Genmab A/S Q2 FY2023 Earnings Call

Hello, and welcome to Genmab's Second Quarter 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 delays or successful 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.

Hello, and welcome to Genmab's conference call to discuss our financial results for the period ending June 30, 2023. With me today to present these results is our CFO, Anthony Pagano. For the Q&A, we will be joined by our Chief Development Officer, Judith Klimovsky; and our Chief Operating Officer, Anthony Mancini. As already said, we will be making forward-looking statements, so please keep that in mind as we go through this call. During today's presentation, we will reference products being developed under some of our strategic collaborations. And this slide acknowledges those relationships. In May, EPKINLY became the first T-cell engaging bispecific antibody approved for use in the U.S. for third line plus diffuse large B-cell lymphoma. With this approval, we achieved an important milestone, both for Genmab and, most importantly, for patients with third line plus diffuse large B-cell lymphoma who are in need of an innovative treatment option administered subcutaneously. Our teams, along with our partner AbbVie, were in place and fully prepared prior to launch. Now they are actively engaging key stakeholders, and we are encouraged by the overall positive response we have received as we deliver EPKINLY to appropriate patients. As we look forward to the potential for additional opportunities for EPKINLY as we work with AbbVie to progress development into a variety of patient populations and treatment settings. The third line plus diffuse large B-cell lymphoma indication is the first step to potentially establishing EPKINLY as the core therapy across diffuse large B-cell lymphoma, follicular lymphoma, and beyond. EPKINLY's approval is also a testament to our team's dedication to turn novel science into medicine and to develop differentiated antibody therapeutics with the goal of improving the lives of patients. It is the third approved therapy to be developed using our proprietary DuoBody technology. And overall, it's the seventh medicine based on our innovation. I would like to thank the patients and investigators who took part in the EPCORE NHL-1 trial, that was the basis for this approval, our partners at AbbVie for an excellent collaboration and the unstoppable team at Genmab responsible for the discovery, development, and now commercialization of EPKINLY. Let's now turn to our other recent highlights. In June, we announced that epcoritamab has been added to the NCCN guidelines for B-cell lymphomas with a Category 2A designation. As these guidelines are an important resource for providing U.S. health care providers with the information they need to make optimal treatment decisions, we were pleased that they were updated to include epcoritamab so soon after approval. Looking beyond the U.S. approval, we were pleased to announce in July that AbbVie received a positive opinion from the CHMP, recommending the conditional marketing authorization of epcoritamab for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma after two or more lines of systemic therapy. And if approved, epcoritamab would become the first and only subcutaneous bispecific antibody conditionally approved in Europe as a monotherapy in this indication. As I mentioned, together with AbbVie, we are advancing a robust clinical development program for epcoritamab across B-cell malignancies, including diffuse large B-cell lymphoma and follicular lymphoma. And to this end, also in June, we announced positive top line results from the follicular lymphoma cohort of the Phase 1/2 EPCORE NHL-1 trial. The results showed an overall response rate of 82% which exceeded the protocol prespecified threshold for efficacy. The observed median duration of response was not reached and no new safety signals were observed. These results are encouraging for patients with relapsed or refractory follicular lymphoma that are in need of new treatment options. And based on the data, together with AbbVie, we will engage with global regulatory authorities to determine next steps. The full results will be submitted for presentation at a future medical congress. As we noted last quarter, we have data presentations at a number of recent medical conferences covering a variety of our investigational antibody therapeutics, including epcoritamab. We also continued to grow our pipeline last quarter with an IND submission for GEN3017 or DuoBody-CD3xCD30, which has potential in hematological malignancies. Turning to other programs that incorporate our innovation. Last month, Janssen announced that they had received positive CHMP opinions for both TALVEY or talquetamab and TECVAYLI, both of which were created via our DuoBody platform. The CHMP recommended conditional marketing authorization for TALVEY as monotherapy for patients that relapsed or refractory multiple myeloma who have received at least three prior therapies, including an immunomodulatory agent, a proteasome inhibitor, and an anti-CD38 antibody and have demonstrated disease progression on the last therapy. The CHMP also recommended the approval of a type 2 variation for teclistamab, providing a reduced biweekly dosing schedule of 1.5 milligrams per kilogram every other week in patients who have achieved a complete response or better for 6 months or longer. DARZALEX also continues to redefine the treatment of multiple myeloma. As you have seen, J&J's net sales for Dara were up 22% over the first half of 2022, and that is generating DKK 4.9 billion in royalties for us, contributing materially to our robust financials. I will now hand over the call to Anthony Pagano to take you through our first half 2023 financial results. Anthony, the floor is yours.

Great. Thanks, Jan. We continue to strengthen our foundation over the first half of the year. Of course, top of mind for everyone is the FDA approval of EPKINLY. And as we'll see, our financials continue to be strong. Recurring revenues grew by 27% in H1. 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. And an important part of this has been to continue to build the team and capabilities that we need to succeed. So let's take a look at those revenues in a bit more detail. We saw robust performance for DARZALEX in H1. As you can see in the chart, overall, net sales grew by 22%. That's net sales of nearly $4.7 billion, which translates to over DKK 4.9 billion in royalty revenue. This growth was driven by continued share gains and strong performance in the frontline setting. So DARZALEX remains a key driver of our revenue. In H1, we grew total revenue to over DKK 7 billion. And as I've already highlighted, that included a 27% increase in our recurring revenue. And to be clear, that's on a reported basis. Excluding some minor FX headwinds, recurring revenues grew by 30% on an operational basis. And as a reminder, last year's H1 results make for a somewhat tough comparator. Given that in 2022 we had significant FX tailwinds, and this is primarily related to the benefit from the DARZALEX currency hedge rate. The strong operational growth in H1 for this year was driven by higher DARZALEX royalties as well as royalties from other products. Taken together, this really illustrates the power of our recurring revenue. In Q2, we also recognized net product sales for EPKINLY, and we're pleased with how the initial launch is progressing so far. It's, of course, super early days at this stage, so we shouldn't draw too many conclusions from a single month of sales. Nevertheless, we remain excited by EPCORE's potential to transform the lives of patients. And as we said, we're taking our strong recurring revenue and investing in a highly focused way, as you can see on the next slide. In line with our significant growth opportunities, total OpEx grew 45% in H1. In R&D, we've accelerated our investment into our product portfolio, especially the advancement and expansion of EPCORE and other pipeline projects. We've also further strengthened our team to enhance our commercial capabilities and support our expanding pipeline. And of course, that includes the launch of EPKINLY. Now let's take a look at our financials as a whole. Here, you can see our summary P&L. Revenue came in at over DKK 7 billion, that's up 34% on last year. As mentioned, that's negatively impacted by a small FX headwind. Total expenses were $5.1 billion with 70% being R&D and 30% SG&A. And even with this increased investment, we're still delivering over $1.9 billion of operating profit. Moving to our net financial items. Here, we have a gain of $75 million so far in 2023, and this is driven by two partially offsetting items. First, we've got the weakening of the U.S. dollar against the Danish kroner, and that's 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. Then we have tax expense of $426 million which equates to an effective tax rate of 21.2%. And that brings us to our net profit of nearly DKK $1.6 billion. So as you can see, strong financial performance for H1. With that, let's take a minute to revisit our robust financial framework. First off, our revenue profile on the left. With the approval of EPKINLY in May, we now have seven products on the market that are generating significant recurring revenues. And we see a clear path to potentially expand the number of approved products with the potential approval of Janssen's talquetamab. Taken together, we expect significant cash inflows for 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 EPCORE, but that's just one of the exciting opportunities that provide us with a compelling rationale for increasing investment. As we've told you before, if we want to seize these meaningful opportunities, we have to invest, and that's exactly what we're doing. So with that background, let's take a look at our guidance. As you will have seen, we updated our 2023 guidance last week. We now expect our revenue to be in a range of DKK 15.5 billion to DKK 16.5 billion. And that's an increase to both the bottom and top end of our range. This increase is driven by continued strong recurring revenue growth, including higher total royalty revenues from DARZALEX and other marketed products. For DARZALEX, following strong H1 performance, we've increased the low end of our guidance for net sales and now estimate a range of $9.8 billion to $10 billion. Turning to our investments. As always, we remain focused on executing against our strategy and key priorities and, at the same time, creating long-term value. So we're investing to capture the significant opportunities in front of us. And here, we're increasing our OpEx guidance to a range of DKK 10.4 billion to DKK 10.9 billion. This is primarily related to increased and accelerated investment in epcoritamab and the progression of other pipeline products. More specifically, for EPCORE, our higher investment reflects increased and accelerated dose optimization work to potentially achieve a best-in-class profile. We are also accelerating our investment for our frontline trial in FL. As you know, this is a significant value driver for the EPCORE franchise, and we're doing everything we can to accelerate this opportunity. Putting all this together, we're on track to deliver another year of substantial operating profit in a range of DKK 4.5 billion to DKK 6 billion. And finally, as a reminder, note that these projections are based on an assumed U.S. dollar/Danish kroner exchange rate of DKK 6.80. Now let me provide a few closing remarks. In summary, we've had a very solid H1. We've created growing recurring revenue streams, including now two of our own products on the market, and that gives us a strong backbone of significant underlying profitability. And 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.

Thank you, Anthony. In the first half of 2023, we continue to work towards our 2030 vision where our KYSO antibody medicines are fundamentally transforming the lives of people with cancer and other serious diseases. We are very excited about the launch of EPKINLY in the U.S. and we look forward to working with AbbVie to continue to expand EPCORE development with new studies. We are collaborating with our partner Seagen to establish Tivdak as a clear choice for patients with metastatic cervical cancer. And together, we will continue to broaden the tisotumab vedotin clinical development program in cervical cancer and beyond. We also continue to 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 with BioNTech. And we anticipate expanding and advancing other early-stage programs, including the potential for additional INDs or CTAs this year. Fundamental to our success is having the right team and culture in place. We intend to continue to scale Genmab based on our planned portfolio developments 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 second half of the year. That ends our presentation of Genmab's financial results for the first half of 2023. Operator, please open the call for questions.

Your first question comes from the line of Vikram Purohit from Morgan Stanley.

We had two on the EPKINLY launch. First, we were just wondering if you could provide some color on the types of patients you've been able to treat so far in the first phase of the launch. And any kind of patient characteristics you're observing in the patients you have been able to treat and also in the centers that these patients are coming from? And then secondly, on a related note, how are you benchmarking the early phase of the launch internally versus other second-line plus DLBCL launches? And how are you framing what you're seeing in terms of the launch trajectory here versus other recent launches in the space?

Thanks, Vikram, for the questions. Let's move them over to Anthony Mancini. I think he can give you color on both of the questions. Anthony, the floor is yours.

Thanks for the question. We're very pleased with the uptake of the EPKINLY launch so far. Characterizing the types of patients we are seeing in these early phases is challenging due to limited claims data. However, qualitatively, it aligns with our expectations, especially considering we had about a 27-day head start compared to competitors. Most of the early patient starts are later-line refractory patients, primarily from key accounts, mostly academic centers. As the first FDA-approved T-cell engaging bispecific antibody for the treatment of third-line plus DLBCL, feedback from customers indicates they are enthusiastic about the overall responses of EPKINLY, its manageable safety profile, and the efficient step-up dosing along with subcutaneous administration. This feedback is consistent with what we heard from opinion leaders and clinical trial sites prior to the launch, reinforcing EPKINLY's differentiated profile. It's also important to consider the size of the initial indication; the third-line plus relapsed/refractory DLBCL population in the U.S. is a modest one, around 3,600 patients. This presents a crucial starting point for us to establish EPKINLY as a core therapy for B-cell malignancies in partnership with AbbVie. I think that covers it.

Your next question comes from the line of Peter Verdult from Citi.

Peter Verdult, Citi. Two questions, if I can or just a first one, if that's the rule. Jan, firstly, just on GEN3014 HexaBody-CD38. We understand J&J is telling investors that an opt-in decision could potentially come in 2023. Now I realize you're not going to comment on that per se, but could you just remind us how the open label head-to-head trial is progressing in terms of recruitment event rate and your level of confidence that HexaBody can indeed raise the bar in myeloma versus Darzalex in a clinically meaningful way? And then just quickly on 42 and 46. Can you provide an update on what data you expect to have in-house versus presented at scientific congress in 2023?

Thank you, Peter, for your questions. Regarding the HexaBody-CD38 program, I’m pleased to share that we are actively recruiting for the head-to-head arms of the trial, but we will need this year to recruit the patients. We expect to have the results from that study next year in 2024. We can share data with J&J while maintaining confidentiality, and we believe they will want to see all or a significant portion of the head-to-head data. The recruitment is progressing well, and we have initiated new sites in multiple countries. Once we have all the patients, we will be happy to provide a detailed update to the market. For programs 1042 and 1046, our goal is to reach a decision point this year to advance one or both to the next phase of clinical development. This is a key focus for us this year. We aim to have the necessary data internally to make a rational decision about moving forward. There is a possibility of sharing this data at a medical conference this year if we are on time for an abstract submission, potentially as a late-breaking presentation. We will also consider making this data public. We might announce the decision at a company event, such as the post-ASH update from Genmab, to inform the market about significant developments. However, it’s probable that the full data for either or both programs will be presented in 2024, as we may not meet this year's deadlines. We hope to have enough data to make an informed decision about potential next steps with BioNTech. That’s where I’ll leave it for now, Peter.

Your next question comes from the line of Sachin Jain from Bank of America.

I have two follow-up questions on the same topics that Peter mentioned. First, do you have an estimate, Jan, on how many patients you expect to have on HexaBody-CD38 by year-end if J&J decides to proceed with it? I would like to understand how quickly patient recruitment is progressing and your expectations by the end of this year. Secondly, just to clarify, while it was somewhat clear in your previous response, are you ruling out a conference presentation for 1042 and 1046 this year, and can you update us on your post-ASH R&D event?

Thanks, Sachin, for the questions. For the head-to-head, I mean, I cannot give you a prediction because recruitment is not linear. Usually, once you build momentum, Sachin, this goes quicker and quicker. So hopefully, by year-end, we will have many of the patients in the head-to-head arms of the trial with HexaBody-CD38, but probably not all. I think there's still some remaining patients, whether that will be enough and follow-up to your and Peter's question for J&J, I don't know. I mean it's their decision, but I would still stick with 2024 as the more likely point where we have enough data in order for J&J to take a good decision on potential next steps. Then for 1042, 1046, now it's very likely that the bulk of the data will be described in '24 at our medical conference. But I think for at least one of those, we hope to present also some data this year at our medical conference. Those are key medical conferences in the second term, in the last part of the fourth quarter of this year, which we could potentially use for data dissemination. But at this moment, we don't have that data. But I think it's a very good likelihood that we will actually be able to share at least some data at our medical conference, Sachin, and then potentially further color on the data at our post-ASH events. But it's speculation at this point. We are very rapidly now collecting data. That is going well. We are preparing for next steps for sure for a number of programs, but we need the data in order to allow for rationalization. That's probably...

And the question comes from the line of Michael Schmidt from Guggenheim Partners.

I just had a follow-up on EPKINLY. Obviously, understanding that the initial indication is sort of a small opportunity in third-line plus DLBCL. But could you talk about some of the cadence of possible label expansions? I know the second-line Phase 3 trial, I believe, is fully enrolled now. And you also started the first-line DLBCL trial recently. Just curious sort of how we should think about the pace of possible label expansions into larger markets. And then a follow-up. Your competitor, Roche, is marketing sort of this fixed duration treatment aggressively for their CD20 bispecific antibodies. Just curious if that is something that is under consideration for EPKINLY as well or if you're sticking with the continuous treatment in the earlier patient populations?

Thanks, Michael. I will hand over both questions to Judith, who's online here. Judith, you can start with giving your color. And then I can potentially add to that, if needed. Judith, please go ahead.

Thank you, Jan. Regarding our label expansion, we recently shared the positive opinion from the CHMP for the third line in LBCL or DLBCL and announced our filing in Japan for a similar indication. This opens up more opportunities to reach patients in need across different regions with our initial indication. Additionally, we released positive data on follicular lymphoma for third-line treatment and are engaging with health authorities, which could lead to expansion into other B-cell malignancies such as follicular lymphoma. We also have three Phase 3 studies of epco underway for large B-cell lymphoma, including in follicular lymphoma, relapsed/refractory cases in combination with R2, and first-line DLBCL in combination with R-CHOP, based on the impressive data we presented at ASCO and EHA. Our study comparing epco to GemO-R or BR in the third-line setting will further provide opportunities to seek full approval or expand indications. As for your second question, I want to clarify that treatment until progression is dependent on the disease setting. The treatment of the peer progression is significant in the third-line plus for DLBCL due to the nature of the disease and our belief that sustained aggregation of B-cells with CD20 could benefit patients. We conducted an MRD assessment in this study, revealing that about 50% of patients achieved MRD negativity. We advise continuing treatment until progression, believing these patients will continue to benefit, but ultimately, the decision rests with the physician and patient. In other scenarios, treatment duration is more limited, typically one to two years depending on the disease setting. I hope this provides clarity.

Thanks, Judith. Maybe, Anthony Mancini, you can add some further color on the fixed duration question. Anthony Mancini, please go ahead.

Yes. Thanks, Jan, and thanks, Michael, for the question. I think in third-line plus DLBCL, as Judith sort of described, the setting matters and difficult-to-treat patients have already undergone several unsuccessful fixed-duration therapies. So maintaining treatment until progression effectively provides, in our view, patients the greatest chance for a positive outcome. And with EPKINLY, obviously, this is done with, even with a treated progression approach with less chair time per patient through the first six months compared to the competition. And as Judith outlined earlier, in other disease settings and earlier lines with less heavily pretreated patients for exploring fixed duration regimens for EPKINLY.

The next question comes from the line of Asthika Goonewardene from Truist.

Congratulations on a strong quarter. I have a quick financial question. Does the increased operating expense guidance for 2023 account for additional spending on GEN1042 or GEN1046? Also, in your first month of EPKINLY sales, have you seen any patients from community centers being referred to the academic center? I'm curious if that's already evident in the early data. Finally, regarding the potential data you plan to present on GEN1040 to GEN1046 later this year, will it focus on just one tumor type, or is there a chance you might include more than one tumor type?

Thank you, Asthika, for your questions. For the first one, I'll pass it to Anthony Pagano. The second question will go to Anthony Mancini, but I'll address the third one. Currently, we are gathering data across multiple cohorts, so we haven't made a decision just yet. In this cohort, we have updates that will inform our next steps. However, it seems likely that in our public presentation, we will probably focus on one or at most two settings for 1042 and 1046. That decision hasn't been finalized yet, but it gives you some idea of our direction. Now, I'll turn it over to Anthony Pagano for the question regarding the OpEx guidance.

Sure. Yes. To be clear, the vast majority of the higher investment is reflective of what I said in my comments where I did a double-click for you in terms of the increased and accelerated investment in for epcoritamab. The comments in the text of our company announcement and to report around other pipeline products, there's nothing there for any of the products that's individually significant or material. I really would like you to ought to leave with is really that the increase in acceleration, the vast majority of it is absolutely down to epcoritamab and the key drivers supporting that, that I outlined in my opening remarks.

Thanks, Anthony. Maybe move over to Anthony Mancini for the EPKINLY question on community center patients versus academic, a bit more color there, potentially.

Yes. Really, Asthika, at this point in the launch, the vast majority of the starts are coming from the academic centers and hospitals at this point. So I'll leave it at that. And as more data matures, we'll be able to share a little bit more around the setting detail.

Your next question comes from the line of Emily Field from Barclays.

I was just checking because I want to be sure. For EPKINLY, Roche mentioned last week that they received some feedback from regulators indicating that the POLARIX regimen, while moving toward becoming the standard of care, should serve as a comparator arm for any first-line DLBCL trials. Is that your perspective? Is that part of your first-line programs, or do you have thoughts on first-line development in that area? Additionally, I understand that the legal language for EPKINLY indicates it should be hospitalized, which allows some flexibility for healthcare professionals to decide on the appropriate level of monitoring. Could you provide any insights on how that’s being implemented in real-world settings and what the regulatory process is for removing the hospitalization requirement?

Thank you, Emily, for your excellent questions. I will now turn it over to Judith first, and then perhaps Anthony Mancini can add to the second question if necessary. Judith, please proceed.

Thank you, Jan, and thank you, Emily. I'll begin by addressing the hospitalization aspect. As you mentioned, the terminology should reflect that hospitalization is recommended, not required. However, patients should be closely monitored near a hospital or similar environment. In our discussions regarding the hospitalization criteria, we've pointed out in previous calls that our analysis of epcoritamab, also known as EPKINLY, has evolved concerning patient monitoring requirements. For the initial approval expansion, we mandated hospitalization for 24 hours on day 15. However, in newer studies, we've made hospitalization optional, allowing the patient and investigator to decide if the patient can be close to a hospital without being admitted. This change allows for outpatient treatment options as well. We are also conducting a study focused solely on the outpatient setting, so we'll gather data on both scenarios: patients in the hospital and those remaining nearby. This addresses your second question. Now, regarding the first question about POLIVY, was that your inquiry?

Yes. And just whether that needs to be the comparator arm?

Thank you for the question. POLIVY is one option in the first line of treatment and is used in conjunction with rituximab and chemotherapy. We currently have a Phase 3 study comparing epcoritamab to R-CHOP, which is the gold standard of care. While POLIVY is a first-line option, it's important to note that the approval was based on progression-free survival without an overall survival benefit. Therefore, some sites may prefer R-CHOP for certain patients while others may not. R-CHOP remains a strong standard of care. Additionally, we are actively exploring the combination of epcoritamab with POLIVY, rituximab, and chemotherapy in one of our basket studies, and this is ongoing.

Thanks, Judith. So, I think it's clear. I mean this is an option. This is not mandatory. So it's different from what I think you've heard from our competitors.

And the question comes from the line of Yaron Werber from Cowen.

I have a couple of questions. Maybe the first one, just thinking about is there any way to get an accelerated approval into first-line DLBCL or the only way is to really do a full study? I know you're doing a combination that you alluded to, plus or minus R-CHOP in first line. I think that you're probably going to have data in about four years or so, but is there any chance to get an earlier approval? And then secondly, on 3014, are you able to release data publicly before J&J's opt-in option? Or are you just going to wait for J&J to make a decision and only then present the data? Because I believe it's your data set. So do you drive the public disclosure of the data?

Thanks for the questions. I think the first question, I will hand over to Judith to see whether there are options for potential more aggressive, more rapid approval for the first-line diffuse large B-cell lymphoma setting. But let me take the second one, for 3014 for HexaBody-CD38. It's our data, and yes, we can release data without the agreement of J&J for sure. So it's the option of Genmab to do that. And Judith, maybe you can handle the first question.

The regulation concerning accelerated approval for first-line diffuse large B-cell lymphoma is clearly defined.

Your next question comes from the line of Xian Deng from UBS.

Two please, both on epcoritamab, potentially additional indications. So the first one, for follicular lymphoma. In frontline, I can see you have a trial, the Phase 3 trial is in combination with R2, but you also have a lot of other trials in follicular lymphoma with either Rituxan or just with Revlimid. So just wondering how do you actually think about the combination partner in follicular lymphoma in general, especially how does it work in terms of giving this is a much more indolent disease. Are you more cautious with combination with other drugs? The second question is on CLL. I'm just wondering if you could remind us where are you with epcoritamab in CLL? And what is your general strategy here? Are you aiming to potentially target the high-risk patients like Richter's syndrome first? Or you're talking here allcomers?

Excellent questions, Xian, and I will hand them both over to Judith, who can address them really well. Judith?

Thank you. The Phase 3 trial currently underway for relapsed/refractory follicular lymphoma involves the combination of R2 based on the approved R2 regimen for this condition. This is supported by very promising data from the combination of R2 and EPCORE presented orally at ASCO and EHA this year, which demonstrated an unprecedented level of efficacy, especially in difficult-to-treat patients, including those who are refractory to multiple therapies. The Phase 3 trial is comparing R2, which is approved for this line of treatment, against R2 EPCORE. Notably, there are no restrictions on infusing EPCORE with rituximab due to it being a different epitope. Additionally, we are conducting a Phase 1b/2 trial of epcoritamab plus lenalidomide without rituximab to gather further data, but the main focus of the Phase 3 is the combination with the approved R2 regimen. Regarding CLL and Richter's syndrome, we have an ongoing study and have presented very encouraging data in CLL patients who have failed ibrutinib and most of whom also have BCL2 mutations. We have observed notable single-agent activity. In both diseases, our strategy is to combine therapies to enhance outcomes for patients, with combinations involving ibrutinib or R-CHOP based on the specific disease context. This study is actively ongoing, and we plan to share more promising data in these areas at future congresses.

Your next question comes from the line of Peter Welford from Jefferies.

I have two quick questions. First, regarding the financial aspects, I'm trying to understand the breakdown of the P&L, particularly in relation to COGS. My understanding was that 50% of the gross profit goes to AbbVie in terms of cost of goods. I'm a bit confused about why that isn't reflected and whether you'll provide more information on this in the future. Additionally, regarding cost distribution, the guidance suggests a relatively modest increase in the second half compared to the first half. Were there any one-off factors in the R&D expenses for the second quarter that might explain this phasing? Secondly, I wanted to revisit Anthony's comments during the opening remarks about the costs associated with the increase in accelerated dose optimization work for ATCO. Could you elaborate on what this increase in accelerated dose optimization work entails?

Thanks, Peter. And I will ask Anthony Pagano to address both of these questions and potentially Judith to step in on the second one. Anthony, why don't you get going?

Yes, certainly. Regarding the cost of goods sold and the components involved, including the payment to AbbVie, you are correct. Our assessment for the second quarter was that it wasn't significant. If you reviewed the detailed financials, we indicated that this was included in SG&A for this quarter. Looking ahead, we will likely categorize it as a separate line item. Concerning your second question about phasing, I wouldn't say there's anything particularly notable regarding that. In the first quarter, our year-over-year growth rate was 51%, but on a year-to-date basis, it has slightly decreased to 45%. As we reflect on the second half of last year, that’s when we began to ramp up our investments, including expanding the U.S. market in anticipation of the epcoritamab launch. Therefore, we expect the operating expense comparisons in the second half of the year to differ from those in the first half. Regarding phasing specifically, there weren't any unusual items in the first half of the year. Judith, would you like to address Peter's question about dose optimization?

Yes, sure. Thank you. As Anthony expressed, it is accelerating means accelerating enrollment and increasing the number of patients to potentially provide the data to support EPKINLY as best-in-class in terms of safety and efficacy.

In follicular lymphoma.

In follicular lymphoma. Correct.

Yes. Thanks, Judith. I think, Peter, that's probably where we can leave it now.

Sorry, just to be clear, though. There's no plans then to make any fundamental sort of any changes beyond in terms of the device or in terms of the drug itself. This is purely profiled from the work you've talked about before in terms of outpatient and in terms of follicular lymphoma data.

This is the step-up dosing regimen, Peter. This is just basically to get a more optimal regimen for follicular lymphoma.

We will take our next question. And the question comes from the line of Matthew Phipps from William Blair.

I know it can be challenging at this early stage of the launch, but can you share if there’s any expectation for the EPKINLY to contribute to channel inventory in the near term? Additionally, the EPCORE DLBCL 1 Phase 3 trial recently had its primary completion date pushed back from 2024 to 2028. Should we anticipate this change, or might there be additional analyses available before that?

Matt, thanks very much for the questions. I missed the first one. I must admit, I couldn't hear that. Maybe you can repeat the first one. The second one can definitely be answered by Judith for sure. But can you repeat the first one, please?

For EPKINLY, was there any kind of excessive channel inventory build initially that can sometimes happen right when the drug launches?

Okay. Thanks, Matt. Perhaps Anthony Pagano can respond to that one.

Yes, sure. Happy to. As I highlighted in my opening remarks, look, I mean, we're super pleased with the launch so far. The team is in place. They're executing well. Feedback has been positive, as Anthony Mancini highlighted. Look, I think we're talking about really pretty small numbers here, around a month of sales. There's nothing in the reported number, Matthew, that I would kind of be pointing you to really, really focus on it at this stage. And again, I think it's just small numbers, a month of sales. Nothing that I would particularly get you to focus on other than what's already been said on today's call.

Thanks, Anthony. And maybe, Judith, a bit of color on the time line change on the EPCORE diffused large B-cell lymphoma trial?

Yes. I think in event-driven studies endpoint at event driven, you can have projections but you follow the course of events and project completion date based on cost events. This is the only comment I can make.

Your question comes from the line of Rajan Sharma from Goldman Sachs.

Just two. So firstly, on I&I, and obviously, that's an area that you're expanding into. So could you just kind of help us understand where we may get some additional clarity on plans there and whether we may be able to get some clarity on what the specific asset for the first asset in I&I will be and whether that will be this year? And then secondly, just on the additional investment behind EPCORE. Can you just help us understand how much of that is actually kind of a pull forward from what you're expecting to do in future years versus how much is kind of absolutely new?

Thanks, Rajan, for the questions. Let me give you a bit of color on I&I. It's very early days. We have a number of programs internally which are progressing preclinically and then they need to be tested in animal models. And then the best ones will be ready potentially for clinical work. So that is a few years from clinical introduction, Rajan. We also have, of course, the argenx partnership, where we actually have two concrete targets we're working on, one for I&I, one for cancer. But we are now creating the lead molecule. So also that is a few years of clinical introduction. So we will actually update you in the future on the exact phasing, but we are only going for differentiated, truly differentiated antibody-based therapeutic candidates here. But the good thing is we have a number of programs already ongoing at Genmab and others starting up now with argenx. But the timing is still very much dependent on how effectively we can move forward to the preclinical and animal testing phase. And animal tested, some of the candidates are going to be slaughtered pretty quickly. So we are moving rapidly, but it's still a few years from clinical introduction in patients. Then for EPCORE, the investment question, maybe to answer Anthony Pagano.

Yes. As we think about investing in our business, we're always on the lookout for opportunities, particularly for epcoritamab, where we can expand and accelerate. And I outlined for you the areas which we've done that for so far this year in my opening remarks. As I think about the increase here, look, I think this is a little bit on the margin, we're probably talking about relatively small numbers. And I would say that the vast majority of this is probably expansion of work and acceleration. And again, we're always looking for opportunities where it makes sense to, from an investment perspective, to expand and accelerate, particularly on epcoritamab, we're going to do just that. So I know, I'm not really giving you a precise number. But I would leave you with those remarks and really for you to think about this as more of our investment framework and how we think about investing in our products. And the majority would be around expansion.

Your final question comes from the line of Jonathan Chang from Leerink.

This is Faisal Khurshid on for Jonathan. Just wanted to ask if you could sort of remind us, how are you thinking about the potential positioning of opportunities for GEN1046 compared to GEN1042? For example, like how could these products be potentially complementary to each other versus potentially being like more of an either or type of decision?

That is a very detailed question. Basically, I can give a very lengthy answer, but what I said publicly up to now is that we believe that we can actually position them differently in different settings, in different tumors based on what we see in the clinic right now. And that will become clearer, hopefully, in the coming months when we are going to share data, I hope. Or we speak about the data at our post-ASH events. But the short version is we think that we can actually position them in different tumors in different settings. So there will not be an either or, but they will be very clearly developed, we hope, in different therapeutic sessions.

I would like to hand back for any closing remarks.

So thank you for calling in today to discuss Genmab's financial results for the first half of 2023. If you have additional questions, please reach out to our Investor Relations team. And we hope that you all stay safe and remain healthy and very much look forward to speaking with you again soon.

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