Genmab A/S

CSE:GMAB

Earnings Call Transcript 2022-Q3

[Operator]

Hello, and welcome to the Genmab Q3 2022 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 beliefs, 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 it is required by law.

Please also note that Genmab may hold your personal data as indicated by you as part of our Investor Relations outreach activities in order to update you on Genmab going forward. Please refer to our website for more information on Genmab and our privacy policy.

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, Chief Executive Officer]

Hello, and welcome to the Genmab conference call to discuss our financial results for the first nine months of 2022. With me today to present these results is our CFO, Anthony Pagano. And then for the Q&A, we will be joined by our Chief Medical Officer, Tahi Ahmadi.

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

Let’s move to Slide 3. Genmab has a science and cost and innovation-based culture and collaborations and partnerships have always been part of our DNA. During today’s presentation, we will reference some of the products being developed under these strategic collaborations, and this slide acknowledges those relationships.

Let’s move to Slide 4. When we presented this slide during our first quarter earnings call, we said that we have never been in a better position to achieve our ambitious vision of transforming cancer treatments. We made that assertion on the basis of our consistent track record, our world-class team and our strong financial foundation. Since Q1, we have strengthened our position.

In the first nine months of the year, we increased the number of cumulative INDs, the number of approved medicines powered by Genmab’s innovation and the number of clinical-stage products in our own pipeline. We’ve also grown and strengthened the team, and our financial foundation is even more robust. So we continue to feel really well-positioned for growth moving forward. Excitingly, we have the potential to further increase the number of approved products in the coming year. You can see that on the next slide, which covers our recent key updates.

Let’s move to Slide 5. As we announced over the summer, Genmab and our partner, AbbVie, intended to submit applications for regulatory approval of epcoritamab in the U.S. and Europe during the second half of this year. I’m thrilled to say that these submissions have now occurred, an important step in potentially bringing epcoritamab to people living with certain hematological malignancies who are in need of a new therapeutic option.

If approved, epcoritamab would also become our second medicine on the market and the third DuoBody-based therapy to receive regulatory approval. I’m also excited to announce that the broad potential of epcoritamab will be on display at this year’s prestigious ASH Annual Meeting in New Orleans.

19 total abstracts showcasing our work in hematological malignancies were accepted, including 10 highlighting data from epcoritamab clinical studies, four of which are oral presentations. These presentations include initial data of epcoritamab in patients with Richter’s Syndrome from the EPCORE CLL-1 trial and data from three arms of the EPCORE NHL-2 study, updated data from – for epcoritamab in patients with relapsed or refractory follicular lymphoma or diffuse large B-cell lymphoma as well as initial results in first-line follicular lymphoma.

Our earlier-stage investigational medicines will be recognized at this year’s ASH with a poster presentation on preliminary dose escalation results for HexaBody-CD38 and preclinical data for DuoBody-CD30. If you look beyond our own pipeline and include all products that are powered by Genmab’s innovations, there are more than 50 total abstracts accepted for presentation at this year’s ASH, 10 of them oral presentations.

In addition to ASH, we are looking forward to preliminary DuoBody-CD40x4-1BB data at ESMO IO in December in Geneva. And later this week, preclinical presentations at SITC for DuoBody-CD3xB7H4; and two of our investigational medicines and development with BioNTech DuoBody-PD-L1x4-1BB and HexaBody-CD27. For HexaBody-CD27, this will be the first preclinical disclosure.

Beyond our own pipeline, Janssen has announced that they received approvals in both Europe and the U.S. for subcu TECVAYLI for the treatment of patients with relapsed or refractory multiple myeloma. TECVAYLI created and developed by Janssen, is the second approved medicine created using our DuoBody platform. Further support of this innovative bispecific antibody technology came from Novo Nordisk’s announcement last week that treatment was initiated in the first Phase 3 study of Mim8 and hemophilia.

As we look forward to next steps following the regulatory submissions for epcoritamab, we are optimistic that DuoBody-based medicines will continue to become new treatment options for people with unmet medical needs. And of course, DARZALEX continues to redefine the treatment of multiple myeloma. As you have seen J&J net sales for dara are up 35% so far this year, and that’s generating more than DKK 7 billion in royalties for us, contributing materially to the robust financials I spoke about earlier.

I’m pleased to now turn the call over to Anthony Pagano who to take you through our first nine months financial results. Anthony, give it a go.

[Anthony Pagano, Chief Financial Officer]

Great. Thanks, Jan. Let’s move to Slide 6. We continue to strengthen our foundation during the first nine months of 2022. To start, as Jan just mentioned, together with our partner, AbbVie, we achieved our goal of regulatory submissions for epco in both the U.S. and Europe. And as we’ll see, our financials are exceptionally strong. We grew operating profit by 67% in the first nine months of the year.

We also increased recurring revenues by 81%. This was driven by strong royalties from DARZALEX and other approved medicines. You remember, of course, that we didn’t have any TEPEZZA revenues in Q1 of last year. Our strong balance sheet, growing recurring revenues and significant underlying profitability allow us to continue to invest in our business and our pipeline, and we continue to do that in a very focused and disciplined way.

And especially in these volatile times, the strength of our financial profile really does stand out, and an important part of this has been to continue to build the team and capabilities to enable us to succeed. So let’s look at those revenues in a bit more detail on the next slide.

We saw continued strong performance for DARZALEX in the first nine months of the year. As you can see in the chart, overall, net sales grew by 35%. That’s net sales of $5.89 billion, which translates to over DKK 7 billion in royalty revenue. This exceptional growth was driven by continued strong market shares and continued uptake of the subcu formulation.

So DARZALEX remains a key driver of our revenue, as you can see on Slide 8. We grew total revenue to over DKK 9.3 billion in the first nine months of the year. And as I’ve already highlighted, that included an 81% increase in our recurring revenue. We’ve already spoken about DARZALEX and the very strong performance there.

Turning to Kesimpta and TEPEZZA. We saw an increase of DKK 582 million in royalties compared to last year. In addition to royalties, our recurring revenue also includes collaboration revenue.

And for Q3 of this year, here, we have a one-off payment from Seagen of approximately $15 million. This revenue reflects our 50% share of payments received by Seagen related to the deal with Zai Lab for tisotumab vedotin in China. Now taken together, this growth really illustrates the power of our recurring revenue.

And finally, we are seeing some pretty significant tailwinds particularly for our royalty revenue related to some positive foreign exchange rate impacts, and I’m going to come back to that in just a bit.

So in summary, our revenue profile continues to get stronger. And we’re using our strong recurring revenue to continue investing in a highly focused way, as you can see on the next slide. In line with our significant growth opportunities, total operating expenses grew 55% in the first nine months of the year.

In R&D, we’ve accelerated our investment into our product portfolio, especially the advancement of epco and multiple other pipeline projects. We’ve also further strengthened the Genmab team to support our growth in commercialization and our expanding pipeline. That includes supporting Tivdak and the filings and potential launch for epco. And finally, we’re leveraging the AbbVie collaboration by utilizing their expertise and significant financial contributions to further expand epco.

Now, let’s take a look at our financials as a whole on Slide 10. Here, you can see our summary P&L for the first nine months. Revenue came in at over DKK 9.3 billion. That’s up 60% on last year. Total expenses were about DKK 5.7 billion with 69% being R&D and 31% SG&A, and that brings us to our very strong operating profit of nearly DKK 3.7 billion. And for me, this result continues to be particularly impressive given the context.

And why do I say that? Through Q3, we have lower non-recurring revenue this year, and we’ve also increased our total investment by more than DKK 2 billion. And even considering these items, we still delivered a 67% increase in operating profit.

Now moving to our net financial items. Here, we have income of nearly DKK 2.7 billion, which is primarily driven by the same two partially offsetting items that we highlighted in both Q1 and Q2. First, we’ve got the strengthening of the U.S. dollar against the Danish kroner, positively impacting the value of our cash and investments.

And on the other side of the ledger, we have losses on our marketable securities due to rising interest rates and some losses on our public equity investments that we made in conjunction with licensing deals. Then we have a tax expense of around DKK 1.4 billion, which equates to an effective tax rate of 22.5%, and that brings us to our net profit of over DKK 4.9 billion. So as you can see, extremely strong financial performance.

Now, before we take a look at our improved guidance, I want to take a minute to revisit our robust financial framework on the next slide. First off, let’s think about our revenue profile, which you can see on the left. At the beginning of 2020, DARZALEX was our only product on the market. Today, we have six, and that provides us with expected recurring revenue growth of 69% in 2022, and there’s a clear path to potentially expand the number of approved products with the recent submissions for epco. Taken together, we expect significant cash inflows in the years to come.

Moving to the right, we continue to be focused on our investments as we evolve our organization for continued success. At the top of the list is accelerating and expanding epco. Based upon the work that we’ve done so far and the data we’ve seen, we’re convinced epco is a drug has the potential to really make a difference for patients.

And epco is 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 look at our guidance on Slide 12. As you will have seen, we raised our 2022 guidance last week. We now expect our revenue to be in a range of DKK 13.5 billion to DKK 14.5 billion, and that’s an increase of DKK 1.5 billion to both the bottom and top end of our range.

There are four items driving this increase. First, based on the strong performance so far this year, we’ve increased the bottom end of the range for DARZALEX net sales. Our new range is $8 billion to $8.2 billion. Second, the upper end of our revenue range now assumes an additional milestone. Specifically, we’ve included a significant milestone associated with the potential acceptance of the epco BLA for review by the FDA. Third, our revenue continues to be positively impacted by the strong U.S. dollar. And fourth, the largest driver for our increased revenue guidance is related to a significant tailwind for our DARZALEX royalties.

Under our DARZALEX agreement, for purposes of calculating our royalties, sales outside of the U.S. are translated to U.S. dollars at a specified annual hedged foreign exchange rate. The positive impact of this has increased throughout the year, and it has become more significant as we’ve gotten into Q3 and looking ahead to Q4. More specifically, as the U.S. dollar has strengthened materially against most major currencies this year, there could have been an expectation that we would have seen a significant headwind for dara – reported dara net sales.

However, we’ve not only maintained our total DARZALEX net sales guidance, we’ve actually been able to raise our guidance throughout the year. So in many respects, for DARZALEX royalties in 2022, we’ve been pretty fortunate. I guess you could say we’ve gotten our cake and eaten it, too. But that’s a pretty unusual situation. So we certainly shouldn’t count on it moving forward.

To summarize, the main takeaway here for DARZALEX royalties is that in addition to the very strong year-over-year operational growth, we have a significant benefit in 2022 due to this contractual hedge rate. And as you think about updating your models for DARZALEX royalties moving forward, we should not use 2022 kroner-denominated royalties as a base. Now one final comment on revenue. Overall, our increase in revenue is approximately 30% operational and 70% FX.

Now having covered revenue, let’s turn to our investments. We remain focused on executing against our strategy and key priorities and creating long-term value. Here, we are increasing our OpEx guidance to a range of DKK 8 billion to DKK 8.4 billion. This increase is primarily driven by the negative impact of the strong U.S. dollar. Putting all this together, we’re planning for substantial operating profit in a range of DKK 5.1 billion to DKK 6.5 billion.

Now as I’ve already highlighted, we’ve continued to see a material appreciation of the dollar so far this year. Taking this into account, we’ve updated our guidance rate for the Danish kroner U.S. dollar from 6.8 to 7.2. And finally, to give you a bit more color on FX, every 10-point move in the exchange rate relative to our guidance rate is worth around DKK 30 million in operating income for the balance of the year.

Now for my final slide, let me provide a few closing remarks. In summary, we’ve added an exceptional first nine months of 2022. We’ve created growing recurring revenue streams, 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.

And on that note, I’m going to hand you back over to Jan.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Anthony. Let’s move to Slide 14. We continue to work towards our goals for the year and especially excited about the recent advancement for epcoritamab, including the two regulatory submissions; the many abstracts accepted for presentation at ASH; and that an additional Phase 3 study, EPCORE DLBCL-2, is now listed on clinicaltrials.gov. The study will evaluate the safety and efficacy of subcu epcoritamab in combination with R-CHOP and patients with newly diagnosed diffuse large B-cell lymphoma. Together with that fee, we anticipate that this study will start early next year.

I’m also excited to announce that we will hold our annual R&D update and as data review on December 12 and that the event will once again be in person. Details about the event are available on our website, and we look forward to seeing you all in New Orleans.

So let’s move to our final slides. That ends our presentation of Genmab’s financial results for the first 9 months of 2022. Operator, now please open the call for questions.

[Operator]

Thank you. [Operator Instructions] We will now take the first question. One moment please. It comes from the line of Wimal Kapadia from Bernstein. Please go ahead. Your line is open.

[Wimal Kapadia, Bernstein]

Great. Thank you very much for taking my question. So could I please just ask a little bit of context on the ASH abstracts. So in particular, around the competitor data actually. So Roche seemed to have quite a credible approach with the fixed dose period for glofit. And they also – they’re also presenting data on most in the elderly unfit population given its safety profile. So I’m really just curious how you think about that versus epco. And in particular, any comments around the fixed dosing period for glofit? Because that seems like quite an attractive offering, so just curious how you think about that. Thank you very much.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Wimal, for the question. I’m going to hand it over to Tahi. Tahi is, I think, an expert in this area. Tahi, maybe you can answer that question. This is actually composed of two questions from Wimal.

[Tahi Ahmadi, Chief Medical Officer]

Yes, sure. So the first question is essentially the question around [indiscernible] versus Internet treatment in a setting where patients are expected to relapse and then come to the disease within months prior to the introduction of the novel mechanism. And I think the jury, frankly, is out. I mean I think this is where – everybody has their own bias on this way. Clearly, Roche made a decision in their development very early to have a fixed situation. And we certainly, in the setting, where this use as a single agent, had the decision to continue on to progression.

If you look a little bit into the CART data and you use that to understand biology, then it becomes apparent that the patients who lose their response to CART are the patients who lose the presence of their CAR cells? Extrapolate from that, there is reason to believe that this maintain maintenance of the CRs, which that keeps these patients essentially alive, frankly, because when they relapse from epco or from glofit, their survival is very short because there’s really no other opportunities available, and they are already at the very end of treatment opportunities.

There’s some reason to believe, I think, and that’s at least where we are coming from, that this continuation of treatment may actually have the opportunity to belong CRs even longer. And really, the way cost bolts down to is the question of a subcu shot versus an IV infusion, which makes it a little bit more easy for us to have a long-term maintenance strategy once a month subcu, I don’t think it’s that much of a break on the patient if that gives them a higher chance of staying in CR

The second question was, I guess, you were touching on mosu in elderly. I think they’ve done some interesting work in generating data in this failed patient population that is not eligible for R-CHOP. I would also say that it’s very clearly that mosunetuzumab does not have anywhere close to the efficacy signal that epco has had in the antifuse disease that patients succumb to if they don’t respond going to CR. So I think we’re quite comfortable that generating data in a similar setting, epco will generate significantly more efficacy that is relevant to the patients. If frontline elderly patient that’s eligible for R-CHOP is still a frontline patient that has these some chance to have a higher rate of CR.

[Wimal Kapadia, Bernstein]

Great. Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Tahi. Thanks Wimal for the question. Very good. Let’s move to the next one.

[Operator]

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

[Jonathan Chang, SVB Securities]

Hi, guys. Thanks for taking my question and congrats on the progress and delicious cake. My question is, there are other companies that have recently said the FDA is asking for confirmatory studies to be mostly enrolled before granting accelerated approval. Could you provide some insight on where you stand with respect to this on epcoritamab? Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Jonathan, for the question. And I think Tahi is completely up to speed on the confirmatory study. Tahi, maybe you can give some color there.

[Tahi Ahmadi, Chief Medical Officer]

Yes. I mean what I won’t do is tell you exactly where we are because that’s just not the way this works, but what I can tell you is that we started this Phase 3 that is the confirmatory Phase 3 for the indication which we’re seeking accelerated approval in December of 2020. So we – with – I would say it’s fair to say it’s a foresight. We’re very aggressive in the initiation of the Phase 3 that was intended to serve the confirmation for the accelerated approval that we are seeking in the indication, which is in the relapse refractory. So we are quite confident with where we are.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Tahi. Thanks, Jonathan for the question.

[Jonathan Chang, SVB Securities]

Thank you.

[Jan van de Winkel, Chief Executive Officer]

Let’s move to the next one.

[Operator]

Thank you. It comes from the line of Matthew Harrison from Morgan Stanley.

[Unidentified Analyst]

Hi. This is Chris on for Matthew. Thank you for taking our questions. For GEN3014, given the encouraging data that you have shown in ASH. Any update on the head-to-head study against DARZALEX?

[Jan van de Winkel, Chief Executive Officer]

So thanks for the question, Chris. So no updates for the head-to-head against the subcu DARZALEX that will start early in the new year to have ARM in that study. It’s actually a multi-ARM study, but that will start early next year.

[Unidentified Analyst]

Okay. Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thank you.

[Operator]

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

[Peter Verdult, Citi]

Yes, thank you. Peter Verdult, Citi. Just one question for Jan or Tahi. Should we take it as read that GEN1042 is going into Phase 3 given that you are calling it out or calling the ESMO data presentation out in your prepared remarks. Jan, I realize you can’t go into details or front run the data, but perhaps you could provide some move music like you did last quarter going into that HexaBody ASH abstract. So the question is on GEN1042. Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Peter, for the question. And unfortunately, the data is under embargo. I think on December 1, you will see the abstract on GEN1042, and that’s preliminary data in a solid cancer. We also said that, well, this year, we hope to make a decision, Peter, on whether we move GEN1042 and/or GEN1046 or both to late-stage clinical development. We will update the market once we are ready to do that. But we’re clearly very excited about presenting the data at ESMO in Geneva, but which is under embargo. We cannot say any further about the data. But I think hopefully, this walks you up a bit, Peter, for that.

[Peter Verdult, Citi]

Thanks, Jan.

[Jan van de Winkel, Chief Executive Officer]

All right. Thank you. Let’s move to the next analyst.

[Operator]

Thank you. Next one is Michael Schmidt from Guggenheim Partners. Please go ahead. Your line is open.

[Paul Jeng, Guggenheim Partners]

Hi, this is Paul on for Michael. Thanks for taking our question. Just another one on epco. There was some discussion with AbbVie on the recent earnings call on the requirement for that 24-hour inpatient stay after the first full dose and potential efforts to remove that requirement with subsequent studies. Just wanted to get your comments on current perspectives and go-forward plans for that, that in patient monitoring and how we should think about sort of plans looking forward? Thanks.

[Jan van de Winkel, Chief Executive Officer]

Hey Paul, that’s a good question, and I will pass it on to Tahi, who is fully to speed on the efforts to remove out stat and stay in hospital. Tahi?

[Tahi Ahmadi, Chief Medical Officer]

Hospitalization. So as of now, patients get hospitalized exactly one day. That’s when they get the first full dose. We have a study that is active and enrolling. That is now testing two things actually. It is testing whether we can administer epco subcu through the learnings that we’ve had, how to manage CRS with fluid management and steroids in an outpatient setting. And then maybe more importantly, actually, it tests whether this can also be done in a nonacademic institution setting.

So these are sites that are specifically chosen the United States community hospitals. Because fundamentally, what this is all about is like how to get to a safe process that allows the administration of epco to patients in the communities where they are being treated and where they’re being seen with such as this. So, we’re working on that and generating the data to support that. Now for going the Phase 3s that are actually enrolling don’t actually demand hospitalization already. How that’s going to play out in the discussions with the FDA, I think it’s a completely separate topic. I think there’s some clues how the agency is thinking about this that one can draw from a recent label of the CD3 BCMA from Janssen.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Tahi. Thanks, Paul for the question. Let’s move on the next one.

[Operator]

Thank you. Next one is from the line of Peter Welford from Jefferies. Please go ahead, your line is open.

[Peter Welford, Jefferies]

Hi, thanks for taking my question. Just a question back on the HexaBody-CD38. I appreciate that, obviously, the ASH abstract is coming – sorry, the ASH data is coming, and we’ve only got the abstract. But I believe if you can just comment a little bit in terms of what we’ve seen at the moment and what we can all read. Can you just talk a little bit about how you’ve seen a dose response across the various doses to the recommended Phase 2 dose?

And also what, I guess, will get incremental at ASH? Because I guess my point of view, I’m looking at the other data, particularly in those patients who have had prior DARZALEX. It looks like the incremental ability to generate a response to HexaBody-CD38 is relatively minimal. I think it was – I think the two MOs [ph] as in the population. Can you just talk a little bit about how we should, I guess, view these days to consider it when we see the detailed presentation at ASH? Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Peter. And I don’t think we can actually give you too much information before the ASH presentation. But I’m handing it over to Tahi, who can perhaps provide a bit more color on the dose response relationship. Tahi, are you able to say anything about that?

[Tahi Ahmadi, Chief Medical Officer]

Well, I mean maybe I’ll try my best to contextualize the data that was presented, and as I was saying, we cannot really comment anything you should also not expect much more than, as you said yourself, incremental data because this is still ongoing, the data generation. But this is how we see the data that is being presented, and this is, I think, may be helpful to you.

First of all, we are enrolling a study in relapse refractory multiple myeloma, but in a very different time with very different treatment paradigms and options than the original dara or isatuximab data was generated. The patients on the trial have a median of seven prior lines of therapy for the most part. They have also exhausted recent BCMA opportunities. So it’s a completely different patient population. That’s the first part to understand.

The second part is this discussion about patients who have seen CD38 versus patients have not CD38. We use the term refractive. It really bolts down to have you seen or have you not seen a CD38 antibody, and there is this phenomenon of trogocytosis that the CD38 antibodies, in simplistic terms, seem to shed off set of the surface. And while after a period of time, it does appear to come back at a lower expression level as these patients continue to relapse or progress. I think it’s fair, and it was always clear to us that the main play for HexaBody or for any improvement on the CD38 antibody is the population that is sensitive to that mechanism, which is why a priority from the very initiation of the program will be incorporated as a proof-of-concept, the head-to-head comparison to the subcu.

As you look at the data and there’s some in the abstract, I think it could be quite helpful to look at the PD markers to understand the degree of depletion of NK cells, the reduction of complement. At least, these are the things that we look at as we try to the cost compared to what dara used to do. And if you then take into context, as I mentioned about larger tumor for more refractory patients, more heavily pretreated, that’s where we are continuously seeing I think the evidence that the hexamerization does indeed improve the at least complete efficacy, and that’s also somewhat evidenced by the depth of response.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Tahi. I think, Peter, we cannot give any further color. We have to wait till the ASH presentation to which we are very much looking forward, and I hope we can speak about it with you, too.

[Peter Welford, Jefferies]

Thank you.

[Operator]

We will now take the next question. It comes from the line of Emily Field from Barclays. Please go ahead. Your line is open.

[Emily Field, Barclays]

Hi thanks for taking my question. Hopefully, I can just squeeze two in. I just wanted to follow up on that last question on HexaBody-CD38. Given the thought of positioning head-to-head versus daratumumab, maybe just pivoting to the safety component of the discussion. Is it too early to try any conclusions kind of from the abstract in terms of adverse events relative to the POLLUX study? Would that be the right comparator? Or just any color you can give on what you’re seeing on safety early on there.

And then just, Anthony, you – that was very helpful in terms of the FX commentary on modeling. But just a question on the exact mechanics because I don’t want to get wrong. Is it that there’s an FX conversion rate for the royalty stream chosen at the beginning of each year that reset kind of like how the royalty stream itself resets on an annual basis? And so that’s why the benefit is increasing throughout the year. Is that the right way to think about it? Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Emily, for the two questions. So maybe first asking Tahi to give a bit of color on the safety pattern of HexaBody-CD38 versus dara, perhaps, Tahi. And then Anthony will hopefully give you a bit more technical information on the hedge and the tailwinds, basically, Emily, next. Tahi?

[Tahi Ahmadi, Chief Medical Officer]

So first, if you wanted to compare, then probably the 501 series [ph] study would be the data sets for daratumumab to look at, and now comes to the reason why you should look at them partially because as I just mentioned, there’s a difference on – in an uncontrolled Phase 2 study. Or in this case, actually a first-in-human study. The attribution of an observed AEs is always complicated, and so we do see a few more AEs related to cytopenias. But for the most part, actually, they are related to the disease burden that the patients have at the time, which is slightly different than for 501 series, as I mentioned before.

What is interesting and what is different and what also took us a little bit of time where we’re getting a much better handle on this that the infusion-related reactions are different. So for daratumumab, specifically, the infusion-related reactions were a major problem to get to the first infusion specifically, and they were predominantly related to one, this very unique pattern of upper airway symptoms [indiscernible] in the extreme version laryngitis of rhinitis almost in every single patient. And it was actually thought to be related to the release of CD8+ basophils, which is why we added at some point, inhibition of the leukotriene pathway in the management of these IRRs.

For HexaBody-CD38, that’s actually not at all losing. We don’t see anything remotely like that. It actually behaves from an infusion-related point of view, like any other complement or any other Visa target an antibody previously. So it’s more the classical liga shipping fever kind of symptomology. So that has been much better handled now. We have forgotten a much better handle on that. So it’s a very different pattern. And it doesn’t – sorry, just I’d like to conclude. And it doesn’t lead to these issues that we had at or where you had these extremely long infusion durations in the beginning.

[Jan van de Winkel, Chief Executive Officer]

Thanks Tahi. That’s probably all we can say and more at ASH, Emily. Maybe Anthony, you can give a bit more technical insight into the heads, et cetera.

[Anthony Pagano, Chief Financial Officer]

Sure. Happy to try to help, Emily. I guess to start, the way you’re thinking about it is correct. Essentially, it does reset every year, to use your language. Again, just to reiterate what I said on my opening remarks, under the dara agreement, for purposes of calculating the royalties, sales outside the U.S. are translated to U.S. dollars at a specified annual hedged foreign exchange rate. And that mechanism really is part of the 2012 contract that we had with Janssen.

I think if you look at the performance this year, whether it be compared to last year or how we’ve managed to improve our guidance throughout the year, the hedge here in 2022 has been very significant, and it’s been positive. Really in the history of the DARZALEX sales, this is probably by far and away, the most significant impact we’ve ever had.

And again, look, this could come around the other way in future periods. But this year, it certainly has served us very, very well. My advice for everyone out there modeling DARZALEX royalties is really not to extrapolate from 2022 kroner-denominated royalties, really start with the basics in terms of U.S. dollar-denominated sales, work through our royalty tiers. Remember the contribution to the Halozyme royalties and then convert that over to kroner at whatever rate you think is best, but closer to spot. So Emily, I hope that gives you some additional insight into the mechanics, but also some additional guidance moving forward.

[Emily Field, Barclays]

Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thanks Anthony. Thanks Emily for the questions. Next move on the next analyst.

[Operator]

Thank you. Next question comes from the line of Elizabeth Walton from Credit Suisse. Please go ahead. Your line is open.

[Elizabeth Walton, Credit Suisse]

Hi thank you very much for taking my questions. I have two left. The first, Halozyme hopefully provided that FASPRO has now reached 85% of DARZALEX sales in the U.S. I’m wondering if you could provide some color on the level of FASPRO penetration outside of the U.S. as you have done in previous quarters?

And then my second question relates to your new Phase 3 study in previously untreated DLBCL. You’ve chosen R-CHOP as your comparator. I’d love a little bit more context on how we should think about your trial design, given the POLARIX data the European approval of Polivy in this setting and the ongoing review by regulators in the U.S. Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Elizabeth, for the questions. I’m going to pass the second one on to Tahi to give a bit more context on the R-CHOP as a competitor for epco. And then the question on the fast growth outside the U.S. penetration, I think the latest data we have seen is that it’s about 80% in Europe. And in some countries, it’s close to 100% basically of fast pro user. But overall, I think the average is around 80%, Elizabeth. So maybe, Tahi, you can give a bit of context on why we have chosen R-CHOP as the control arm.

[Tahi Ahmadi, Chief Medical Officer]

Sure. And as you can imagine, this is a big study. It’s a large Phase 3 that was just made public on – to take that a – and so we’ve had iterations or development Tele2. This is a little bit the difference between whether it’s a regulatory standard of care and what may be or may not be approved. So even though POLARIX let an approval in Europe and this active review with the FDA. It is, by and large, not available in more jurisdictions in the world. And so for that simple reason, it’s just not the standard of care at this point. So R-CHOP is still the standard of care. I mean, I also would say that the incremental improvement is not necessarily consistent across all subgroups in the POLARIX study. So R-CHOP is the regulatory standard of care, and that’s why it’s our control arm.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Tahi. That’s crystal clear. Elizabeth. Hopefully that's okay with you.

[Elizabeth Walton, Credit Suisse]

Yes, perfect.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Elizabeth. Let’s move to the next question.

[Operator]

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

[Michael Novod, Nordea]

Yes, thanks a lot. Just a brief follow-up on HexaBody-CD38. Maybe you could just give us a sort of a better understanding of the actual time lines, how long it likely takes on a base case scenario to run the head-to-head for Hexa-CD38 versus DARZALEX, the structure of the trial size of the trial. Because guess, inevitably, it’s going to be that sort of decides the final decision from J&J. So just to get a feeling of whether this is something in 2023-ish or sort of first half of 2024 or second half f 2024 which this is sort of going to be done and completely?

[Jan van de Winkel, Chief Executive Officer]

Thanks, Michael, for the question. I don’t think we are giving away the exact details of the trial. But I can tell you that it will probably take between 12 months to 16, 17 months to get all the data from the head-to-head, Michael. So end of 2023, first half of 2024 is probably the right denominator here.

[Michael Novod, Nordea]

Okay, great. Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thank you. Let’s move to the next one. Yes.

[Operator]

We will now take the next question. It comes from the line of Asthika Goonewardene [Truist Securities]. Please go ahead.

[Asthika Goonewardene, Truist Securities]

Hey guys. Thanks for taking my questions. I’m going to follow through and ask two as well if you don’t mind. One, for epco is your sales force in place and ready to go? I’m wondering, can you pull off a day one launch? And do you expect a bolus of patients on launch? And then I’d like to ask on Tivdak. You have two potential volume growth opportunities in first-line cervical and perhaps other indications head and neck. I’d like to know – and I know this is a decision that would also involve a partner. But which of these legal expansion opportunities is more real to you? And when do you expect to take next clinical steps in collaboration with your partner to pursue them? Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Asthika, for both questions. And so epco, we are getting completely launched ready. Everything is ready to go, I think, early next year. And we believe that we can actually target a pretty good group of patients for the launch, assuming that we get a label as we expected to be. But we have not given any further color Asthika, on how many patients and whether it’s a bolus, et cetera. I think probably coming closer to the launch; we’ll probably give you a bit more color on that.

Then for Tivdak, we are certainly moving forward to potential combine cervical as well as other tumors, and I think that will probably get clear during the next year. So data or partner, [indiscernible] has already hinted that data in head and neck cancer and potentially other tumors for Tivdak could come next year. They are running the trials asset they are determining the phasing. But I think during 2023, it will come very clear which of the studies are going to initiate, but we are getting more and more excited about the how Tivdak is actually doing in cervical cancer, how enthusiastic doctors and patients are about the medicine. And clearly, we hope to broaden the label beyond the second, third line cervical cancer label in the coming years. Next year, it will get clear. Probably mid next year, I think we should get a sort of further color on that.

[Asthika Goonewardene, Truist Securities]

Thank you, Jan.

[Jan van de Winkel, Chief Executive Officer]

Thank you, Asthika. Let’s move to the next one.

[Operator]

Thank you. No problem. Next one comes from the line of Dana Yuan [ph] from Cowen. Please go ahead. Your line is open.

[Unidentified Analyst]

Hi, this is Dana on for Yaron. Congrats on a solid quarter and thanks for taking my questions. I have a couple on GEN3014, our HexaBody-CD38. Given that GEN3014 has shown promising data in preclinical models for DLBCL and AML, what are your plans for the drug in these indications and close to just multiple myeloma? And also, are you thinking of developing a subcu formulation like you did for DARZALEX? Thank you so much.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Dana for the questions. Very strong diffuse large B-cell lymphoma data as well as AML data. We have actually Arms. Now we know the recommended Phase 2 dose, Dana. We have actually Arms in the Phase 1/2 study which is ongoing, where we will hopefully soon in 2023 move to both the B-cell lymphoma and in AML in cohort. So hopefully, we’ll start collecting clinical data next year. We have not to or to answer your second question, Dana, we have not yet decided to go for a subcu formulation. We now know the recommended Phase 2 dose, but we first want to see how well actually what the CD38 is actually doing gross that Dana. So we’re pleased that in principle. This can be transformed into a subcu formulation, but we haven’t made term plans for development. Let’s first look at the clinical data in the different settings.

[Unidentified Analyst]

Great. Thank you so much.

[Jan van de Winkel, Chief Executive Officer]

Thank you.

[Operator]

We will now take the next question. It comes from Zoe Karamanoli [RBC Capital Markets]. Please go ahead. Your line is open.

[Zoe Karamanoli, RBC Capital Markets]

Hi, thanks for taking my question. This also relates to as abstracts. We saw, for the first time data in Richter’s Syndrome. I appreciate that this is only from 10 patients. But can you comment on how ORR of 50% compared to other therapies available or in development, that especially since some of your competitors don’t seem to have generated this data yet? Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thank you very much for the question. Sorry, I didn’t catch your name, but this is very exciting data. We are really, really pleased with our data, not only the 60% ORR but also the complete response rate of 50% is quite unusual. But I will ask Tahi to give a bit of perspective. Maybe Tahi, you can put it in perspective versus other medicines basically.

[Tahi Ahmadi, Chief Medical Officer]

Yes, sure. Thank you for the question. And I would say this – so it’s actually – you will see this is actually a hot spot of patients who were diagnosed with VICTOR [ph] or who had already failed one line of treatment for VICTOR. And there’s really nothing there. And then I think one of the reasons why this is getting the attention of ASH is because this is to be careful with this, but this is without precedent in the true meaning of the word. There is no data for a single agent in that what is essentially biologically the equivalent of a transformed tissues on top of a back on CLL that gets that kind of a disease control. So we are very excited. It is part of – when we started off on epco, we said that the ambition for epco was to develop it across the entire spectrum of these opportunities, and I hope you start to see this if we meant generating data in a number of sub segments not only in the main two kind of like large indications. And so VICTOR is certainly part of that equation.

[Zoe Karamanoli, RBC Capital Markets]

Okay.

[Jan van de Winkel, Chief Executive Officer]

Thanks, Tahi. And thanks for the question. And let’s look forward to ASH. And this is not the only exciting presentation also the diffuse large B-cell lymphoma that presentations and the follicular lymphoma presentations, to all ones you should really focus on because it’s very exciting data.

[Operator]

We will now take the next question. It comes from the line of Matthew Harrison from Morgan Stanley. Please go ahead.

[Matthew Harrison, Morgan Stanley]

Hi, just one question about J&J’s TECVAYLI. What is the royalty that Genmab is expected to get? And how do you see its impact on DARZALEX? Thank you.

[Jan van de Winkel, Chief Executive Officer]

So TECVAYLI, we got mid-single-digit royalties, basically for TECVAYLI. And we believe that this drug will actually be used in combination with daratumumab, and I think there’s already a number of Phase 3 testing that ongoing by J&J. So we believe it will actually broaden the market for daratumumab and not cannibalize it. But I think for further questions, you need to ask J&J because they are developing TECVAYLI. But yes, today, I think another – one of the banks came out with a very good report where they did interfuse of hematologists basically on the basis of the TECVAYLI data and predicting that basically drugs like TECVAYLI, CD3 T-cell engagers like epcoritamab like TECVAYLI, could potentially quite easily replace CAR T, which is very exciting.

And then I think make patients in community healthcare centers available for therapy with these off-the-shelf CD3 T cell engagers. So I think very exciting times. Further questions on how TECVAYLI will be positioned in the multiple myeloma arena, I think should go to J&J.

[Matthew Harrison, Morgan Stanley]

Great. Thank you.

[Jan van de Winkel, Chief Executive Officer]

Thank you.

[Operator]

Thank you. I would like to hand back over to Jan for final remarks.

[Jan van de Winkel, Chief Executive Officer]

All right. Thank you all for calling in today to discuss Genmab’s financial results for the first nine months of 2022. And if you have any additional questions, don’t hesitate to reach out to our Investor Relations team. We hope that you all stay safe, keep very optimistic and remain healthy, and very much looking forward to speaking with all of you again soon.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect.