Genmab: A Complicated Tale

Shares of Danish antibody concern Genmab A/S (GMAB) have lost over 35% of their value since December 2022, as three arbitration cases went against it while it was spending substantially to launch Epkinly. The hope is for Epkinly to garner a decent share of the company's top line, currently dominated by royalties from blockbuster MM therapy Darzalex, which accounted for 68% of FY23 revenues. The company recently announced a just over $500 million stock buyback authorization. With eight meds now generating revenue, nine clinical programs, and nine royalty candidates in Phase 2 or later trials, Genmab merited further investigation. An analysis follows below.

Company Overview

Genmab A/S (Aktieselskab) is a Copenhagen, Denmark-based biotechnology concern focused on the development and marketing of antibody therapies for the treatment of cancer and other maladies. It has two commercial assets that it markets or co-markets, six other approved products containing its technology, nine clinical programs, and another nine candidates in Phase 2 or later trials whose advancement is being conducted by collaboration partners. Genmab was formed in 1998 and went public in America in 2019, when it raised net proceeds of $546.5 million at $17.75 per American Depository Share (ADS). These figures are translated from the Danish Kroner. The shares trade right around $28.50 a share, translating to an approximate market cap of $18.3 billion.

Each ADS represents one-tenth of an ordinary share. There are 66.1 million ordinary shares outstanding. All FY23 and FY24 U.S. dollar amounts are translated at a rate of 6.7447 kroner to one dollar and 6.9722 kroner for FY22.

Platform

The company's technology has developed four antibody platforms: DuoBody (bispecific); HexaBody (essentially a six-sided antibody); DuoHexaBody (bispecific antibodies featuring target-mediated enhanced hexamerization); and HexElect (two co-dependent antibodies with target-mediated enhanced hexamerization). Backing up a bit, antibodies are proteins the body creates to bind to pathogens, after which it signals to other aspects of the immune system to eliminate them. The DuoBody platform has attracted four collaboration partners, including AbbVie (ABBV), Johnson & Johnson's (JNJ) Janssen, and Pfizer (PFE).

Revenue Generation

Royalties, Milestones, and Reimbursements. Until FY23, Genmab did not technically generate any revenue from the sale of its own products. The preponderance of its top line was derived from royalties, milestones, and reimbursement revenue with the largest contributor Janssen's blockbuster multiple myeloma (MM) med Darzalex (daratumumab), which produced FY23 royalties of $1.67 billion, up 22% year-over-year, while accounting for 83% of the company's category total. Overall, royalties were up 18% over FY22 to $2.03 billion, coincidentally accounting for 83% of Genmab's total. Milestones and reimbursements, which are by nature lumpy, were responsible for FY23 revenue of $303 million, down 24% from $401 million in FY22.

Net Product Sales and Collaborations. The company began (technically) marketing its own therapies in 2023, when Epkinly (epcoritamab) (Tepkinly in Europe) was approved. It also sells Tivdak (tisotumab vedotin) after it and co-development partner Seagen (SGEN) received accelerated approval by the FDA in 2021. The former is a CD3xCD20 bispecific antibody green-lighted for the treatment of relapsed/refractory diffuse large B-cell lymphoma (DLBCL) in a third-line (3L) or later setting, while the latter is an antibody drug conjugate approved for the treatment of 2L (on or after chemotherapy) cervical cancer.

For both products, Genmab has commercial collaborations in place. For Epkinly, the company has partnered with AbbVie, splitting profits 50/50 in Japan and U.S., while receiving royalties between 22% and 26% for the rest of the world. For Tivdak, Genmab and Pfizer split profits 50/50 in the U.S. and (when/if approved) in Europe, Japan, and China. In other territories, the company is eligible to receive royalties ranging from mid-teens to mid-twenties. Additionally, Genmab received commercial and regulatory milestone payments of $105 million for Epkinly in FY23.

The company realized net product sales of $61 million from Epkinly's first half year on the market, whereas Tivdak contributed FY23 collaboration revenue of $45 million. Approved in May 2023, the expectations for Epkinly are high, given that AbbVie paid $750 million upfront in 2020 for its stake in it, as well as other cancer fighting bispecifics.

Label expansion efforts are underway for both therapies, with AbbVie and Genmab having filed a supplemental BLA for Epkinly in the treatment of relapsed/refractory 3L follicular lymphoma with a PDUFA date of June 28, 2024. For that indication, epcoritamab has received Breakthrough Therapy Designation from the FDA. It is also expected to enter epcoritamab into three Phase 3 studies in FY24, with an endgame of moving to 1L DLBCL. Tivdak is being assessed in other solid tumor indications in an ongoing Phase 2 trial, including squamous cell carcinoma of head and neck. Furthermore, after positive results from a confirmatory Phase 3 trial that readout in September 2023, full approval for the 2L cervical cancer indication is expected on or by its May 9, 2024 PDUFA date.

Pipeline

Daratumumab. In addition to its IV-administered Darzalex for MM, a subcutaneously injected version with hyaluronidase (marketed as Darzalex Faspro) is approved for light chain amyloidosis, a disease characterized by organ-damaging amyloid deposits, a cluster of abnormal protein fibers called light chains, which are created by dysfunctional antibody-producing cells. Darzalex is the only approved remedy for this indication in the U.S., Japan, and EU. It is also undergoing assessment in Phase 3 studies for three other MM indications. That said, all is not well in the land of daratumumab - more on that below.

Acasunlimab. An unapproved therapy on which Genmab has placed significance is acasunlimab, a bispecific antibody designed to target PD-L1 and 4-1BB receptors. The former is a validated tumor cell target that plays a key role in suppressing the adaptive immune system, essentially inhibiting activated T-cells, which express 4-1BB. By promoting T-cell activation while inhibiting the T-cell inhibitor, the company believes acasunlimab can treat solid tumors. Genmab provided the PD-L1, while BioNTech (BNTX) supplied the 4-1BB antibody. The two biotechs are splitting development costs and future profits 50/50.

Acasunlimab is undergoing evaluation in one Phase 1/2 and two Phase 2 studies for solid tumors. The most encouraging indication to date is 2L non-small cell lung cancer for which a Phase 3 trial is expected to initiate after next-step discussions with the FDA in 2024. The other Phase 2 study is in advanced endometrial cancer, which initiated in September 2023.

GEN1042. The other 4-1BB clinical program the company is emphasizing is GEN1042, a bispecific featuring CD40, which is being assessed in two Phase 1/2 trials for solid tumors with Phase 2 data due in 2024.

Earlier this month, Genmab acquired multiple ADC drug candidates by purchasing ProfoundBio via a $1.8 billion all-cash deal. A recent article on Seeking Alpha went into detail on how that acquisition will add to Genmab's developmental efforts and enhanced its pipeline.

Jannsen Dispute

Part of Genmab stock's poor performance - it is down over 35% since approaching an all-time high in December 2022 - surrounds issues related to its Darzalex collaboration with Janssen. Without getting too down the hole, Janssen believes that the IV-administered Darzalex and the subcutaneously injected Darzalex Faspro are two different products, resulting in lower royalty payments to Genmab. The latter believes the products are the same and as such is entitled to higher royalty payments. Two arbitration tribunals and one appellate arbitrator have sided with Janssen in each instance, the final ruling occurring in January 2024.

FY23 Results & Outlook

Another issue dogging Genmab is its declining bottom line FY23 versus FY22. The company earned a FY23 net profit of $645.2 million on revenue of $2.44 billion versus $782.0 million on revenue of $2.08 billion in the prior year, representing a fall of 17% at the bottom line as 544 employees were added, primarily to aid in the launch of Epkinly in the U.S. and Japan, as well as to strengthen its ability to advance its multiple clinical programs. Also hindering these results were currency translations, which reduced the company's recurring revenue growth from 31% to 22%.

That said, the big spend in FY23 for commercial and clinical infrastructure is not expected to continue into FY24, which is reflected in management's outlook, which features operating profit of $867.3 million (versus $788.9 million in FY23) on revenue of $2.91 billion, reflecting increases of 19% and 10%, respectively. All forecasted metrics are based on range midpoints.

Balance Sheet & Analyst Commentary

The company's balance sheet is pristine, reflecting cash and investments of $4.17 billion and no debt at the end of FY2023. As noted previously, Genmab spent $1.8 billion in cash earlier this month for an acquisition. A small amount of that money will be earmarked for share repurchases. To date, Genmab has bought back 271,186 ordinary shares at a cost of $80.7 million (~$297.57 per ordinary share).

Street analysts are mixed on the company's prospects, with three Hold ratings and four Buy ratings issued so far in 2024. On average, they expect Genmab to earn $1.10 per ADS on revenue of $2.83 billion in FY24, followed by $1.50 per ADS on revenue of $3.42 billion in FY25.

Verdict

The fulcrum upon which the company's near-to-intermediate future rests is Epkinly sales. That outlook is tough to handicap, with Roche's (OTCQX:RHHBY) T-cell engager Columvi (glofitamab) receiving approval for the same indication (3L DLBCL) in June 2023. That said, Genmab now has eight therapies generating recurring revenue, although Darzalex accounted for 68% of all revenue in FY23. With its ADSs trading at 18.7 times FY25E EPS and 5.3 times FY25 sales, Genmab is fairly valued. Given that, the stock might make a decent covered call candidate. Unfortunately, despite a significant market cap, option liquidity is not there right now to make this strategy viable. Therefore, I am passing on any investment recommendation around GMAB at this time.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Live Chat on The Biotech Forum has been dominated by discussion of lucrative buy-write or covered call opportunities on selected biotech stocks over the past several months. To see what I and the other season biotech investors are targeting as trading ideas real-time, just join our community at The Biotech Forum by clicking HERE.