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Genmab: A Rising Star In Biotech

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About: Genmab A/S (GMAB)
by: Gregory Schnitzler, CFA
Summary

The Netflixes of tomorrow are here today (Part 2).

My 2029 list of elite performers will include a number of bio tech participants.

My second choice for the 2029 list of elite performers: Genmab A/S.

Creating a list of companies that will make my elite list of 2029 investments that will have increased in value by a factor of 10 or more is a major challenge for more than one reason. As I stated in my previous article, in our fast moving world, industries unknown today may be household names in ten years. Millennials, which make up a quarter of the population of the United States, have no brand loyalty. This is proven by the fact that 33 million households cut their cable cord last year, that more companies closed their doors last year than during the 2008 recession, and that E Sports is more popular with them than MLB, the NBA, the NHL, and the NFL. (Source: Evercore ISI, Initiating Coverage for Internet: Appetite for disruption, December 5, 2017.)

When, last month, I first thought of the idea of creating a list of companies that may be on the 2029 list of best investments for the prior decade, I intended the list to be well diversified. That continues to be my objective. However, today's second article in this series will once again focus on a company in the biotech arena. My initial article dated September 30, 2019 discussed Incyte Corp. (INCY) and today I will follow up with Genmab A/S, (GMAB) a $12.7 billion market cap Danish competitor that has caught the attention of both industry professionals and investors since its IPO on July 22, 2019 at $17.75 per American Depository Share (ADS). The IPO raised $582 million making it the second largest U.S. IPO ever by a bio-tech company as well as the largest IPO of any European health care company.

Genmab specializes in the creation and development of differentiated antibody therapeutics for the treatment of cancer. The company has two approved antibodies, a broad clinical and pre-clinical product pipeline and three proprietary next generation antibody technologies. The two products approved for marketing are DARZALEX (daratumumab), and Arzerra (ofatumumab). Daratumumab triggers a person's own immune system to attach cancer cells, resulting in rapid tumor cell death through multiple immune-medicated mechanisms of action and through immunomodulatory effects, in addition to direct tumor cell death via apoptosis (programmed cell death).

Ofatumumab directs the body's immune system to fight normal and cancerous B-cells. It attaches to the CD20 molecule which is found on the surface of B-cells, the type of cell which becomes cancerous in chronic lymphocytic leukemia.

In its announcement of first half 2019 results, the company highlighted an agreement with Janssen Biotech to collaborate exclusively on next generation CD38 antibody product candidate, HexaBody CD38; and on the U.S. FDA approval of Daratumumab in combination with lenalidomide and dexamethasone for the treatment of adult patients with newly diagnosed multiple myeloma who are ineligible for autologous stem cell transplant.

In its initial earnings report since becoming a public company, Genmab reported revenues of $208 million for the six months period ending June 2019 vs $181 million during the 2018 six months period. Resulting from both higher R&D and G&A expenditures, Net Income fell to $24 million from $70 million a year ago. The company increased its 2019 revenue guidance from $690 million to $720 million and its Operating Income guidance from $300 million to $307.5 million, based on an exchange rate ratio of 1 DKK=$0.15. Additional highlights of the company's August 14, 2019 earnings call include:

  • Revenues are and will continue to be driven by Royalty Income.
  • Company pipeline expected to grow exponentially.
  • Accelerate investment in clinical and pre-clinical pipeline as well as new projects.
  • Increase in number of employees from current 478 to 560 by the end of 2019 will continue to drive expenditures higher.
  • Ofatumumab expected to be a "blockbuster candidate."
  • Company will utilize cash generated from recent IPO to accelerate all internal projects; identify next two clear winners; seek opportunities in forming additional strategic partnerships, as well as monitor the land scape for next generation technologies.

Morgan Stanley, one of the underwriters of the company's IPO, currently has a $30.00 per share target price while RBC Capital Markets initiated its coverage with a $23.00 price target.

Blackrock Inc. currently owns 5% of the company's outstanding shares.

Genmab belongs on my 2029 Elite List

A company that has the research capabilities to accomplish major breakthroughs in the battle against cancer over the next several years has the potential to reward its shareholders very handsomely. I submit that Genmab is such a company. Today it has two marketed products; several proprietary clinical programs; four proprietary technologies; a very robust clinical pipeline; world class antibody and proven R&D expertise; strategic collaborations; and as a result of its recent successful IPO, strong financials. This link will take the reader to the company's Research and Technology update which will be more informative and educational than anything I can contribute.

As I stated in my article on Incyte last month, the road to the 2029 list of Elites is unlikely to be a smooth one. Focusing on longer term goals and objectives-and achieving them, will be the ultimate measure of success.

Closing price on October 9, 2019 was $19.74.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.