Genmab - Q1 2023

Transcript

Operator (participant)

Hello, welcome to Genmab's Q1 2023 financial results conference call. As a reminder, this conference call is being recorded. During this telephone conference, you may be presented with forward-looking statements that include words such as believes, anticipates, plans, or expects. Actual results may differ materially, for example, as a result of delayed or unsuccessful development projects. Genmab is not under any obligation to update statements regarding the future, nor to confirm such statements in relation to actual results unless this 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.

I would now like to hand the conference over to your first speaker today, Jan van de Winkel. Please go ahead.

Jan van de Winkel (President and CEO)

Hello, welcome to Genmab's conference call to discuss the company's financial results for the period ending March 31st, 2023. With me today to present these results is our CFO, Anthony Pagano. Let's move to slide two. As already said, we will be making forward-looking statements, please keep that in mind as we go through this call. Let's move to slide three. During today's presentation, we will reference products being developed under some of our strategic collaborations. This slide acknowledges those relationships. Let's move to slide 4. Before we look at our Q1 results, I want to remind you of our consistent track record of success. Our proprietary technologies fuel our robust product engine, which is both expanding and maturing.

By the end of this year, there is the potential for eight approved medicines powered by our innovation, half of which would be DuoBody-based bispecifics. This is validation of the DuoBody technology's potential to create truly differentiated bispecific antibody therapeutics. Our growing recurrent revenue streams allow us to continue to invest in our pipeline and in our people. Our world-class team of experienced and dedicated colleagues drives our innovation, motivated by their passion for making a difference in the lives of people living with cancer and other serious diseases. Let's now turn to recent accomplishments that will support our future success. Slide five.

In the Q1 of the year, we continued to lay the groundwork for the potential approval of epcoritamab. We are very excited for the potential upcoming launch and the opportunity to serve patients with third line plus diffuse large B-cell lymphoma. The alliance field teams across sales and marketing, medical and market access are all in place and have been fully prepared for the launch. Our patient services team is also in place and fully ready. We are actively engaging with the FDA and look forward to the future ahead with its May 21st PDUFA date. Pending approval, we anticipate epcoritamab will benefit third line plus diffuse large B-cell lymphoma patients, where the level of unmet needs remains high. This indication will be the first that will enable epcoritamab to become the potential core therapy across diffuse large B-cell lymphoma, follicular lymphoma and beyond.

As part of our effort to deliver epcoritamab to relapsed or refractory diffuse large B-cell lymphoma patients together with AbbVie, we launched our first pre-approval and expanded access program. This program provides access to epcoritamab to eligible patients in the U.S. and Europe prior to potential regulatory approvals. Looking beyond relapse refractory diffuse large B-cell lymphoma together with AbbVie, we are committed to a robust clinical development program evaluating epcoritamab in a variety of patient populations and treatment settings. This includes frontline diffuse large B-cell lymphoma. I'm just very pleased to say that in February and March, the first patients were dosed in 2 frontline diffuse large B-cell lymphoma studies. The phase III EPCORE DLBCL-2 study in combination with R-CHOP. The phase II EPCORE DLBCL-3 study with or without lenalidomide in elderly patients.

Turning to recent and upcoming data presentations, multiple epcoritamab abstracts were accepted for presentation at ASCO, including an oral presentation of data from one of the arms of the EPCORE NHL-2 trial, looking at epcoritamab in combination with trastuzumab and lenalidomide in patients with high risk, relapsed or refractory follicular lymphoma. We and our partners also had several abstracts accepted for presentation at last month's AACR meeting. These included data from an interim analysis of part C from the phase II innovaTV 207 study of tisotumab vedotin in head and neck cancer or small cell carcinoma of head and neck. Though the number of patients in this initial data was small, just 15, the results demonstrated encouraging preliminary antitumor activity and an acceptable safety profile, highlighting tisotumab vedotin's potential in solid tumors beyond cervical cancer.

Regarding programs powered by our innovations, DARZALEX continues to redefine the treatment of multiple myeloma. As you've seen, J&J's net sales for daratumumab were up 22% over the Q1 of 2022, that is generating almost DKK 2 billion in royalties for us, contributing materially to our robust financials. This brings me to the initial resolution of our second arbitration with Janssen relating to our daratumumab license agreement. As we announced last month, the arbitration panel dismissed our claims, though one of the three arbitrators dissented. Subsequently, we announced our decision to file a request for review of the awards. As the arbitration is confidential, we do not intend to comment further, and we look forward to our continued collaborations with Janssen. I would also like to acknowledge the appointment of Martine van Vugt to Chief Strategy Officer.

Martine has been an integral part of Genmab almost from the beginning. In her new role, she will be responsible for overseeing the key areas of corporate strategy, corporate development, business development and licensing, and alliance management. Martine's addition to executive management further strengthens our already exceptional team and will help us to effectively deliver on our 2030 vision. Finally, I would like to bring to your attention an announcement in March from Lundbeck Japan. Lu AF82422, which was created by Genmab as part of an agreement with Lundbeck, has been granted pioneer drug designation for the treatment of multiple system atrophy in Japan. This designation provides further support for the potential of our innovative antibody therapeutics outside of oncology. Let's move to slide six.

When we unveiled our updated vision last year, we noted that while we would continue our commitment to antibody therapies for oncology indications, we would also look to move into an additional therapeutic area where our antibody expertise could make an impact. I'm very pleased to announce that we are entering the therapeutic area of immunology and inflammation as a stepping stone to achieving our inspirational 2030 vision. As we announced in April, we entered a multi-year collaboration with argenx to jointly discover, develop, and commercialize novel therapeutic antibodies with applications in immunology as well as in oncology. By partnering with argenx, we will be able to combine our company's deep knowledge of the biology and therapeutic power of antibodies and have an opportunity to address patient needs in oncology as well as in immunology and inflammation.

We look forward to a successful partnership with argenx and to providing you with updates on the progress of this collaboration once we are ready to bring new product candidates to the clinic. This, of course, will take some time. I'm pleased to now hand over the call to Anthony to take you through our Q1 2023 financial results. Anthony, the floor is yours.

Anthony Pagano (EVP and CFO)

Great. Thanks, Jan. We continue to strengthen our foundation in Q1. Of course, top of mind for everyone is the potential FDA approval of Epcor later this month. As we'll see, our financials remain strong. Recurring revenues grew by 33% in Q1. This was principally driven by strong royalties from DARZALEX and other approved medicines. Our solid balance sheet, growing recurring revenues, and significant underlying profitability allow us to continue to invest in our business and our pipeline in a very focused and disciplined way. An important part of this has been to continue to build the team and capabilities that we need to succeed. Let's take a look at those revenues in a bit more detail. We saw robust performance for DARZALEX in the Q1 of 2023. As you can see in the chart, overall, net sales grew by 22%.

That's net sales of over $2.2 billion, which translates to almost DKK 2 billion in royalty revenue. This growth was driven by continued strong market shares, including strong adoption of the SubQ formulation. For our royalties, we benefited from a higher effective royalty rate and an FX tailwind, this is partially offset by a negative contractual hedge rate adjustment. As you can see, DARZALEX remains a key driver of our revenue. We grew total revenue to nearly DKK 2.9 billion in Q1. As I've already highlighted, that included a 33% increase in our recurring revenue. Here, to be clear, that's on a reported basis. Excluding some FX tailwinds, recurring revenues grew by 28% on an operational basis.

This strong growth was driven by DARZALEX and Cimzia, but was partially offset by lower TEPEZZA net sales, which according to Horizon, were negatively impacted by seasonality. Taken together, this growth really illustrates the power of our recurring revenue. In line with our significant growth opportunities, total OPEX grew 51% in Q1. In R&D, we've accelerated our investment into our product portfolio, especially the advancement and expansion of Epcor, and of course, other pipeline projects. We've also further strengthened our team to enhance our commercial capabilities and support our expanding pipeline. Of course, that includes the potential launch for Epcor. Let's take a look at our financials as a whole. Here you can see our summary P&L for Q1. Revenue came in at nearly 2.9 billion DKK. That's up 35% on last year. As mentioned previously, that's favorably impacted by a small FX tailwind.

Total expenses were about DKK 2.4 billion, with 72% being R&D and 28% SG&A. Here, even with the increased investment, we're still delivering over DKK 430 million of operating profit for the quarter. Moving to our net financial items. Here we have a loss of around DKK 150 million, which was primarily driven by two partially offsetting items. First, we've got the weakening of the US dollar against the Danish kroner in Q1, and this is negatively impacting the value of our cash and investments. On the other side of the ledger, we have an increase in interest income due to higher effective interest rates. We have tax expense of DKK 60 million, which equates to an effective tax rate of 21.2%. That brings us to our net profit of over DKK 220 million.

As you can see, very solid financial performance to start the year. With that, let's take a minute to revisit our robust financial framework. First off, our revenue profile on the left. There are currently six products on the market that are generating significant recurring revenues. We see a clear path to potentially expand the number of approved products with the potential approvals for Epcor and Janssen's talquetamab. Taken together, we expect significant cash inflows in the years to come. Moving to the right. We remain focused in our investments as we evolve our organization for continued success. At the top of the list is accelerating and expanding Epcor. That's just one of the exciting opportunities that provide us with a compelling rationale for increasing our investment. As we've told you before, if we want to seize these meaningful opportunities, we've got to invest.

That's exactly what we're doing. With that background, let's now take a look at our guidance. To start, we're on track to meet the financial targets that we outlined back in February. As a reminder, note these projections are based on an assumed U.S. dollar Danish kroner exchange rate of 6.8. If we look at our revenues, we're off to a strong start with marketed products that are generating significant recurring revenues. We continue to expect our revenue to be in the range of DKK 14.6 billion-DKK 16.1 billion. Most of this is made up of recurring revenue, where we're expecting 25% of operational growth. As I just noted, for Q1, we're at 28%. For operating expenses, we expect to be in a range of DKK 9.8 billion-DKK 10.6 billion.

As I've previously highlighted, this step-up in investment is fully in line with our strategy and our focus on creating long-term value. Putting all this together, we're on track to deliver another year of substantial operating profit in a range of DKK 3.9 billion-DKK 6.2 billion. With that, let me provide a few closing remarks. In summary, we've had a very solid start to the year. We've created growing recurring revenue streams, and that gives us a strong backbone of significant underlying profitability. We're investing those revenues in a highly focused way to realize our vision and to capitalize on the very significant growth opportunities in front of us. On that note, I'm gonna hand you back over to Jan.

Jan van de Winkel (President and CEO)

Thanks, Anthony. In the Q1 of 2023, we continued to work towards our 2030 vision, where our KYSO antibody medicines are fundamentally transforming the lives of people with cancer and other serious diseases. As we near the produce date for epcoritamab, we are enthusiastic about its potential launch. We are also looking forward to working with AbbVie to continue to expand Epcor development with new studies. We are collaborating with our partner Seagen to establish Tivdak as a clear choice for patients with metastatic cervical cancer. Together we will continue to broaden the tisotumab vedotin clinical development program. We also very much look forward to data from the clinical expansion cohorts and progress to the next steps for both DuoBody molecules targeting 4-1BB that are in development together with BioNTech.

We anticipate expanding and advancing other earliest, early-stage programs, including the potential for multiple INDs or CTAs this year. Fundamental to our success is having the right team and culture in place. We intend to continue to scale our organization on our planned portfolio development and business needs. Finally, we will continue to leverage our solid financial base to support our growth. We have a lot to look forward to in the coming months. That ends our presentation of Genmab's financial results for the Q1 of 2023. Operator, please open the call now for questions.

Anthony Pagano (EVP and CFO)

Thank you. If you wish to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again.

Operator (participant)

Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Schmidt. Please go ahead. Your line is open.

Michael Schmidt (Senior Managing Director and Equity Research Analyst)

Hey, guys. Good morning. Thanks for taking my questions, or good afternoon in Europe. Just sort of as we head closer to the epcoritamab PDUFA date here later this month, could you just talk about your expectation for potentially required inpatient monitoring around epco and hospitalization that may be required, you know, how that might affect commercialization and any other expectations as we sort of look forward to seeing the FDA-approved label for the therapy? Secondly, could you just remind us of your go-forward plans for filing in other indications this year, perhaps, for example, in follicular lymphoma or other cancer types? Thank you so much.

Jan van de Winkel (President and CEO)

Thanks, Michael, for the questions. I can handle both. With regard to the potential label and hospitalizations, that is, of course, a question for the health authorities, for the FDA. We are actively discussing with the FDA how to ensure both safe and appropriate use of epcor. I can tell you that, actually, you will see it from the label discussions what the outcome will be as it relates to hospitalization. I think we're in very productive discussions with the authorities, and it's up to them to decide, and then we'll come back to that once we hear the label. We are very pleased with the progress of the discussions, and we look forward to basically the coming weeks, Michael.

I think it will be exciting times. As it relates to further submissions, definitely the follicular lymphoma data, third line data will come this year, and we are fully scheduled to actually submit, based, of course, on positive data from the study, to regulatory authorities, and potentially in different territories this year. I will give you further updates, Michael, during this year once we have the data.

Michael Schmidt (Senior Managing Director and Equity Research Analyst)

Great. Thank you. Yeah.

Jan van de Winkel (President and CEO)

All right.

Operator (participant)

Thank you. We will take our next question. Your next question comes from the line of Jonathan Chang. Please go ahead. Your line is open.

Jonathan Chang (Senior Managing Director and Senior Research Analyst)

Hi, guys. Thanks for taking my questions. On the appeal of a second arbitration resolution, are you able to provide any color on how we should be thinking about timelines and your level of confidence on the outcome? Second question, maybe just more specifically on GEN1047, can you discuss how the study's progressing and when we might see initial clinical data from this program? Thank you.

Jan van de Winkel (President and CEO)

Thanks, Jonathan, for the questions. Unfortunately, we cannot give you too much information on the appeal. We definitely will file an appeal to the second arbitration. The timeline should still allow for a verdict on that appeal this year, probably after the summer, immediately after the summer. It's, of course, up to the arbitrators, Jonathan. It's inherently uncertain what the exact timing will be, but we hope definitely for a outcome this year. Levels of confidence, we believe that we are ethically and morally on the right side of the line, and actually we believe that the awards from the first arbitration is very, very clear.

That, as we understand it, will lead to the conclusion that actually the subcutaneous formulation of DARZALEX is a separate product according to the contract, and that is exactly what we will ask the arbitrators in the second arbitration to judge on. I think we are confident with it, that we're doing the right things, but in the end, it's down to the legal system. I cannot give you any further feedback on that. For GEN1047, we are still doing dose escalation. It's going well, and once we have the whole dose escalation data set in hand, Jonathan, we will actually present the data, as we usually do now for all of our early-stage clinical programs.

We, we want to collect all of the data for the dose escalation, and then we'll actually present at a medical conference and also flag it up to the outside world. It's going well, and we are progressing with the dose escalation. That's all I can say at this point.

Jonathan Chang (Senior Managing Director and Senior Research Analyst)

Understood. Thanks for taking the questions.

Jan van de Winkel (President and CEO)

Thanks, Jonathan.

Operator (participant)

Thank you. We will take our next question. The question comes from Peter Welford. Please go ahead. Your line is open.

Peter Welford (Managing Director and Senior Equity Research Analyst)

Hi. Thanks so much. I've got three quick ones, if you don't mind. Firstly, just coming back to epcoritamab on the third line follicular, wonder if you could possibly set the scene for us as to what you think could be the bar there, to enable a regulatory filing this year. And presumably, again, we're talking, response rates, complete response rates and the duration that complete response is maintained. Curious if you can give us an update as to what you think the minimum sort of volume of data is to be, to go to the regulators, particularly FDA. Secondly, just on the argenx deal, or actually more broadly, immunology, is this...

Should we think of this as your big step into immunology, if you like, and then there are gonna be, I think you've sort of talked about bolt-on deals where we look at both targets and other sort of technologies, et cetera, that you bring into that? Should we still think there's likely to be another, perhaps even larger sort of in scale and concept deal to come as you move into this new therapeutic area? Just finally, the, I guess, mandatory question, if you like, the GEN1042 and GEN1046. Any updated thoughts on when we could potentially get data, whether it's likely to be by the end of this year or next year, for the dose escalation expansion cohorts? Thank you.

Jan van de Winkel (President and CEO)

Thanks, Peter, for the questions. For the third line follicular lymphoma data, I don't think we have discussed the bar that you want to hit, basically, with epcoritamab, but it will definitely be at the level of the overall response rate and the duration. We are very excited about what we see in the various follicular lymphoma settings, both monotherapy as in combination. As you know from last year's ASH, we have spectacular data. I think the data actually gets better and better. We haven't seen the readouts from the third

line plus cohort yet.

Once we see that readout, we will definitely present the data and also actually discuss them with the regulators in both U.S. and Europe, potentially as well in Japan. We haven't given the bar we're aiming for publicly at this moment. As it relates to the argenx deal, that is indeed a first step into the immunology and inflammation field. We intend to indeed broaden that with further activity of the company, both organically and inorganically. Organically by getting access to targets we want to actually use our proprietary technology platforms for, to create better differentiated antibody-based medicines.

Also potentially involving inorganic type deals, as we said publicly, where we can bring in either technology in the immunology and inflammation field, proprietary technologies which we think will complement our suite of technology platforms, or perhaps even product candidates into our pipeline to accelerate our move into the immunology and inflammation field. Separate from that, we already have a number of preclinical programs active, which are entirely Genmab programs, where we already are creating or have created the clinical candidates in our preclinical pipeline. We will actually update you further, Peter, once we are ready to move into a CTA filing or a IND filing. We will progress at multiple fronts.

The activity profiles get broader and broader in the immunology and inflammation field. We are very serious about that therapeutic area. The argenx deal was simply the first step into strategically working with a leading company with a similar science-based focus and purpose-driven approach as we have, which we know very well, and actually working already on two targets, one for immunology and inflammation, one for cancer, in a 50/50 strategy. There may be other partnerships following basically further bold-boltening our presence in the immunology and inflammation field. More updates likely to come in the coming time.

GEN1042, GEN1046, we are very rapidly progressing now with recruitment in different arms for GEN1042, GEN1046, and you will see data likely in the second half of this year for both programs, hopefully allowing us to move forward to late-stage clinical development, potentially even for both bispecific programs. We continue to be very impressed by the profiles of both bispecific antibodies, but we need more data also to have productive discussions with the regulators. Ideally, Peter, we will first share the data that the regulators already have, feedback on the potential move to potential late-stage development, and then present the data at a medical conference. There is a number of medical conferences in the second half of 2023.

This, I think, would qualify for some of these data sets. There are multiple data sets being worked on. For GEN1042, we are working in front line melanoma, lung cancer, head and neck cancer, and pancreatic cancer, either together with pembro or pembro plus chemo, depending on what the standard of care is. You will probably not see all of the cohorts this year. Some of the cohorts will likely come next year, because some move more quickly than others and generating more robust data sets. For GEN1046, we have also multiple cohorts we are recruiting as we speak. I can tell you with positive data in several of the cohorts, but not all of these data will likely become available this year, Peter.

We'll probably do that, once we have enough data to allow us to draw a conclusion on potential next steps in those, lines of treatment in those, cancers. We are getting more and more enthusiastic about these programs. I think the second half of this year will be the beginning of a data-rich era for these, for these programs.

Peter Welford (Managing Director and Senior Equity Research Analyst)

That's great. Thank you.

Jan van de Winkel (President and CEO)

Thanks, Peter.

Operator (participant)

Thank you. We will take our next question. Your next question comes from the line of Emily Field. Please go ahead. Your line is open.

Emily Field (Director and Lead Analyst for European Pharmaceuticals)

Hi. Thanks for taking my question. Maybe just some, like, logistical questions around epcoritamab. You know, assuming approval on May 21st, you know, how quickly after that do you expect to be launching? When do you imagine that you would start disclosing revenue or kind of early launch metrics, following, hopefully, an approval? Another question on the argenx partnership, it sounds like that that sort of could produce either immunology targeting assets or oncology targeting assets. Is that the right way to think about it, and it's more just combining complementary technologies, or should we think about this really as geared towards producing immunology assets? Thank you.

Jan van de Winkel (President and CEO)

Thanks. Thanks, Emily, for the questions. For epcoritamab, we hope that we actually get the approval from the U.S. authorities quite quickly and hopefully at the latest by May the 21st, which is in the weekend, but hopefully before that. What I understand from the team is that we're actually ready to launch very quickly after we get a potential approval. All is ready to go, but of course it depends on how ready we are based on the feedback on the package inserts, how quickly we can launch, but it would be likely be within a matter of weeks, if not shorter, what I understand. The revenue reporting, I think we will get some color, I think, in Q2, hopefully, on revenue.

I don't know whether... how detailed we will do the reporting, but we'll definitely give you color, Emily, on how the launch, initial launch is going. There's a lot of positive feedback from the hospitals and from the doctors. We are already in discussions with healthcare providers on the positioning of the drug and on the need for that medicine for some time. I think we have a pretty good feeling for the level of enthusiasm, but I think we will probably in the second half of this year start to give some further detailed color on the launch under the assumption that the product will be approved in the United States.

argenx, this is basically all about combining the suites of proprietary antibody technologies, which are non-overlapping. They are complementary between both companies and together work on pathways which could actually untail both immunology targets as well as oncology targets. We actually started already, Emily, on one oncology and one immunology target as we speak. I think it will feed both pipelines for both the cancer and the immunology and inflammation franchise, so for both companies. And this is a true 50/50 where we would equally share the expenses and upside from these potential products. We already have been working on concrete programs as we speak. And I think there's great complementarity.

We have, of course, a lot more cancer models and cancer expertise, based on Genmab's track record up to now. Argenx has very, very good immunology, expertise and models already operational. This will actually accelerate, I think, and synergize the activities already ongoing and new activities, for both companies. We're very excited, Emily, about this strategic partnership. I think there's a very good alignment in the scientific focus and, I think this bodes quite well for the future.

Emily Field (Director and Lead Analyst for European Pharmaceuticals)

Thank you.

Operator (participant)

Thank you. We will take our next question. Your next question comes from the line of Asthika Goonewardene. Please go ahead. Your line is open.

Asthika Goonewardene (Managing Director and Senior Biotechnology Analyst)

Hi, guys. Thanks for taking my questions. Yeah, I wanna just maybe touch on the question on argenx. Just wanna clarify something. You said you already have one oncology asset that you're sort of working on right now. If this goes into full fruition and maybe to market, is there a scenario that argenx will actually act on that and co-promote this product with you, given that they don't really have much of an oncology franchise? I wanna back up on the question on GEN1042 and GEN1046 and make sure I heard this right. Did you say that by the end of the year that you think that you're optimistic about the path forward for both those assets to go forward?

Just wanna make sure I heard that right because I think there was some understanding that it might have been one or the other. Just wanna clarify that too. Thank you.

Jan van de Winkel (President and CEO)

All right. Asthika, that's very nice questions. Thank you very much. Let me start with the argenx partnership. We actually have very well defined who will take the lead of which programs, and very likely for cancer products, we will definitely share the upside, Asthika. Genmab will likely be leading the commercialization. The other party, so argenx in this case, can co-promote for sure. The same for immunology and inflammation. It's very likely that initially argenx would lead the commercialization of programs in that area, in the immunology area, but Genmab would be entitled to co-promote in a 50-50 basis.

It would be actually for both disease areas, for both companies, but the lead will likely be lying with one of the parties. It has been very clearly defined in the agreement here. With both companies have the option to actually further scale up in commercialization in the disease area where they're currently not very active in. As it relates to GEN1042 and GEN1046, we hope that at least one of those programs can be moved to late-stage clinical development, if not both.

What I said in my answer to, I believe it was to Peter Verdult, is that, both of the, programs are doing very well and of course we need more data. As I already explained, before, data is not only response rate, it's also depth of response and duration, in the, in the various, cohorts for both of the bispecific, approaches. There is a good, chance that actually both would move, forward to a late-stage clinical development, based on data, but it's entirely data-driven, Asthika. We'll let the data speak for itself and then take rational decisions. Also potentially after we already have shared the data with the regulator, and have some feedback on the potential next steps.

Asthika Goonewardene (Managing Director and Senior Biotechnology Analyst)

Great. Thanks so much for the clarity, Jan.

Jan van de Winkel (President and CEO)

All right. You're welcome.

Operator (participant)

Thank you. We will take our next question. Your next question comes from the line of Matthew Phipps. Please go ahead. Your line is open.

Matthew Phipps (Partner and Group Head of Biotechnology Equity Research)

Good afternoon. Thank you for taking my questions. One on Tivdak. Just curious how much more data you would wanna see in head and neck to make a decision on moving that forward and the rationale for a different dose in head and neck versus cervical. Is that exposure or safety related? Then kinda lastly, is the pending Seagen acquisition make it a little bit more difficult to come to these joint decisions on Tivdak development near term?

Jan van de Winkel (President and CEO)

Thank you very much for the questions. For two questions, basically, Tivdak, the data is very, very encouraging. It's early data in head and neck, in second-line plus head and neck. By this time we already have more data, and I think the pattern is entirely consistent of what we presented recently. We will actually collect a bit more data and then decide on next steps together with Seagen. We wanted the frequency of dosing is actually a bit higher here than in the labels dosing for cervical cancer, and that is actually to get actually a higher amount of the medicine in the patients more effectively with still acceptable safety profile.

We're very encouraged by this data. We think that we actually will collect in the coming months enough data to allow us to make a rational decision on next steps, and we have firm plans for that together with Seagen. What I can also tell you is that we heard from Seagen by this time that the potential acquirer of Seagen is also very excited about the data.

In the meantime, I think we have already spoken with some of the colleagues from Pfizer, assuming that transaction goes through, I think that actually, I think there is a very good level of enthusiasm for Tivdak to move it to the next stages in the second solid cancer outside of cervical cancer. Then in the second half of this year, we also hope to see frontline data in cervical cancer and combinations and triplets and quadruplets regimens. Also there, I think the data shapes up very nicely.

I think that hopefully with Seagen under new ownership, we will actually move not only to a second line plus head and neck cancer in the course of this year, but potentially also to first line cervical cancer later on, and perhaps even first line head and neck cancer a bit further from that. We actually very encouraged by the profile of the medicine. It's very, very potent and it's very managed, very well managed, manageable safety.

I believe that we have a good chance of creating a much and much more impactful medicine here with Tivdak in the coming time with Seagen, and also with the potential new owners of the assets from the U.S. perspectives.

Operator (participant)

Thank you. We will take our next question. Your next question comes from the line of James Gordon. Please go ahead. Your line is open.

James Gordon (Executive Director)

Hello. James Gordon, JPMorgan. Thanks for taking the questions. Two questions, please. One was about CD38 and competition. Can you just remind us how much of DARZALEX sales are still coming from using refractory patients? I ask 'cause some people have been a bit worried about CARVYKTI competition. Do you think CARVYKTI is gonna have any impact on DARZALEX in the next couple of years as it moves into earlier treatment lines? And assuming we do get competition in the front line, potentially around 2027, how much of a headwind do you think that would be given I know there are some manufacturing issues and administration issues, so how much of a threat there? Another part of that question, also just there are new therapies coming along in multiple myeloma, including CAR-T.

Do you think that does mean J&J are any less likely to wanna go for HexaBody-CD38 if there's other things like CAR-T that maybe look more promising? Then the second question was on M&A. In terms of, like, inorganic and deal-making, do you have what you need in-house to do your own ADCs, 'cause I know you did a deal there, or might you actually hunt for getting a link for the new payloads, and actually ADCs might be where you want to expand into? A final clarification just on deal-making. Are you done in terms of immunology, in terms of looking for a larger partner, or could you also, as well as argenx, try and do an immunology deal with a large cap pharma company?

Jan van de Winkel (President and CEO)

Thanks, James. I think these are more than two questions for sure.

James Gordon (Executive Director)

Bloody Morgan.

Jan van de Winkel (President and CEO)

Let me try to go over that in an orderly manner. First and to all, DARZALEX and CD38 competition, what I clearly see is that actually. Maybe I should go first over the brand impact data because you asked about basically the second line. Overall in the U.S. in March, there was 40% of the patients are treated with DARZALEX and 39% of the new patients start in the front line. 36% of the patients are getting treated with the DARZALEX. With 39% of the new patients start on the second line. 53% of the patients, and the same 53% in the third line setting. There's still a lot of usage in combination.

What I understand is that actually, DARZALEX is the perfect combination to not only for the bispecifics like now TECVAYLI and potentially soon talquetamab, but also for potential combination with CAR-T. Janssen is already having a phase III trial combining CAR-T with DARZALEX. I don't think that actually, that there will be a lot of competition for the position of the CD38. The question for you asked is, well, would Janssen be interested in HexaBody-CD38? I think so because of several reasons.

One is, if HexaBody-CD38 would be much more potent in a clinic than DARZALEX, that could be a fantastic next generation combination partner for all of these other medicines in multiple myeloma. Also in the context of IRA legislation and complexity from that perspective, it could be very smart for Janssen to actually switch at some point DARZALEX for a next generation CD38 targeted medicine. I think the interest level should go up and not go down. We are now doing a head-to-head trial against DARZALEX as we reflected in the Q1 report, James. I think, with more data next year, I think the interest level should potentially go up rather than go down.

We're not that worried about competition for DARZALEX. I think DARZALEX has found a place as a core therapy, as a backbone therapy in multiple myeloma, and not only with the current agents, with the IMiD and proteasome inhibitors, but also with the bispecifics, the new bispecifics and potentially even with CAR T. Your second question as relates to M&A, ADCs, we are actually having a lot of deals in place for ADCs and reflect of several actually, not only warheads, like with Sanofi, and with we also work together with AbbVie in the ADC field, but also we actually also have access to immune activators via the Bolt Therapeutics interaction.

Actually a number of other deals have been done in the ADC field, which we have not even flagged up publicly because they were early-stage deals on building blocks and components we'd need for building ADC next generation antibody therapeutic. ADCs are a very, very significant part already of our preclinical pipeline, James. Potentially we could go broader because we like ADCs. You just heard my enthusiasm about Tivdak, the tisotumab vedotin ADC together with Seagen. It's doing better and better, and this will become a very meaningful medicine we believe, not only for cervical cancer but also for other solid tumors in the future.

We see actually a lot of potential for ADCs, and we already have a fair number in our in our preclinical pipeline, and some of them will likely move to the clinic in the in the in the coming time. Your third question is about immunology and inflammation potentially deals with large cap. That would be possible, I think. There is a lot of interest for our technology platforms. That is one of the reasons that we move into immunology and inflammation. Is that we believe that by having access to our proprietary antibody technology platforms, James, we can actually make much better therapeutics for immunology and inflammation than the current generation of naked antibody approaches, which already make a big impact in some of these areas.

Think about the TNF-alpha blockers, the IL-17 blockers, IL-23, the targeted, antibody therapeutics. We believe that by having smart, use of our proprietary, technology platform, we can actually make much, much better targeted medicines for immunology and inflammation, diseases. I can tell you there is a lot of interest from, also from large cap pharma in working with us, in these areas. The, of course, the pitfall is that we are not going to do any deal unless we, actually can hold on to 50% product ownership to the end, if not more, James.

That is going to be more difficult and challenging, we believe, with a large cap pharma because they would likely like to own more of the products than we are willing to give them. In that context, I think it is actually likely that we see more deals and more activity from Genmab, perhaps even in the M&A field. But not necessarily with large cap pharma because they are likely not going to be very enthusiastic of giving up 50% of the upside or more to a biotech company. The times are changing. I think we will see more activity in this area.

We're very enthusiastic also now more robustly marching into the immunology and inflammation therapeutic area, and more to come in the future, James. That's probably where I want to leave it at this point.

Peter Verdult (Managing Director and Senior Analyst)

Thank you.

Jan van de Winkel (President and CEO)

Thank you. We will take our next question. The question comes from the line of Peter Verdult. Please go ahead. Your line is open.

Peter Verdult (Managing Director and Senior Analyst)

Thank you. Peter Welford, Citi. Two questions, please. First for Tahi or for Jan, just with the Polivy approval now in frontline DLBCL, you know, done and dusted, could you remind us how quickly do you intend to initiate a frontline DLBCL study with Polivy and Epco? That's question number one. Question number two for Anthony, I think I know the answer, but just with the cash pile growing ever bigger, is there a point in time going forward, is there a tipping point where there'll be a change in your cash allocation priorities? Or should we just assume that you continue piling up the cash to give you full flexibility to follow the science and push things into phase III if need be?

I just wanted to know whether there's a tipping point where you would perhaps consider other cash allocation priorities? Thank you.

Jan van de Winkel (President and CEO)

Thanks, Peter, for the two questions. I can tell you that we are planning a number of online studies as we speak, and we will absolutely detail them at the point that we get regulatory feedback so that we can initiate those studies. That actually is also not only antibodies or antibody-drug conjugates, but also small molecules, and even chemo in some instances. You know that in a few studies, we already have the R-CHOP combination with Epco ongoing and recruiting as we speak.

There will be more frontline studies,

and we will give you further updates once we get feedback from the regulators on the combinations and the exact way we want to combine a bit epcoritamab. The clinical programs for Epco will become quite a bit broader in the coming time. Handing over to Anthony for the second question.

Anthony Pagano (EVP and CFO)

Yes. Thanks, Pete. You know, to be clear, our capital allocation priorities absolutely remain unchanged. As you highlighted, as we continue on this growth trajectory and looking at the really exciting growth opportunities that we have, we think having that full flexibility of our balance sheet, that strong balance sheet, to be absolutely essential to make sure we have the capital to invest in all of the exciting organic opportunities. As Jan highlighted, if the right opportunity presents itself from a BD&L perspective or otherwise, that we have that balance sheet and deploy that capital appropriately. The headline message, Pete, to answer your question directly is that our capital allocation priorities remain unchanged. Again, that balance sheet strength is going to be important as we continue to build out our business on multiple fronts for the next couple of years and potentially beyond.

Peter Verdult (Managing Director and Senior Analyst)

Thank you. Very clear. Thank you.

Jan van de Winkel (President and CEO)

Thanks, Pete.

Operator (participant)

Thank you. We will take our next question. The next question comes from the line of Yaron Werber. Please go ahead. Your line is open.

Yaron Werber (Managing Director and Senior Biotechnology Analyst)

Hi, this is Jana on for Yaron. Going back to your GEN3014. Can you give us any more details on the trial designs, just how many patients you have in your head-to-head and other arms for the trial, and then also what you think are the efficacy and safety benchmarks to move that program forward? As a follow-up kind of second question, going back to GEN1042 and GEN1046. Given that you think that there's a possibility for advancing both of these into late stage clinical, have you thought about how you want to position these two assets relative to each other? Perhaps what indications or settings do you think would be more suitable one versus the other? Thank you.

Jan van de Winkel (President and CEO)

Thank you for the question. With HexaBody-CD38 or 3014, the head-to-head is 2 arms with CD38 naive collapse refractory multiple myeloma. We haven't specified the size of the arms, but we hope that we actually can recruit them both this year. Actually recruitment is going well at this moment. You will hear next year the clinical data very likely also of that head-to-head arm with HexaBody-CD38. Second question as it relates to 1042, 1046, the 2 4-1BB targeted bispecifics. We believe that we actually can position them differently in different solid tumors and different lines of treatments.

As you know, we are testing GEN1042 in frontline melanoma, frontline non-small-cell lung carcinoma, frontline head and neck, frontline pancreatic. At this moment, you have only seen few patients data in head and neck, but very likely GEN1042 will be positioned in the frontline area for one or more of these solid tumors. GEN1046, I think the most likely is that we will actually go initially for lung cancer, for non-small-cell lung carcinoma, relapse refractory after checkpoint inhibitor, for that, because we have the most impressive data there up to now. But there's also other cancers which we have not yet specified, where we see very good responses with GEN1046. We have no worries about the positioning of these two bispecifics.

We think that they will be positioned in the end in different tumors and different lines of treatments. More to come this year.

Yaron Werber (Managing Director and Senior Biotechnology Analyst)

Great. Thanks so much.

Jan van de Winkel (President and CEO)

Thank you.

Operator (participant)

Thank you. We will take our next question. And the question comes from the line of Rajan Sharma. Please go ahead. Your line is open.

Speaker 12

Hi. Thanks for taking my questions. First one just on OpEx, could you just help us think about kind of phasing through 2023, and if there could be potentially a peak quarter through the year? Then secondly, just on DARZALEX, could you provide any clarity on kind of what proportion of revenues were sub-cut in Q1 and how you see that progressing through the course of the year? Thank you.

Jan van de Winkel (President and CEO)

Thanks, Rajan. I will hand over both questions to Anthony. Anthony, please.

Anthony Pagano (EVP and CFO)

Yeah, sure thing. I mean, maybe sort of stepping back and looking at our overall investment profile, particularly the drivers as we sort of thought about transitioning from 2022 to 2023. I highlighted back in February four key areas where we're really looking to deploy that capital and what was the drivers of the increase in OpEx year-over-year. As a reminder, those four areas, number one was the portfolio advancement, that was making up around 1.3 billion kroner of the increase on a year-over-year basis at our guidance midpoint. We then had the further build out and market build for U.S. and Japan of around 400 million kroner.

We had really investing and scaling up our world-class discovery engine, including the investments to move into a new therapeutic area of around DKK 100 million. Finally, in the enabling function, some very important foundational investments in these functions to achieve the required scale. These are the four areas that we highlighted as part of the reasons behind the growth drivers between 2022 and 2023. As I look at the results in Q1 so far, that's exactly where that increase is as I look at the year-over-year figures. As I sit here today, that absolutely remains true. Particularly your question on phasing. Look, this can be lumpy as a function of various spend CMC or manufacturing investments.

No explicit quarterly phasing guidance, Rajan, but other than to reiterate our full year guidance in the overall range of DKK 9.8 billion-DKK 10.6 billion. In terms of the subQ split in Q1, here our commentary is gonna be very limited, just limited to the U.S. market. More recently we've seen that in the high 80s or around 88% being subQ. Outside of the U.S., our visibility is much more limited, and we're not in a position to really share that information. What I can say is that in terms of the 88%, that's in line with our overall thinking and projections for a year.

Again, what I highlighted back in February when we gave our full year guidance is we're expecting to be on a full year basis globally in the 90% range.

Jan van de Winkel (President and CEO)

Thanks, Anthony. I think we can go to the next speaker. Next, question.

Operator (participant)

There are no further questions at this time. We'd like to hand back for closing remarks.

Jan van de Winkel (President and CEO)

Thank you all for calling in today to discuss Genmab's financial results for the Q1 of 2023. If you have any additional questions, please reach out to our investor relations team. We hope that you all stay safe, keep optimistic, and remain healthy. We very much look forward to speaking with you again soon.

Operator (participant)

This concludes today's conference call. Thank You for participating. You may now disconnect.