NVS - Genmab: Great Company But Stock Is Not That Great

Summary

• As a company, Genmab has brought valuable medicines for patients.
• However, as a stock, it seems to be lagging, waiting for that blockbuster potential to be tapped.
• I will wait for a better price.

I first covered Genmab A/S ( GMAB ) in December 2020, and then followed up with a second article in March 2021. In the first article, I gave a brief overview of the company, and in the second one, I covered lead asset tisotumab vedotin ((TV)), which had just submitted a rolling BLA. Like I said at that time:

Genmab and its partner Seagen ( SGEN ) have submitted a rolling BLA based on this data with plans for accelerated approval, and also launched the 482-patient innovaTV 301 Phase 3 trial. This study is more ambitious because one, it will compare TV with physician's choice single agent chemotherapy, and two, because the primary endpoint here will be overall survival.

TV was approved under an accelerated approval program in September 2021. It is being marketed as Tivdak for recurrent or metastatic cervical cancer as a monotherapy in patients who have failed prior therapy. Trial data supporting the accelerated approval showed 24% response rate and a median duration of response of 8.3 months.

At ESMO in 2021, TV as a combo therapy with carboplatin or pembrolizumab demonstrated even more robust data :

With carboplatin:

• Initial results of the study showed encouraging and durable anti-tumor activity with tisotumab vedotin + carboplatin (Cohort D) as first-line therapy for patients with advanced cervical cancer who had not received prior systemic therapy.

• The primary endpoint of objective response rate (ORR) was 55% (n=18/33 patients), with four patients achieving complete responses and 14 patients achieving partial responses.

• Median time to response was 1.4 months (range 1.1-4.4), with median follow-up of 7.9 months and median duration of response ((DOR)) of 8.3 months (95% CI: 4.2-NR).

• Median progression-free survival ((PFS)) was 9.5 months (95% CI: 4.0-NR).

With pembrolizumab:

• ORR was 38% (n=13/34 patients), with two patients achieving complete responses and 11 patients achieving partial responses.

• Median time to response was 1.4 months (range 1.3-5.8), with median follow-up of 13.0 months and a median DOR of 13.8 months (95% CI: 2.8-NR).

• Median PFS was 5.6 months (95% CI: 2.7-13.7).

The first combo was in treatment naive patients, while the second one was in second or third line patients. Keytruda is an emerging competitor for Tivdak in metastatic cervical cancer in a first line setting.

At that time, in early 2021, GMAB was a vast European behemoth with 3 approved products - Darzalex, Tepezza, and Arzerra - and seven proprietary product candidates in clinical development: tisotumab vedotin, enapotamab vedotin ( removed from pipeline), HexaBody-DR5/DR5, epcoritamab (DuoBody-CD3xCD20), DuoBody-PD-L1x4?1BB, DuoBody-CD40x4-1BB, and DuoHexaBody-CD37. A couple more products have been added to this list in the last couple of years. There’s also Amivantamab, owned by Janssen, which was approved last year for patients with locally advanced or metastatic NSCLC with EGFR Exon 20 insertion mutations.

Epcoritamab, partnered with AbbVie (ABBV), just last week was filed for a marketing approval in a subcutaneous form to treat patients with relapsed/refractory (R/R) large B-cell lymphoma (LBCL) who have received two or more lines of systemic therapy. The filing is based on the EPCORE trial. A cross trial comparison of this asset - done here - shows it as best in class.

An important news since my last publication is the approval of Kesimta in Europe for RRMS. Kesimta is ofatumumab, and as Arzerra, it was sold by Novartis AG ( NVS ) for the treatment of certain indications of chronic lymphocytic leukemia (CLL). However, last we saw, it had lost some of its shine since being pulled from the market in 2018 due to rising competition. An approval in MS should have seen a revival.

Early this year, Guggenheim analyst Michael Schmidt said the company has developed "one of the leading monoclonal antibody technology platforms," and built a strong foundation of cash flows derived from royalties of out-licensed "blockbuster" products, but its success rate within the "proprietary" antibody pipeline has been only modest since he launched coverage.

I tend to agree with this assessment. Genmab started off well, launching these blockbuster collaboration/partnered/licensed products, but things seem to have kind of tapered off, and its own product set isn’t standing out. Genmab’s woes have been worsened by Janssen’s arbitration win against the company.

The Janssen arbitration dispute is related to two issues surrounding Darzalex royalties, which is Genmab’s most profitable revenue stream. As I explained this before:

Recently, Johnson & Johnson ( JNJ ), which licensed the original formulation of DARZALEX from Genmab, and the SubQ technology from Halozyme, with which the SubQ version called Faspro is being made, scaled down on its royalty payments to Genmab, citing payments to be made to Halozyme. Also, in dispute is whether royalties should be paid after about 2030 when Genmab's daratumumab patents expire, or 2035, when Faspro's newly acquired patents expire.

On both these issues, the arbitration court ruled for Janssen. That means, Genmab’s royalty stream expires 3-5 years earlier than it could have been, and the royalty gets reduced as Janssen pays some of this to Halozyme for its SubQ technology which was used to develop Faspro, a subcutaneous formulation of Daratumumab. While this does not directly impact the company’s 2022 guideline, because they had already accounted for this, it does substantially lower the value of the company.

Genmab has filed a new $405mn arbitration lawsuit against Janssen as an appeal against this first ruling.

Financials

GMAB has a market cap of $25bn. The company guided for $1.7-1.9bn in revenue for 2022, $1.1-1.2bn in operating expense, and gross profit of between $559 and 794mn. Of this, about 53% revenue comes from Darzalex. The company has a cash balance of $3bn. So there’s no death of a cash runway for them to run their business for the foreseeable future.

Bottomline

I like GMAB as an R&D company; however, like the Guggenheim analyst I just quoted, I am just not sure if I like it as an investment at these prices. Just before I started covering the company, GMAB stock went up manifold in a few short months. Those were the boom times for the stock. Since then, however, the stock has lagged. In the last almost two years, the stock has gone down and come back up. So, if somebody was playing this stock with the swings, they could have made money. However, the stock is now just where it was two years ago; so if you are a hold and forget type of investor, you would have not been a happy investor. People tend to hold and forget such large market cap stocks; so for them, GMAB is not a decent investment at this price.

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