IBB - Genmab: Maintaining Hold Rating Due To Arbitration Dismissal And Pipeline Prospects

2023-04-25 10:00:20 ET

Summary

• Arbitration dismissal: Genmab's recent dismissal of its second arbitration case against Janssen regarding Darzalex Faspro royalties suggests that these royalties will likely cease after 2030.
• PDUFA date and pipeline focus: The market's attention should now shift to the upcoming PDUFA date for epcoritamab (May 21, 2023) and updates on GEN1046/GEN1042.
• Darzalex sales ramp fully priced in: Despite continued growth in the Darzalex franchise ($2.26 billion in sales), the market expectation appears to have already fully priced in its sustained success.
• Hold rating rationale: Genmab's hold rating is maintained due to priced-in catalysts, expected unfavorable arbitration results, but modest expectations for epcoritamab and Rybrevant's sales ramp.

Update: Dismissal of the second arbitration case is expected, and a minor negative

On April 20, Genmab (GMAB) disclosed the dismissal of its second arbitration case against Janssen concerning Darzalex Faspro royalties. The company noted on April 24 that the company envisages filing an appeal to the second arbitration; at this point, we do not believe the request will lead to any meaningful outcome. We believe the recent arbitration result likely indicates that Darzalex royalties will terminate after 2030. We believe the lukewarm reaction in stock price may suggest that the market already had low expectations for arbitration outcomes favoring Genmab, and a potential small probability of upside (Genmab winning) is now gone.

That being said, we believe, moving forward, the key focus should be on the looming PDUFA date for epcoritamab (May 21, 2023) and an update on GEN1046/GEN1042. We are fairly positive about epcoritamab's PDUFA on May 21, 2023, based on the drug's convenience advantage and efficacy data shown so far, but we are unsure what the initial sales ramp would be in 2023-2024, considering the complicated market dynamics in LBCL.

Darzalex's sales trajectory is fairly priced at this point

Although we are positive about the Darzalex franchise's continued success in securing frontline adoption, substantiated by Johnson & Johnson's ( JNJ ) latest report showing $2.26 billion in Q1 2023 sales, we believe the sustained growth of Darzalex is already fully priced into the market expectations. Also, we note that positive data of Carvykti and MARIPOSA trial could have added to the negative pressure on Genmab's price action recently.

Risks

1. Unfavorable arbitration outcomes: Genmab's recent dismissal in the Darzalex Faspro royalty arbitration case could negatively impact future royalty revenues, potentially affecting the company's financial performance.

2. Clinical trial uncertainties: The progress and success of Genmab's pipeline, including epcoritamab, Rybrevant, and other partnered programs, remain uncertain, posing risks to projected revenues and growth potential.

3. Competitive landscape: Genmab faces stiff competition from other biotech companies developing similar therapeutics, which could potentially diminish its market share and hinder the adoption of its products.

4. Regulatory hurdles: Genmab's ability to bring new treatments to market depends on securing regulatory approval from agencies like the FDA, which could be delayed or denied, impacting the company's growth prospects.

Conclusion

We maintain a hold rating on Genmab considering a) fairly priced in catalysts, Darzalex's sales, and epcoritamab's approval, b) expected unfavorable results from the second arbitration capping the potential upside, and c) modest expectations around epcoritamab and Rybrevant's sales ramp during 2023-2024. However, we are long-term bullish on the company's unique bispecific antibody platform and strong track record of the company's solid R&D engine, but lack of meaningful new catalyst in the short/mid-term prevents us from upgrading Genmab to a buy rating.

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