, David. Thomas?

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Thomas Bowers, Danske Bank - Analyst [17]

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Great. Thank you. That's all.

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Operator [18]

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Michael Novod, Nordea.

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Michael Novod, Nordea Markets - Analyst [19]

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It's Michael from Nordea. Just a few follow-up questions. On the royalty rate, just to understand it correctly, to the answer on Thomas' question, because when we do the calculations on DKK7 per US dollar, then even whether we use midpoint or high point, we do get to 12%. So, just putting Jan's comment in context, that the royalty rate was not still 12%. I just need to understand it.

And then, secondly, on the cash flow, you add around DKK500 million, DKK600 million to your net cash position. Could you go through that? Because, to me, it sounds perhaps a bit low. Maybe you could just go through the different drivers in that net cash projection for 2017, or whether there's something that is dragging down, that we didn't really get. Thanks a lot.

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Jan van de Winkel, Genmab A/S - President, CEO [20]

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Thanks, Michael. I think I will delegate both of these questions to David, and then maybe at the end make some comments. David?

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David Eatwell, Genmab A/S - EVP, CFO [21]

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Yes. I'm afraid I can't go into any further details on the tiers, apart from where the 20% kicks in overall. As I said, there is a couple of variables in there. If you look at the average FX rate for all of 2016, it came in at 6.73. So, you'll have to make a guess at what you think the exchange rate will be in 2017. And of course, that could be a variable that could impact these numbers either up or down, although you will notice in the annual report we have done some hedging to actually protect and keep at least some of the income in at the exchange rate of closer to 7, so we do have some protection for us there overall.

And the second question was on the cash flow?

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Michael Novod, Nordea Markets - Analyst [22]

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[The driver of] the cash flow. Yes.

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David Eatwell, Genmab A/S - EVP, CFO [23]

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Yes. On the cash flow overall, I think --

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Michael Novod, Nordea Markets - Analyst [24]

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(inaudible) [DKK4.5 billion].

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David Eatwell, Genmab A/S - EVP, CFO [25]

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Sure. Yes. I mean, we've got an operating income there of DKK900 million to DKK1.1 billion. Some of the items in there, the most significant one will be working capital movements. We've got, as I said, a substantial uptick in royalty in 2017, and you would expect that royalty to actually accelerate quarter by quarter. So, our largest royalty income, you would expect to see in the fourth quarter of 2017. We actually get paid by Janssen a quarter in arrears, so we would not get that cash into 2018. So, that's a negative when you compare the royalty of Q4 2017 compared to the royalty of Q4 2016. That's a negative working capital adjustment.

Also, as we said, and you can see in the report, there is some tax that's payable for 2016. Those payments will become due in 2017, and as we're estimating that we could also be in a taxable profit situation for 2017, we'll now have to make estimated tax payments for 2017 as well. So, again, that's something that is a difference between the operating income and our actual cash flow overall.

Lastly, there's some other smaller amounts, like capital expenditure as we build out some of the new equipment and fittings for our new facilities both in Copenhagen and in Utrecht. But that's the main thing, and the biggest thing in there overall is the actual working capital movements. But we put greater than DKK4.5 billion, so that gives us a range. I think, at this time, with the strength of the cash position, you're going to get these timings on working capital as the Company grows. But we're very well-funded and we'd expect that cash flow to increase in the future years as well.

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Jan van de Winkel, Genmab A/S - President, CEO [26]

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So, maybe, Michael, to give you a little bit more color, I can confirm again that we will move to another royalty tier under the $1.3 billion in our guidance range. But we cannot tell you what the exact tier is, and we cannot tell you what the exact percentage royalty is. But it will be higher than 12%, I can assure you.

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Michael Novod, Nordea Markets - Analyst [27]

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Okay. Super. Thanks a lot.

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Operator [28]

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James Quigley, JPMorgan.

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James Quigley, JPMorgan - Analyst [29]

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Thank you for taking my questions. Just a quick one on ALCYONE, and just to understand what the KOLs are saying around the potential success of that trial. Other regimens, particularly Revlimid, have struggled to show a benefit against the [MPV]. So, just wondering if there are any risks there, especially around the interim.

Do you have any further updates on the European launch? I think the last time we spoke, it was 15 approvals. Has that progressed at all? And has Janssen given you any details on how the launch is progressing in Europe, and also in Canada and Japan? I think I'll leave it there, thanks.

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Jan van de Winkel, Genmab A/S - President, CEO [30]

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Thanks, James, for the questions. Let me start at ALCYONE. That is combining daratumumab with VMP versus VMP alone. We already know from the CASTOR study last year that combining daratumumab with Velcade-containing regimens is a really good combination. I mean, we saw hazard ratios which went as low as 0.22 in patients that had only one line of prior treatment, and that was actually a much better hazard ratio than with patients with more than two rounds of prior treatment. So, we know that less heavily-pretreated patients respond better to combinations of daratumumab and Velcade. So, we are pretty confident that when you go to front-line, James, that the data will be even better in combination with Velcade-containing regimens.

So, yes, there's always an execution risk on any trial. But, as we already discussed at the Capital Markets Day in November when we got the same question from another gentleman, we said, well, we think that the risk is actually quite minimal, when you look at the strength of the CASTOR data and also how rapidly the trial was progressing and recruited. But, of course, we still want to see the data, and that will happen in the second half of the year. I probably leave it with that.

Then, as it relates to the launch in Europe, it's going really well. The drug is now launched in, I think it's actually over 15 countries. And we hear positive sounds from the Janssen sales and commercial team. But we have no further detail as it relates to actual numbers. We know that in Q4 there was a robust increase, ex US, James. So, that is, I think, boding quite well.

And as David already alluded to, we definitely have milestones in the guidance for this year for the European approval. And given that we have gotten such a quick and speedy approval in the US, where we got 1 1/2 months after we got Priority Review designated by the FDA, we got already the approval in second-line and third-line in the US, we think that it bodes quite well also for European approval. But, of course, it's up to the CHMP and the European Commission to give us the label in Europe. But we are very enthusiastic about that, and we already put the milestones in the guidance, basically, for this year. I cannot say anything further on that, I am afraid, James.

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James Quigley, JPMorgan - Analyst [31]

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That's fair. Thank you.

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Operator [32]

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Carsten Madsen, SEB.

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Carsten Madsen, SEB Enskilda Inc. - Analyst [33]

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Carsten from SEB. Yes. I'm sorry to take a boring tax question again here, but just in order for us to look more at the medical/clinical trials than the tax regulation, David, could you try to explain one more time? You have a tax asset of almost DKK5 billion. And then there's something you cannot reverse, and there's something you can reverse. But would it make sense for us as analysts to, [what goes as] 2017/2018 at least, maybe 2019, to have a very low tax rate for Genmab?

And then a question for Jan. I don't know whether you can answer it or not, but when you look at Novartis and the MS trial, they go up against Aubagio in the first trials with the ofatumumab. Is there anything we can read from that? I mean, they could also have gone up against other drugs. And do you think they also will have to make additional trials against other MS drugs? Thanks.

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Jan van de Winkel, Genmab A/S - President, CEO [34]

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Thanks, Carsten, for the questions. Let me take the second question first, and then let -- so that David can think a little bit more about your tax question, and what we can say, and give color on that.

I can tell you that Novartis has planned the trials, the two Phase III trials in the relapsing MS, Carsten, and one of the -- and they have had very detailed interactions with both the US and the European regulators on the comparator arm.

And the choice for Aubagio was basically, I think, in joint discussions, reached because of the size of the trials. When you would run ofatumumab, Carsten, against another potentially more potent drug, the size of the trial would go up tremendously, and that of course has an impact on timing and costs. And it's clear that, in MS, you cannot run a new drug against a placebo, because there are several really good drugs now, approved for treatment of MS. And Aubagio is an important drug which is approved for treatment of relapsing MS. But this actually allowed Novartis to actually plan the trials with relatively limited numbers of patients for an autoimmune Phase III.

And that's probably where I should leave it at, at this moment. What the further plans are from Novartis, I think you need to ask them. But what I understand is that they are super-enthusiastic. The trials are really moving. And externally, Novartis has guided that they expect the data in early 2019, potentially making it possible, assuming good data, Carsten, that it can be on the market in 2020. But I think, any further color, I can potentially not -- can probably not give you. I think you need to ask the Novartis team, headed by Vas Narasimhan, because they do the planning for the ofatumumab subcu studies. But maybe, David, for the -- on the tax question, the first question from Carsten?

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David Eatwell, Genmab A/S - EVP, CFO [35]

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Sure. Yes. Unfortunately, the tax situation is a very complicated calculations, because you're not actually looking at the book profits, you're looking at the taxable profits, and there's items in there such as capitalization of R&D costs that can impact the actual taxable income on the books as you go forward overall. If you look on the balance sheet detail and then the notes to the accounts, there's quite a description of the deferred tax assets there.

So, you'll get two different situations, really, with the tax. You'll get actual tax charges -- because again, remember, there is this limitation of the 60% that you can only offset in Denmark -- and then you've also got the situation, we've got a large NOLs -- net operating losses and deferred tax asset. We haven't been including the value of that asset on our balance sheet because there isn't that long-term clarity on the profitability of the Company.

But as the profits increase and the taxable profits increase in the Company, we will be able to release some of that deferred tax asset. And that will do, like you've seen in 2016, we'll have a cash tax payable, but then we'll have some release of deferred tax assets coming through. So, you can see a situation where you may not get a tax charge on your P&L, but you may have cash taxes which would actually be payable because of this 60% offset limit within Denmark. Beyond that, it gets into a pretty complicated subject. But if you take a look at the notes in the accounts, if it doesn't satisfy your questions, then --

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Carsten Madsen, SEB Enskilda Inc. - Analyst [36]

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I already looked at them.

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David Eatwell, Genmab A/S - EVP, CFO [37]

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Follow up with me.

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Carsten Madsen, SEB Enskilda Inc. - Analyst [38]

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Yes. Okay. That's why I asked. No, but it -- just to -- so, if -- let's say you have a pre-tax profit of DKK1 billion and you have the DARZALEX IP in Denmark, then 60% of that is something you can use your tax shield for, and the remaining 40% will be taxed with 22% Company tax, roughly.

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David Eatwell, Genmab A/S - EVP, CFO [39]

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Yes, but there's limits. So, if you've got the tax profit that you've got booked in the year, even if you've got previous losses, you can't utilize 100% of your past losses to offset against that profit that you're currently reporting. So, there's that small DKK8 million amount that you can offset 100%; then you can offset 60%. But you are going to -- even though you've got plenty of past NOLs, you can still end up in a tax-payable situation in Denmark.

But it's a pretty complicated calculation. And the challenge is, the taxable profits are not the same thing as the book profits or the same thing as our guidance. It's difficult to give you much more detailed advice on what you should plan out, going forward. But we'll take a look at that to see if we can, in the future, give you some guidance, at least for 2017.

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Carsten Madsen, SEB Enskilda Inc. - Analyst [40]

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Yes. Okay. Cool. Thanks.

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Operator [41]

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Jean-Paul Mannie, Kempen.

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Jean-Paul Mannie, Kempen & Co - Analyst [42]

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Three quick ones. Maybe just to remind us, Jan, lots of activity on solid tumors -- can you maybe give us a bit of an indication in which time window you would expect any data from these trials?

Maybe, any sub-indication you are especially enthusiastic or optimistic about?

And then, also, on HuMax-AXL-ADC, trial is initiated. Any thoughts on which time window we could see some first data?

And maybe lastly, on subcu in dara, we discussed before, it's progressing. Any thoughts when Janssen would hit the Phase III button? Thanks.

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Jan van de Winkel, Genmab A/S - President, CEO [43]

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Thanks, Jean-Paul, for the questions. Let me give you some further color. On the solid tumors, time window for data, this is all studies where we actually combine daratumumab with checkpoint blockers, as you know, and this is all studies which actually are done to test the hypothesis that daratumumab will actually knock out suppressor cells of the immune system, like myeloid-derived suppressor cells and regulatory T cells and regulatory B cells. In solid cancer patients it's normally suppressed the immune system in those patients, so that the tumor doesn't get attacked by the immune system of the patients.

So, if you assume that that is the mechanism of action -- that it's not killing directly the primary tumor, but the knocking out the suppressor cells of the immune system -- that means that effects will probably be shown relatively late, in the tail end of the curve. So, I would say this year it's unlikely that you will see any data there, Jean-Paul; likely 2018 at the earliest. Because these studies have just started treating patients, and now I think the lung cancer trial is ongoing, and the other trials will be very soon moved into action.

The combination with checkpoint blockers in multiple myeloma, however, has already been in place for a longer period of time. I think Roche/Genentech has actually been doing quite a lot of patients already with multiple myeloma, combining Tecentriq with DARZALEX. So, I would guess that data from those studies could become available earlier than the next year, but that's up to Genentech, and I have no further insight in their timing.

Any populations we are particularly excited about -- I think about the populations, Jean-Paul, they are checkpoint blockers like PD1 blockers or PD-L1 blockers do really, really well clinically, like melanoma; like lung cancer; like bladder cancer. But we have some very good pre-clinical data via Janssen also in a number of other solid tumors, where there is actually quite an abundance of CD38-positive suppressor cells shown in samples from those tumors.

So, I would say, while it's too early to actually identify the real high candidates, but we are super-enthusiastic about it, and as I already said in my answer to Sachin Jain, there will be other combination studies done this year also, with potentially other checkpoint blockers. So, there is massive enthusiasm for studies in solid cancer.

Then, second question on AXL-ADC -- that trial is doing dose escalation, which is very slow dose escalation, Jean-Paul, because this is a super-potent molecule in pre-clinical models, and we need to assure ourselves and the regulators that this is a safe drug to give to patients. I would say next year, also, the earliest that you can expect clinical data from the dose escalation study.

And then finally, and easiest I think, the subcu developments in daratumumab -- a lot of activity right now, there, and potentially a Phase III moving into action with the subcu formulation of daratumumab. You've seen some early days in the Phase I at ASH last year. In the second half of this year, trial will be moved into gear, and potentially multiple trials, with the subcu formulation; but that's up to Janssen to determine the actual speed and robustness of the subcu program. But we are planning more and more trials with the subcu formulation. We think that's a very important advantage over the IV formulation.

So, there's massive activity and massive interactions, I think, with other parties by Janssen. And I would say that in the second half of this year we expect the Phase III non-inferiority first trial to move into clinical recruitment, Jean-Paul. That's all I can say at this moment.

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Jean-Paul Mannie, Kempen & Co - Analyst [44]

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Thank you very much.

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Operator [45]

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Peter Sehested, Handelsbanken.

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Peter Sehested, Handelsbanken Capital Markets - Analyst [46]

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Yes, it's Peter from Handelsbanken. Thank you for taking my questions. I have four. First one, regarding the MMY3007 study, could you elaborate as to when that has, slash, will be -- when the enrollment will be complete?

Second, how many commercial milestones have you left on daratumumab?

Third, will we see data on CD38 expression on myeloid-derived suppressor cells at ASCO?

Fourth and last questions, regarding treatment patterns for DARZALEX, have you any feedback you could give us with respect to duration of treatment in real-life clinical practice? Thank you.

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Jan van de Winkel, Genmab A/S - President, CEO [47]

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Thanks, Peter, for very good questions. I think the 3007 study is, I think, the VMP -- the ALCYONE study, or not? I think. I don't have the number here in front of me. But (inaudible) --

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David Eatwell, Genmab A/S - EVP, CFO [48]

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Yes, that's right.

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Jan van de Winkel, Genmab A/S - President, CEO [49]

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That must be the ALCYONE trial.

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David Eatwell, Genmab A/S - EVP, CFO [50]

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Yes.

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Jan van de Winkel, Genmab A/S - President, CEO [51]

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We have no further details on when we expect the interim readout, but it will be in the second half of this year, Peter. And when we get more concrete, more precise guidance on what the actual timepoint is, we will actually flag that up to the market. But right now I would say that in the autumn timeframe is where we expect the interim for that study to read out, and top-line data to become available. But no further information there.

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Peter Sehested, Handelsbanken Capital Markets - Analyst [52]

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So, just to confirm, you cannot comment on actual enrollment patterns as to when (inaudible) will start enrollment, just to get --

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Jan van de Winkel, Genmab A/S - President, CEO [53]

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No, I don't have further insights. This is decisions at Janssen, which have all that information. We just know that it is fully recruited, and the earliest indications are, Peter, that we will get to an interim in the autumn timeframe of this year, which we are super-excited about. But I cannot give you any further, precise modeling details there, because I don't have them.

Then the myeloid-derived suppressor cells -- I don't know whether that data could be presented at ASCO, because we don't know which abstracts will be accepted, of course, for that meeting. So, I cannot give you further color there. But I believe that Janssen at some point will actually describe in the public domain more pre-clinical data on CD38 expression on suppressor cells. But it's unclear at which conference that will actually be happening this year.

And the fourth question on treatment duration -- not a lot to say at this moment, apart from what I already flagged up publicly, is that actually it's still a number of patients in the original 501 trial. This was published, Peter, in the New England Journal of Medicine. The very first monotherapy study are still on treatment with daratumumab at this moment, and at the highest doses of daratumumab. So, that is for a quite long time.

But in real clinical -- in practice, in normal patients in regular hospitals, I don't have any information on that. But I know that Janssen is collecting that data and at some point this will be presented in public, and this is highly relevant, I think, for you and other analysts, Peter, to model, of course, the size of the different compartments. But, no further color I can give you here.

And then David can maybe comment on how many more commercial milestones are going to be left in the contract for DARZALEX. David, do you want to add further color there?

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David Eatwell, Genmab A/S - EVP, CFO [54]

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Sure. Yes. I can't give you the exact number, but to give you a guide overall, remember when we talked about the Janssen deal in total, we said there was about $1 billion of milestones attached to the deal. As you know, at the end of 2016 we've collected $310 million of milestones to date. So, in terms of total milestones, that would be the potential, if they all came through, of $690 million of milestones to come. So, there'll be more daratumumab milestones for development and regulatory events. There will be milestones for non-multiple myeloma events. And also, there'll be the commercial or sales hurdle milestones as well.

Also, when we talked about the original $1 billion of milestones, we said that slightly more than half of those were development/regulatory, including up to the point of first commercial sale, and that therefore less than half of it, or slightly less than half, was the sales or commercial milestones. And of course, we've only received the one commercial milestone to date, and that was the $25 million recorded late in 2016 for the sales exceeding $500 million in one calendar year.

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Peter Sehested, Handelsbanken Capital Markets - Analyst [55]

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Thank you very much. Thank you.

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Operator [56]

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Peter Welford, Jefferies.

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Peter Welford, Jefferies LLC - Analyst [57]

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Thanks for taking my questions. I think I've just got two left. Just reiteration on the point (inaudible) that was made -- it was a very bad line -- on Maia. Did you say that you anticipate the results in autumn? Was that autumn 2017, but more likely 2018, or is that autumn 2018, for the likely interim analysis of Maia?

And then just the questions -- just firstly on the 17810 or whatever -- the autoimmune program, DuoBody with Janssen, I guess it's curious, the fact that it was discontinued due to a less than optimal PK profile. I just wanted to check, you don't think there's any potential read-across from that to the DuoBody use in sort of chronic indications, and this wasn't like -- this was sort of more target-specific or molecule-specific, rather than anything potentially connected to the DuoBody structure itself?

And then, secondly, just on your plans to advance the pipeline further, just to be clear, did -- is your R&D spend for 2017 -- does that assume that all of the programs move forward as planned and that Seattle does not potential opt into tissue factor, or is there some risk adjustment built into this, and would the Seattle opt-in likely not happen this year anyway? Thank you.

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Jan van de Winkel, Genmab A/S - President, CEO [58]

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Thanks, Peter, for the questions. Let me first go to the ALCYONE study. That will read out in autumn this year, in 2017. And the Maia study -- so, maybe there is some confusion there. The Maia study -- it's finished recruitment in December last year -- is going to read out in 2018, and I haven't given any further color there, because that's the Revlimid/dex/dara combination study, Peter. But what I was referring to in the other question, to Peter Sehested, is that is the ALCYONE study, and that is projected to read out in autumn this year -- in 2017. Is that clear?

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Peter Welford, Jefferies LLC - Analyst [59]

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Yes. Very clear. Thank you.

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Jan van de Winkel, Genmab A/S - President, CEO [60]

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Very good. And then the DuoBody discontinuation of one of the three programs -- it's purely, I think, program-related and likely portfolio-related. I think Janssen should give you further color there. I think they had several competing programs, also, with other technologies, I think, against those targets in autoimmune. And so, they described to us less than optimal PK. But I think it's primarily a portfolio decision process there. There's no read-through to the DuoBody technology, Peter, or to the specific [data]. I think it's just a matter of internal prioritization at Janssen. But, again, further detail needs to come from Janssen.

And then the third question, which you sneaked in, is probably for David.

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David Eatwell, Genmab A/S - EVP, CFO [61]

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Sure.

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Jan van de Winkel, Genmab A/S - President, CEO [62]

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As it relates to the Seattle potential opt-in.

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David Eatwell, Genmab A/S - EVP, CFO [63]

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Yes. In terms of the R&D costs overall, and the large portion of the expense which is being spent on those eight key projects, our assumption is certainly for the four named projects -- tissue factor, AXL, DR5, and CD3xCD20, our assumption is, all of those are continuing.

Even on a worst-case scenario, if you found that there was some challenge with toxicity on one of those drugs and we didn't go forward with an IND, say, for CD3xCD20, the amount of costs that you would save would be limited because some of this, particularly with CMC costs, you're committing fairly well in advance. But there could potentially be some savings. Of course, that wouldn't be savings we'd be rejoicing, if we weren't continuing with those programs.

There's also the spend on the next pre-clinical candidates -- if one of those failed, that we've got lots of things in our pre-clinical pipeline. So, if one of those other four next-stage candidates didn't make it, we've got plenty in backup that we would pull in and start spending the money on those, to advance those through to INDs in 2018, 2019 and 2020. So, I don't think there's a huge risk of underspending the guidance that we've put together.

In terms of Seattle Genetics, I wouldn't expect any large credits from Seattle Genetics for 2017. I would think that would be more likely an impact on 2018, if they opt in.

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Peter Welford, Jefferies LLC - Analyst [64]

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Thank you.

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Jan van de Winkel, Genmab A/S - President, CEO [65]

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Thanks, David. Peter?

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Peter Welford, Jefferies LLC - Analyst [66]

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That's great, thank you.

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Operator [67]

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Gentlemen, we have no further questions at this time. I'd like to hand back over to you for any closing remarks. Thank you.

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Jan van de Winkel, Genmab A/S - President, CEO [68]

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So, thank you for calling in today to discuss Genmab's financial results for the full year 2016. We look forward to speaking with you all again soon.

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Operator [69]

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