Genmab A/S Q3 FY2023 Earnings Call

Hello, and welcome to Genmab's Third 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. 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 September 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; our Chief Operating Officer, Anthony Mancini; and our Chief Medical Officer, Tahi Ahmadi. As already stated, 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. This slide acknowledges those relationships. Genmab's strong foundation is built on our consistent track record of success. As we near the end of the year, it's a good time to reflect on how far we have come as a company even in the last 12 months. We continue to expand our pipeline with new INDs and new product candidates in the clinic. We also matured our pipeline with new clinical trials and positive data readouts. And very excitingly, there are now eight approved medicines that follow our innovations, half of which were created with our proprietary DuoBody technology. Epcoritamab, which we are co-developing with AbbVie, is also our first medicine to be approved for patients and territories outside the US. These advances are possible because we have a dedicated and unstoppable team at Genmab, an international team that has grown to enable us to continue to evolve into a leading integrated biotech innovation powerhouse. Let's now turn to recent key company events. September was an exciting month for Epcoritamab as we and AbbVie received approvals in both Japan as EPKINLY and Europe as TEPKINLY. Like the approval in the US earlier in the year, these approvals were important milestones both for our patients and for Genmab as a company. The approval in Japan is especially significant, as we at Genmab are the commercial lead for EPKINLY there. We began growing our presence in Japan in 2019 so we would be ready for just such an opportunity. So we are very pleased to be launching our own product there, especially as EPKINLY is the first and only bispecific antibody approved in Japan to treat adults with certain types of relapsed or refractory large B-cell lymphoma after two or more lines of systemic therapy. We are excited to note that in addition to the US, Japan, and Europe, Epcoritamab has now been approved in Canada and the UK. I'm also happy to announce that the broad potential of Epcoritamab to become a core therapy for B-cell malignancies will be on display at this year's prestigious ASH Conference at the beginning of December. We have had 15 total abstracts accepted for presentation at ASH, two of which are oral presentations. Of the accepted abstracts, four will be initial disclosures of clinical data for Epcoritamab including an oral presentation of data from the EPCORE NHL-5 trial of Epcoritamab in combination with lenalidomide as treatment for patients with relapsed or refractory diffuse large cell B-cell lymphoma. This data further supports EPCORE's combinability and highlights its potential to move into earlier lines of therapy. HexaBody-CD38 will also be recognized at ASH with a poster presentation on preliminary results from the expansion cohort at the recommended Phase 2 dose of the ongoing Phase 1/2 trial. We are actively enrolling in the head-to-head portion of the trial. We are very encouraged by what we are seeing. As we said previously, we anticipate to have data in 2024. If we look beyond our own pipeline and include all abstracts involving products that are powered by Genmab's innovations, there are nearly 200 total abstracts accepted for presentation at this year's ASH meeting, 36 of them being oral presentations. Now I want to turn to some additional exciting updates on the progress of our maturing proprietary antibody product pipeline. First, GEN1046. It has cleared to the high bar that we set. We are very pleased to share that we are now engaging with health authorities to determine next steps. Previously, we shared data from an expansion cohort of patients with non-small cell lung cancer who failed prior checkpoint inhibitors. We saw encouraging single-agent activity, but responses are not durable. Based on clinical and strong preclinical data that showed that the combination of GEN1046 plus checkpoint inhibitors resulted in improved efficacy, we embarked on a scientific question: how to most optimally engage 4-1BB activation with checkpoint inhibition? The Phase 2 study of GEN1046 in combination with pembrolizumab in patients with PD-L1 positive non-small cell lung cancer who failed standard of care therapy with an immune checkpoint inhibitor addresses this question. Emerging data from this study has provided us a clear answer. So far, the data from this study indicates that we can combine these two mechanisms, leading to improved efficacy. Based on this, we believe there is a clear path forward and we are engaging with health authorities to determine next steps. We look forward to sharing the relevant clinical data at a medical conference in the first half of 2024. As a reminder, we are developing GEN1046 with BioNTech. Moving to Tivdak. We were pleased that we along with our partner Seagen presented the late-breaking results from the innovaTV 301 trial of tisotumab vedotin in recurrent or metastatic cervical cancer during the presidential symposium of the Asthma Congress in Madrid in October. This follows the announcement by us and Seagen in September that the trial met its primary endpoint of overall survival. As a reminder, the results of this trial are intended to serve as both the pivotal confirmatory trial for Tivdak’s accelerated approval in the US as well as support global regulatory applications. Likewise, Tivdak has also cleared the high bar that we set. We are optimistic about the data we have seen in head and neck cancer post-standard of care. Here, we will actively engage with health authorities on the next steps in this indication. Moving to GEN1042. We are also co-developing this with BioNTech, and we remain very encouraged by the clinical efficacy data that we are seeing across several tumor types. We are currently taking the learnings from GEN1046 on how we can optimally dose and schedule GEN1042. We need more time to do this, so we now anticipate that we will have the data we need to determine next steps for this program in the coming months. Looking at some of our earlier-stage programs, I have a brief update on GEN1047, our DuoBody CD3B7H4. We have now completed dose escalation in the Phase 1/2 trial and have transitioned to dose expansion. This is an important step in progressing our CD3-based bispecific platform in solid tumors. GEN3017, our DuoBody-CD3xCD30 program that we announced last quarter has now started recruitment for our first-in-human clinical trial. We're also very pleased to announce another IND submission for 2023, GEN1059, our DuoBody-EpCAMx4-1BB. The first preclinical disclosure for this program, which will further leverage our knowledge of 4-1BB, also took place at ESMO in October. This bispecific antibody, which we are co-developing with BioNTech, has potential in solid tumors. We anticipate that GEN1059 will enter the clinic in 2024. Finally, as we work to progress these new and existing programs, we have also made the decision to cease the development of GEN3009, our DuoHexaBody-CD37. This decision was made following a strategic evaluation of the program within the context of our entire portfolio and was not based on any safety or regulatory concerns. Our goal of transforming the lives of patients is always at the center of our decisions, and we look forward to continuing to create and develop truly differentiated antibody products. The power of our innovation is reflected in programs that apply our DuoBody technology. Two of these products are Janssen's Talvey and Rybrevant. In August, Talvey was approved in both the US and Europe for relapsed or refractory multiple myeloma, making it the fourth approved DuoBody-based bispecific antibody. Also in August, Janssen submitted an sBLA for Rybrevant, followed by a Type 2 extension to the EMA in October. Both of these submissions are based on the confirmatory Phase 2 pro-longed study. So overall, you can see plenty of progress across our business, with lots to be excited about as we look forward. And that's a good note on which to hand over to Anthony Pagano, and he will take you through our financials. Anthony, the floor is yours.

Great. Thanks, Jan. We continue to strengthen our foundation over the first nine months of the year. Of course, top of mind for everyone are the multiple regulatory approvals for EPKINLY. And as we'll see, our financials continue to be strong. Recurring revenues grew by 22% on a reported basis and impressively 30% on an operational basis. This was principally driven by strong royalties from DARZALEX, along with significant growth from our other seven 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 we need to succeed. So let's look at those revenues in a bit more detail. We continued to see strong performance for DARZALEX during the first nine months of the year. As you can see in the chart, overall, net sales grew by 22%. That's net sales of nearly $7.2 billion, which translates to over DKK 8 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. We grew total revenue to almost DKK 11.8 billion in the first nine months of the year. And as I've already highlighted, that included a 22% increase in our recurring revenue. To be clear, that's on a reported basis. Excluding some FX headwinds, recurring revenues grew by 30% on an operational basis. Last year's results make for a somewhat tough comparator, as we saw pretty significant FX tailwinds, particularly for our royalty revenue. As a reminder, under our DARZALEX agreement, for purposes of calculating our royalties, sales outside the United States are translated to US dollars at a specified annual hedged foreign exchange rate. Operational growth in the first nine months of this year continued to be strong, driven by higher DARZALEX royalties as well as royalties from our other products, and this really illustrates the power of our recurring revenue. We also recognized the first full quarter of sales for EPKINLY in Q3, and we're very pleased with how the launch is progressing so far, with around $22 million in net sales for the quarter and $28 million year-to-date. Overall, our strong recurring revenue growth enables continued highly focused investment, as you can see on the next slide. Back in February, we were very clear that we would continue to invest to capture the opportunities we see in front of us. And that's exactly what we've done, with total OpEx up 42% in the first nine months of the year. At that time back in February, I outlined our top four investment priorities. First, securing a successful EPKINLY launch by investing in our two key markets, the United States and Japan. Second, continuing to advance our pipeline. Here the lion's share of our investment is being directed to our most advanced programs including EPKINLY, Tivdak, 1046, and 1042, which are all exciting opportunities for us. Third, investing in our world-class discovery engine, including focused investments to expand our therapeutic focus to include I&I. And fourth, foundational investments and enabling functions to achieve required scale. As you can see, our investments continue to be fully in line with these priorities. And as always, we continue to focus on long-term value creation. So with that, let's now take a look at our financials as a whole. Here you can see our summary P&L. Revenue came in at close to DKK 11.8 billion. That's up 26% on last year. As mentioned, that's negatively impacted by FX headwinds. Total expenses were around $8 billion, with 71% being R&D and 29% SG&A. Even with the increased investment and significant FX headwinds, we're still delivering around DKK 3.7 billion of operating profit. Moving now to our net financial items. Here we have a gain of over $1 billion so far in 2023. This is driven by an increase in interest income due to higher effective interest rates, as well as the strengthening of the US dollar against the Danish kroner in the first nine months of the year. Then we have tax expense of about $1 billion, which equates to an effective tax rate of 21.2%. That brings us to our net profit of over DKK 3.7 billion. As you can see, continued strong underlying financial performance. 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 and TALVEY in August, there are now eight products on the market that are generating recurring revenues for us, and we expect significant cash inflows for the years to come. Moving to the right, we remain focused on 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 our investment. As we've told you before, if we want to seize these meaningful opportunities, we've got to invest, and that's exactly what we're doing. So with that background, let's take a look at our guidance. As you can see, we are adjusting our 2023 financial guidance. In summary, we are lifting the bottom end of our revenue and OpEx ranges. This is due to current year-to-date performance and the strong US dollar. This, of course, has the effect of tightening the ranges across the board. We now expect our revenue to be in a range of DKK 15.9 billion to DKK 16.5 billion. One of the drivers of this increase is higher DARZALEX royalties, so we've increased our guidance here to DKK 11.3 billion to DKK 11.5 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 growth opportunities in front of us. Here we're increasing the bottom end of our OpEx guidance to a range of DKK 10.6 billion to DKK 10.9 billion. This is primarily related to increased and accelerated investment in Epcoritamab clinical trials and the progression of other pipeline products, including 1046 and Tivdak. Putting all this together, we're on track to deliver another year of substantial operating profit in a range of DKK 4.8 billion to nearly DKK 5.8 billion. As a reminder, note that these projections are based on an assumed US dollar-Danish kroner exchange rate of 6.8. Finally, to give you a bit more color on FX, every 10 basis point move in the exchange rate relative to our guidance rate is worth around DKK 80 million in operating income for the balance of the year. Now before I wrap up, I do want to take a moment to zoom out a bit and take a look at the very high quality of our revenue profile and the power of our discovery engine. We believe this powerful combination sets us up very well for the long term. First, let's think about the eight approved medicines, which you can see in the box in the top right-hand side of the page, that are powered by our innovation and technology and that are currently generating significant revenues for us. The top three are already blockbusters. The remaining five all have meaningful growth profiles and the potential to become blockbusters. I can say this with confidence because we have the clinical development plans, and with our partners, we're investing to make this happen. The six royalty-generating products are marketed by pharma and biotech powerhouses, J&J, Novartis, and Amgen. Our two proprietary products are co-marketed with AbbVie and Seagen, and moving forward, we anticipate Pfizer. So we're confident we will realize their potential. Now, let me turn to the power of our discovery engine. Of around the four programs we've moved into the clinic, eight are already approved and 19 are currently in active clinical development. That's a pretty strong hit rate, and it's no accident. We understood very early on the competitive advantage that our deep antibody science and focused discovery engine could provide. We've invested more in discovery to increase the number and quality of our product candidates. This includes investment into our proprietary technology platforms. We believe that these diverse tech platforms are key to our success. They allow us to select the most appropriate modality from our toolbox to tackle a specific disease target. We have four proprietary tech platforms including DuoBody and HexaBody, and we also have access to a suite of other technologies through our partners. This unique position allows us to bring only the products with the best potential through to development. It's our deep insight into antibodies and our proprietary platforms that have helped us discover, build, or design the eight products that are currently approved. If all eight currently approved products were wholly owned by Genmab, we would have the potential to generate estimated revenue here in 2023 of over $14 billion. As we move forward to a model in the future where we have 100% ownership of our products, we believe we can continue this track record of success and further solidify our position as an innovative biotech powerhouse. Now, to really wrap up, let me provide a few closing remarks. In summary, we've had a solid first nine months of 2023. We've created growing recurring revenue streams including now two of our own products on the market, which gives us a strong backbone of significant underlying profitability. We're investing those revenues in a highly focused way to realize our vision and capitalize on the very significant growth opportunities in front of us. On that note, I'm going to hand you back over to Jan.

Thanks, Anthony. We continue to work towards our goal for the year and are especially excited about the multiple approvals for Epcoritamab, the positive data for tisotumab vedotin, and the next steps in the development of our earlier-stage product pipeline. I'm also pleased to announce that we will hold our annual R&D update and data review event on December 12. To ensure the event is accessible to as many people as possible, this year's presentation will be fully virtual. Details are available on our website, and we look forward to a lively event. So that ends our presentation of Genmab's financial results for the first nine months of 2023. Operator, please open the call for questions.

Thank you. We will now take the first question from Vikram Purohit at Morgan Stanley. Please go ahead.

Great. Thank you for taking our question. We had two. First on GEN3014. So as you mentioned there were some clinical data that was recently featured for this program through abstracts that were posted for ASH. We were wondering what you think are some of the appropriate benchmarks to compare against here on both efficacy and safety to really frame these initial results? And secondly, just to clarify for the R&D update you'll be hosting alongside ASH. Should we expect to see any updates for GEN1042 or GEN1046 at this event?

Thanks, Vikram for the questions. I will hand over the first to Tahi. He can give you further perspective on the benchmarks which you need to think about for the HexaBody-CD38 program. The question on 1042 and 1046, to give a bit more color, I will hand it over to Judith. So let's start with Tahi for GEN3014. Tahi?

Yes. Thank you for the question. So yes, in principle, of course, for daratumumab a benchmark would be the 501 study and also for the subcutaneous administration the study. It gives you a range of efficacy of somewhere between 30% to 40%, with 19% data that can follow up a little bit more about 90% of the patients having VGPR or better. But it's also important to understand that this data was generated in a setting with a completely different treatment paradigm. Presumably, the data in today's world with patients who are more heavily treated with other mechanisms may look differently, probably less favorable. That's why there is a head-to-head randomized study that we are generating. Broadly speaking, that's the efficacy benchmark. It's also important as you think about comparison from an efficacy point of view, not only oral but also the depth of response will be very important, certainly for us, as we look at the data we have on our hands. The same with safety. The safety data issue is of course like small data sets in a different environment. There are some factors that are different. For example, one of the patients had a great past event for a patient with COVID that was certainly not a virus existing at the time when the reference data sets were generated from eight years ago. So again, there I would say the comparison will come from the randomized data set, which is why we're doing a randomized study.

Thanks, Tahi. Maybe over to Judith for a bit more color on 1042 and 1046 at ASH.

Yes. Thank you, Jan. So as you alluded, Jan, for 1046, we look forward to share the data of study 04 in a scientific congress that will be presented and we are looking for opportunities within the first quarter, second quarter next year. This is why the actual data will be presented. We expect at ASH to give a little bit more color directionally where we are going. But as we’ve discussed several times at CT 2021, we presented interesting data of responders in non-small cell lung cancer after failing the current standard of care, which encompasses chemo and immunotherapy. Responses were not always durable. Interestingly enough, when we analyzed the clinical data, we saw that these responders were concentrated in the PD-L1 positive cohort. We also saw that these responders were mostly in the patients that received a checkpoint inhibitor in the last eight months. Based on those data points and the strong preclinical synergy between Pembrolizumab and 1046, we designed study 04, which allows us to discuss in future meetings with health authorities next steps. We will see where we are, but we are planning to present a little bit more color. This is 1046. For 1042, we are very encouraged by what we continue to see, not just aligned with the four responders that we presented at CT in head and neck but in other tumor types. We're also getting the learnings from 1046 in order to understand better how to dose and schedule 4-1BB engagement. So, we may give more color but we need to understand where we are to see to what degree. It will be more directional because we usually present in scientific congresses before we share with investors and analysts, but we will do our best to directionally give more color.

Thanks Judith. Vikram, as you can hear, we are excited about all these three programs. So we're very excited and I think we use the coming months to further position the molecules for next steps. More to come from Genmab in the coming months for sure.

Okay. Thank you.

Thanks, Vikram.

Thank you. We will now take the next question from the line of Jonathan Chang from Leerink. Please go ahead.

Hi guys. Thanks for taking my question. First question, can you discuss the progress made with the early EPKINLY launch? What gives you confidence that EPKINLY can become the market leader in the CD20xCD30 class? And then second question on GEN1046, what could a path forward in post-IO lung cancer look like? Can you discuss the opportunity for this program in endometrial cancer? Thank you.

Thanks, Jonathan, two excellent questions. The first one, I will hand over to Anthony Mancini, who will be delighted to speak about the EPKINLY launch and next steps. Then maybe Judith can give a bit more color on the checkpoint inhibitor lung cancer landscape and the way to develop a potentially develop the molecule. Anthony Mancini?

Thanks, Jan, and thanks, Jonathan, for the question. As was covered earlier, we're seeing a really healthy uptake of EPKINLY and really strong execution of our launch plans in the first quarter. We're also highly encouraged by the launch momentum and the overall positive feedback that we're getting from our customers that are using EPKINLY in the third-line plus DLBCL setting. Our go-to-market approach really looks to leverage our first-mover advantage. The strong early uptake is driven by a couple of factors that give me confidence that we can continue through the life cycle. First, the solid execution and focus on key accounts and key customers from our field-based teams across medical affairs, sales, and our alliance with AbbVie. This has yielded strong customer engagement and early uptake of EPKINLY, and it has also resulted in rapid access. What we're seeing, Jonathan, is 99% of covered medical lives in the United States with functional access to EPKINLY, which is very encouraging. It's also clear that there's a high unmet need in later-line DLBCL, and EPKINLY is filling the void, enabling off-the-shelf access to T-cell engaging innovation across diverse sites of care. We feel very good about being the first FDA-approved T-cell engaging bispecific antibody for the treatment of patients with third-line DLBCL. But we understand it's an important starting point to build from to help EPKINLY become a core therapy across B-cell malignancies. Overall, we're highly encouraged by the early response in the market to EPKINLY, and so far, the uptake has gone better than expected.

Thanks very much, Anthony. Jonathan, we intend to give further color on the complete development plan this year, potentially at the post-ASH event. We will talk more about how to further build the market and the landscape for use of EPKINLY in the coming years. Now let's move to Judith for giving a bit more color on the importance of the post-checkpoint inhibitor lung cancer market because we feel that that's a very strongly growing market with a need for new medicines. Judith?

Yes. As we all know, checkpoint inhibitors are moving to the first line, a single agent if patients have PD-L1 above 50%, or in combination with chemo for patients with lower expression of PD-L1. There is a huge unmet medical need for patients who fail pembrolizumab checkpoint inhibitors and chemo, where the standard of care is unfortunately palliative, resulting in an overall benchmark bar of only 12% to 20% at most with very poor prognosis. This segment is growing as more patients receive first-line combination treatment or even sequential therapy. It is in this very setting where we conducted the randomized 04 study assessing two different schedules and even 1046 as a single agent, which gives us a strong foundation for a potential Phase III in this very setting. We are encouraged about the methodical follow-up of the science and this is where we are engaging with health authorities in the coming weeks to define better, and we will share more as we define those plans.

Thanks, Judith. So more to come in the coming weeks and months, Jonathan, for sure.

Understood. Thank you.

Thank you.

Thank you. We will now take the next question from the line of Michael Schmidt from Guggenheim Partners. Please go ahead.

Hi. This is Paul on for Michael. Thanks for taking our question. First one is on the pivotal data for EFCO in follicular lymphoma at ASH. How are you thinking about the opportunity and differentiation based on the emerging clinical profile and your conversations with physicians? How much do you think that the evolving duration of response will possibly factor into how the two drugs are positioned? And then my second question is sort of building off the prior one on GEN1046. Can you sort of just talk a little bit about your decision to initiate that Phase II study for endometrial cancer, whether that was driven by emerging data in Phase I or perhaps the non-small cell lung cancer combination trial? Thank you.

Thanks, Paul. The first question can be handled by Tahi. And then the second one, maybe Judith can talk a bit about the decision to start the Phase II study and why we are so excited there. Tahi?

Yes. Thank you for the question. As it relates to the data in follicular lymphoma, there's obviously some public release of our top-line data, but you will see more data. The most important part will be to pay attention to the optimized schedule that will be presented at ASH, and then the safety profile of EPCORE in the optimized setting will very clearly show that EPCORE has a profile both on efficacy and safety that is extremely competitive with best-in-class safety and best-in-class efficacy even in follicular lymphoma. Duration of response is tricky. To some degree, it's a question of follow-up. Mosunetuzumab has significantly longer follow-up than EPCORE because they started about three years before us. This is reflected in the duration of response. Other parts that are kind of like compounders to some degree will play a role in how we interpret efficacy. Patients who achieved a deep response, particularly CR, are staying very long in their CR. In some cases, we will see if that is actually reflection of a big word in cancer about the possibility of cure, as we have patients now approximating five years in CR.

Thanks, Tahi. Let's move to GEN1046. Judith, can you talk a bit about the rationale for endometrial cancer and why we started that study?

Yes. Thank you so much. We started studying endometrial cancer because it's a tumor type where 4-1BB is constitutively over-expressed, and it is a setting to test a hypothesis different from what we have done in study 04, which I already alluded to. We understand that endometrial cancer is not a single disease. You have MSI high and MSI low. We are gathering data as we speak. Based on the data, we plan to parse these different subtypes and go from there. It's very preliminary to say what the path forward is because we are gathering data in this Phase II program to understand the data and where there could be a path forward. An additional point to flag is that in the Phase 1, we saw long durable responses with 46 as a single agent, which again prompted us to investigate more. We expect to have this data in the coming months to allow us to make decisions.

Excellent, Judith. Thank you very much. Thanks, Paul for your questions.

Thank you. We will now take the next question from the line of Etzer Darout from BMO. Please go ahead.

Great. Thanks for taking the question. The first one on GEN1046 again, you have data next year at a medical meeting. Just how are you thinking about the target relative to other IO agents that we've seen now being combined with PD-1, like what we're seeing from the TIGIT class? Just how do you see the PD-L1 4-1BB mechanism relative to that? Then maybe quickly on HexaBody-CD38, if you could remind us of the opt-in rights for J&J with respect to that program, so we could think a little bit about when that could be triggered potentially by J&J? Thank you.

Thanks Etzer for the questions. The first one, I will hand over to Judith to talk a bit about 4-1BB targeting versus other immune checkpoint targets. I can take the HexaBody-CD38 question myself. Judith, why don’t you go ahead?

Yes. First, I would like to say that there is no precedent of IO as a single agent providing responses in patients who have failed checkpoint inhibition with PD1 inhibitors. So if you think about the array of diseases or other targets, the response rate in patients who failed checkpoint inhibitors is zero or in a handful of cases. We showed in the first cohort that there were responses, and there was 17%, enrolling all comers. We presented in Q3 2021 that when we segmented this population based on the PD-L1 presence, the response rate was higher, albeit not durable. However, we had strong preclinical data that showed this synergy additivity with pembrolizumab, which is why we pursued the combination strategy. The precedent of IO in the post-IO setting is almost unheard of, but we saw it with 1046. This is why we believe it's the right next step to combine with pembrolizumab, and results are emerging that we will share. There is no precedent of IO, IO in a post-IO for patients who are all going to first line in PD-L1 high settings. This is where the data show that we believe there's strong activity.

Thank you, Judith. Now let me take the HexaBody-CD38 opt-in rights for J&J. They have the right to take a decision to opt-in or not after we give them the data from the dose escalation and the dose expansion data, which we already have as well as the head-to-head data against the subcutaneous data, which we are gathering very rapidly. We believe that we will have the head-to-head data next year and then hand over that data package to J&J. They have a limited time to say yes or no. If they opt-in, they want to develop this molecule in any indication they want to, but I think multiple myeloma is now the number one indication for HexaBody-CD38, given the new data from the expansion cohort. We would also receive a $150 million upfront payment from them, and they would pay for all development costs, and we would get a straight 20% royalty rather than the previous tiered royalties until some point in 2031 where we go from 13% to 20%. So next year will be an important year because then we will hand over the head-to-head data package. We will keep following the data at ASH, with updated data from the abstract. Please watch out for that, as we believe it will be very encouraging.

Very good. Thank you. Thank you for the additional color.

All right. Thank you.

Thank you. We will now take the next question from the line of Sachin Jain from Bank of America. Please go ahead.

Hi there. Thanks for taking my questions. Just more follow-ons on the same topics if I may. So firstly, regarding CD38 Grade 5 events. Thank you for clarifying. One of the two was COVID. Was that the respiratory event? And any color on the patient characteristics with the CV event just to get some color as to whether that was treatment-related or not in your mind? Have you seen any Grade 5 events since that May cutoff? So that's on the CD38. Second topic is the 1046. You said more color at ASH. Just to clarify what you mean regarding the regulators by then. Could you confirm your Phase 3 program at the ASH event? And regarding your clear efficacy comment, do I infer that as a response rate above 20% for taxi you referenced? Any color on the duration of response you're seeing? Thank you.

Thanks Sachin. Let's see what my colleagues are willing to give you this information. Tahi can definitely comment further on the Grade 5 events for HexaBody-CD38, and I will ask Judith to consider how to answer the question on 1046 and the ASH data as it relates to clarity on a potential Phase 3 trial, as well as the bar for responses. Tahi, maybe you can start.

Yes. As I said earlier, the one patient was someone who passed away due to COVID, while the other was a cardiac event. Neither of the two events were, in our judgment and the judgment of the investigators or the judgment of the DMC, related to treatment in the studies. Looking at the study I referenced earlier, you'll see there is roughly a 7% fish rate of Grade 5 events on these trials, with patients passing away of all kinds of events, which are not always related to the drug. We don't have in the DMC assessment, a safety signal with small patients that seems to deviate from what is known for the class of CD38 antibodies. I hope that answers it.

Thanks Tahi. Judith, on 1046 and ASH potential updates there, or further clarity on the program.

Yes. Thank you for the question. We will try directionally to give more color just to share the design. We expect to have more certainty on that, which usually happens after discussions with health authorities. We'll give as much as we can predicated on where we stand in the process. As related to the benchmark, I alluded to the multiple datasets in this setting that unfortunately failed and did not undergo the rigorous scientific approach to connect the dots and have the best potential hypothesis. This will allow us to wait a little bit to have not only response rates but the duration which is critical in a Phase 3 setting. I want to reinforce that we will share as much as we can whenever we can. The commitment is there, but we are bound by when these meetings will happen.

Thanks Judith, and thanks Sachin for the questions.

Thank you.

Thank you. We will now take the next question from the line of Kaveri Pohlman from BTIG. Please go ahead.

Yeah. Good afternoon. Thanks for taking my question. My first question is for Jan. Can you provide any insight into your expectations for its efficacy in CD38 pretreated patients given that previous studies have shown that these patients develop resistance via overexpression of complement inhibitory proteins? And my second question is for EPKINLY. Can you provide any color on your plans for follicular lymphoma and any timelines around that? Also for EPKINLY in DLBCL, especially from the safety standpoint, are you planning to have some real-world data collected that could further differentiate from its competitors?

Thanks, Kaveri for the questions. I think I will hand both over to Tahi. Before Tahi starts, I mentioned earlier that we intend to describe the compound development plan for Epcoritamab in more detail at the post-ASH update. But Tahi, maybe you can give us a bit more color on the efficacy of potential efficacy in CD38 pretreated patients.

Yeah. Thank you, and you're absolutely correct. There was a subgroup analysis worked on the combined data in the cycle one study that looked at the impact of the tumor treatment on the CD38 expression, which gets kind of shredded after surface and results in the upregulation of complement inhibitory proteins. This makes it tricky to treat these patients. This is why the study we are conducting is actually in CD38 naive patients with the head-to-head comparison against subcutaneous treatment. We have had some signals of efficacy in daratumumab-exposed patients, and the dose escalation there were two patients who had a response. Broadly speaking, that's not where we're focusing right now because the focus is on generating data that allows us to elucidate whether the single point mutation underlying the hexamerization has the impact we believe it does in the clinical data so far. The second part of the question was about the positioning of EPCORE in follicular lymphoma. Yes, to some degree, there is already a Phase 3 in combination with Len and the second line, and we are actively working with AbbVie on plans for a frontline study. So there will be some news to come in the near future.

Thanks, Tahi. That was a good question, Kaveri. Thank you very much for your questions.

Thank you. We will now take the next question from the line of Michael Novod from Nordea. Please go ahead.

Thank you very much. Just a few follow-up questions especially to timing. If we take GEN1042 first, I just need to understand. So I think Judith said some directional guidance also on GEN1042. When do you expect to sort of have more clear data on GEN1042 and also for some of the potentially larger indications? I think we all had expected it would be around ESMO, but is that also sort of later in 2024? And to HexaBody-CD38, there was a question earlier about the J&J potential opt-in. Timing-wise, is it most realistic that you need to complete the head-to-head which says October 2024 on clinicaltrials.gov? Or could that happen partway through that trial also? Maybe just to clarify. Thank you very much.

Thanks, Michael for the question. I will hand over to Judith for 1042 to give you a bit further timing on when we believe we will have the data in hand, and for HexaBody-CD38, I mean they have the right to wait for all of the data, the head-to-head cohorts. So I don't know if they need to make a long story short. We believe the data is shaping up very nicely as you can see from the expansion cohorts, but that's up to them. It's difficult to actually give you an estimate of when J&J would like to opt-in because it's their corner. But the complete head-to-head data will likely come in the second half of 2024 not before. However, there will already be a lot of data by that time in the first half. I can hand over the 1042 timing question to Judith.

Yes. Thank you. As you know Michael, we are collecting data to assess the hypothesis that checkpoint inhibition with pembrolizumab augments 1042. This is potentiated by the addition of chemotherapy and the creation of immunogenic cell death. This is the basic hypothesis guiding our collection of data in different tumor types, such as head and neck, and non-small cell lung cancer, squamous and non-squamous mainly. The goal is to have a strong number of patients with some level of durability for more than one cohort, as this will strengthen the data. This is why there is no firm conference date for presenting yet. The enrollment is going very well, so it will be in 2024, depending on when the abstract closes for submission and the data we have at hand to decide the venue.

Thanks Judith.

Thanks Jan.

Thanks Michael.

Thank you. We will now take the last question from the line of Emily Field from Barclays. Please go ahead.

Great. Thank you so much for fitting me in. I will ask a quick financial question. I believe that for OpEx going into 2024, I think consensus is modeling about half growth rate of OpEx for 2023. Obviously, it's going to be off of a larger base for next year. But maybe Anthony if you have any comments on just how we should think about modeling OpEx going into 2024 before you officially guide for it?

Thanks, Emily for the question. Anthony will be delighted to answer a question on finances. So, Anthony, the floor is yours.

Yes, thanks, Emily. Thanks, Jan. Yes, you're right, Emily, of course we'll take the time to really contextualize our overall guidance including our investment levels. At the appropriate time at the end of the year, I can summarize for you now though really what our message has been consistently throughout 2023 about how we should think about our overall OpEx levels moving forward. I'll take the next minute or two to summarize that. As always, given our strong position, we're going to continue to invest in the significant growth opportunities in a focused and disciplined way. It's something that we take very seriously. As I think about that investment profile moving forward, particularly as it relates to the transition from 2023 to next year, there are three drivers here now, particularly as it relates to R&D. First, EPCORE R&D is still in growth mode, so I fully expect EPCORE investment to go up as we add new Phase 3 trials over the coming years. It's important to remember that this is grounded in our conviction of EPCORE's potential to help a large number of people living with cancer and of course will continue to be data-driven. Looking at the clinical data and the landscape will also size our investment accordingly, given this potential very meaningful opportunity. Second, again, still thinking about R&D, and this is kind of the swing factor for which additional programs will transition to later-stage development. As a reminder, you heard a lot about this today, and we're doing significant Phase 2 work for both CD40/41BB and PD-L1/4-1BB during the course of 2023. The emerging data from 1046 leads us to believe there is a path forward here in terms of late-stage development. Also, for Tivdak, based on what you've heard today, we also think there is a path forward here, particularly in terms of expanded development into head and neck, which we think warrants further late-stage development. With that, hopefully, will come larger revenue opportunities in the medium term. Sticking with R&D, the third factor is that we will continue to invest to maximize the value of our current tech platforms. We will continue to generate the next wave of IND candidates as well as progress some of our early-stage pipeline. That takes care of R&D. Let's talk about SG&A, starting on the G&A side. Here we are starting to increasingly approach scale based on our existing footprint. Therefore, growth here is moderating. We expect it to further moderate as we transition from Q4 2023 into 2024. If we think about the S part of SG&A as it relates to EPCO, there's a couple of things to keep in mind as you start to model for 2024 and beyond. First for the US, to be clear, the 2023 P&L reflects nearly a full year of costs for the initial indication. There will be some annualization impact next year, but it's on the moderate side. As we potentially build out the EPCO label over time, there will be some incremental investments; however, we will be able to leverage existing investments in many cases. Shifting to our other priority market, the same for what I just went through for the United States also applies. Everything is just pushed out a bit, based on the potential approval we’ve seen with Epcoritamab in Japan coming at a much later point in the year. So, the incremental impact in 2024 will be higher. To wrap up the comments on our investment levels, everything I just covered is directional in nature. As always, we're focused and disciplined in our approach. We'll continue to take a detailed bottom-up approach and ensure that we're putting the appropriate amount of resources into our most critical priorities. I look forward to sharing our investment priorities for 2024 in February, in conjunction with our full year results, but I hope what was conveyed today was the excitement across our entire pipeline.

Thanks, Anthony. Thanks, Emily, for the financial question.

I would now like to turn the conference back to Jan van de Winkel for closing remarks.

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

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