Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on Genmab. We currently have 13 research reports from 1 professional analysts.
Following safety concerns at a planned review, Genmab’s collaboration partner ‘Janssen’ has decided to terminate the phase Ib/II study of Darzalex in combination with Roche’s PD-L1 antibody (Tecentriq) for previously treated non-small cell lung cancer. The findings of the study prompted Janssen to discontinue the phase I study of Darzalex along with Janssen’s PD-1 blocker for multiple myeloma as well.
Genmab released its Q1 18 results in which the top-line came in broadly in line with our estimates while profitability came in a tad below expectations. Total revenue for the quarter jumped to DKK681m (vs. Q1 17: DKK251m) benefiting from a c.DKK300m upfront payment from Novartis (due to an amendment in Arzerra’s collaboration agreement). In addition, net sales for multiple myeloma/MM drug ‘Darzalex’ reached $432m (vs. Q1 17: $255m), generating royalties of DKK310m for the Danish biotech firm. However, the sluggish performance continued for Arzerra (net sales of $7m vs. $10m in Q1 17) resulting in a decline in royalty income to DKK8m (vs Q1 17: DKK14m). As the benefits of higher revenue were partly offset by increased operating expenses (due to investments in tisotumab vedotin and other R&D pipeline), operating income came in at DKK324m for Q1 18 (vs. Q1 17: DKK46m). Management has reiterated its financial targets for FY18. On the regulatory front, the US FDA approved Darzalex (in combination with Velcade; based on ALCYONE study) as a first line of treatment for MM in May 2018.
Genmab released its FY17 results in which the top-line came in broadly in line with our estimates while profitability came in a tad above expectations. Total revenue jumped to DKK2.36bn (vs. FY16: DKK1.82bn), benefiting from higher royalties from multiple myeloma/MM drug ‘Darzalex’. Net sales for the drug reached $1.24bn (+117% yoy; within the guidance range of $1.1-1.3bn), resulting in royalties of DKK1.01bn from collaboration partner, Janssen. In addition, milestone income of DKK1.13bn (primarily from Janssen) was the other key revenue contributor. On the other hand, net sales for chronic lymphocytic leukaemia drug ‘Arzerra’ slumped to $36m (-22% yoy; affected by the stiff competition) translating into a c.24% decline in royalties from Novartis (DKK48m). For FY17, the operating profit came in at the higher end of the guidance range (DKK1.35bn vs. guidance: DKK1.19-1.39bn) due to lower than anticipated R&D expenses. For FY18, management expects revenue to be in the DKK2.7-3.1bn range, primarily consisting of Darzalex royalties of c.DKK1.75bn (based on net sales of $2-2.3bn; average royalty rate: c.13.5%). In addition, Darzalex milestones of c.DKK550m and one-time payment of c.DKK300m from Novartis (related to the transition of Arzerra from commercial availability to compassionate use programmes in non-US markets) would bolster the top-line further. With anticipated operating expenses of DKK1.4-1.6bn, operating profit is expected to be in the DKK1.3-1.5bn range for FY18.
Genmab is down c.30% from its lifetime high levels (in March 2017) as a lower than expected sales performance for Darzalex in Q3 17 triggered a sell-off in October 2017. Moreover, the 40-50% increase in operating expenses guided for FY18 further aggravated the pain in December 2017 (on a FY17 base of c.DKK1.1bn; primarily related to R&D). Below we analyse whether Genmab is still a worthy ‘Buy’?
Genmab released its Q3 17 results which were well below the street’s expectations. The reported revenue came in at DKK323.5m as the growth momentum decelerated (on a sequential basis) for the multiple myeloma/MM drug ‘Darzalex’. Genmab’s collaboration partner Janssen/J&J reported net sales of $317m for the drug (vs AV’s estimate: $355m; +6% qoq vs Q2 17: +17.3%) resulting in royalty income of DKK253m for the Danish biotech firm (accounted for c.78% of Q3 17 revenue). Note that, as sales of Darzalex have exceeded $750m in a calendar year (9M 17 sales: $871m), the royalty rate has moved up to the next tier (13% vs 12% earlier). Also, with dismal performance continuing for Arzerra (net sales of $9m vs Q3 16: $10m), royalties from Novartis were down 21.4% yoy (DKK11m; accounted for c.3% of Q3 17 revenue). The remainder of the revenue was derived from milestone income, deferred revenue and reimbursement income under R&D collaboration agreements with various pharmaceutical firms. The operating profit came in at DKK58.3m as Genmab continued with its budgeted R&D investments despite lower revenue (R&D accounted for c.86% of the opex base). In addition, higher than expected financial charges (forex movements negatively impacted the dollar-denominated portfolio) resulted in a net loss of DKK5.7m for Q3 17. On the regulatory front, Darzalex was approved as a second line treatment for MM in Japan in September 2017 (triggering a milestone payment of $25m/c.DKK160m upon the first sale in November 2017). As anticipated, Genmab received milestone income of $50m in November 2017 as sales of Darzalex crossed $1bn in a calendar year. Also, based on encouraging data from the phase I/II clinical trial of tisotumab vedotin in recurrent/ metastatic cervical cancer, Genmab/Seattle Genetics initiated a new phase II study in October 2017 (patient enrolment to start in H1 18; trial could form the basis for approval in the US). With earlier than anticipated launch of Darzalex in Japan, management has upgraded its FY17 revenue (DKK2.11-2.31bn; +DKK160m vs previous guidance) and operating profit guidance (DKK1.06-1.26bn).
Genmab released its Q2 17 results, wherein revenue and profitability came in slightly ahead of our estimates as well as market consensus. Reported revenue increased to DKK773.3m (vs AV’s estimate: DKK763m; Q1 17: DKK250.8m) primarily driven by higher than expected milestone income from the multiple myeloma/MM drug ‘Darzalex’ (DKK489m vs AV’s estimate: DKK475m; mainly related to second-line approval in Europe and third-line approval in the US). Net sales for the drug reached $299m (vs AV’s estimate: $305m; +177% yoy) resulting in royalty income of DKK243m from the collaboration partner Janssen (including milestones and royalties, Darzalex accounted for c.96% of group’s revenue in Q2 17). However, due to stiff competition in the chronic lymphocytic leukaemia space, sales for Arzerra were down 38.5% yoy (Q2 17: $8m), translating into a 35.3% decline in royalties from Novartis (DKK11m; accounted for c.2% of group’s revenue in Q2 17). Operating profit came in at DKK536m (vs AV’s estimate: DKK513m), led by the operating leverage. However, higher than expected financial charges (currency movements negatively impacted the dollar-denominated portfolio) and tax expenses (deferred tax assets not utilised yet) lowered the EPS to DKK5.05 per share (vs AV’s estimate: DKK8.2 per share). For FY17, management has reiterated its revenue (DKK1.95-2.15bn) and operating profit guidance (DKK0.9-1.1bn). On the regulatory front, Darzalex reported strong interim data in the front-line MM setting (phase III ALCYONE study combining Darzalex with Velcade met its primary endpoint; improved progression free survival by 50%). In addition, Genmab reported encouraging preliminary data from an ongoing phase I/II study of tisotumab vedotin in relapsed cervical cancer. Foreseeing additional potential in six other solid tumours, Seattle Genetics has opted-in for the drug’s co-development programme (costs and profits to be shared equally going forward).
Genmab released its Q1 17 results which werer slightly below our estimates (both top-line and profitability). Reported revenue came in at DKK251m (vs AV’s estimate: DKK280m; +47% yoy) as the increase in royalty income (DKK225m vs Q1 16: DKK100m) was partially offset by lower than expected milestone income (nil vs Q1 16: DKK45m; milestones deferred by a few months). Net sales for the multiple myeloma ‘MM’ drug ‘Darzalex’ reached $255m (vs Q1 16: $101m), resulting in a royalty income of DKK211m (c.84% of Q1 17 sales) from its collaboration partner ‘Janssen’ (royalty rate: c.12%; Q1 16: DKK83m). However, net sales for Arzerra (c.6% of Q1 17 sales) were down 17%, translating into an 18% decrease in royalties from Novartis (DKK14m vs Q1 16: DKK17m; impacted by continued competitive pressure in the refractory chronic lymphocytic leukaemia market). Operating income came in at DKK46m (vs AV’s estimate: DKK50m) as the additional investments in pipeline products led to a 33% increase in operating expenses (reached DKK205m in Q1 17). For FY17, management has reiterated its revenue (DKK1.95-2.15bn) and operating income (DKK0.9-1.1bn) guidance. On the regulatory front, Darzalex received a label expansion approval in Europe in April 2017, wherein the drug was approved as a second-line of treatment for MM (first sale to trigger milestone payment of $48m from Janssen). The drug will be used in combination with either Revlimid or Velcade, the same arrangement which was approved in the US in November 2016. In addition, the US FDA approved the drug in the third-line setting in June 2017 (in combination with Pomalyst; triggered milestone payments of $25m).
Genmab released Q4 FY16 results broadly in line with our estimates as well as market consensus. The reported revenue came in at DKK927m (+61.2% yoy), primarily on the back of higher royalties and milestone payments under the Darzalex collaboration agreement with Janssen. For FY16, the reported revenue reached DKK1,816m (+60.3% yoy; -10bp vs AV’s estimate) with Darzalex being the primary contributor (accounts for c.86% of FY16 revenue). Sales for the drug reached $572m (vs FY15: $20m), resulting in higher royalty income for Genmab (DKK458m vs FY15: DKK16m). Moreover, a number of regulatory submissions/approvals in the US and Europe triggered milestone payments of DKK1,096m during the year (vs FY15: DKK587m; FY16 number also includes sales volume milestone payment of $25m). However, net sales for Arzerra were down 19% yoy (accounts for c.4% of FY16 revenue), resulting in a 17% decrease in royalty income from collaboration partner ‘Novartis’ (DKK63m vs FY15: DKK76m). The operating margin came in at 58% (+50bp vs AV’s estimate) on the back of higher revenue, but was slightly offset by increased investments in the R&D (DKK661m vs FY15: DKK488m). Moreover, higher financial income (due to favourable currency movements) and tax credits underpinned the EPS to DKK19.83 (vs AV’s estimate: DKK17.4). For FY17, management expects revenue and operating income to come in at around DKK1,950-2,150m and DKK900-1,100m, respectively.
Recommendation and upside We are initiating coverage of Genmab (market cap. of DKK68.6bn/€9.2bn and a float of 100%) with an ‘Add’ recommendation and a target price of DKK1,238 (c.9% upside). Our upside is driven by the company’s multi-blockbuster potential drug ‘Darzalex’, strict cost management and a cash surplus business model. Darzalex’s approval as a fourth line of therapy for multiple myeloma ‘MM’ in November 2015 triggered a spectacular rally in the stock, with the share price surging c.70% in the subsequent seven months. However, the stock has remained range-bound since then and is currently trading c.15% below its all-time high. Moreover, Darzalex’s recent approval as a second line of treatment for MM (in November 2016) has triggered the next growth phase for the stock. Given the clinical profile, we also expect Darzalex to get approval in the frontline setting as well (by 2019/20) and thus further propel growth in the long run. While we acknowledge Genmab’s upside potential, we restrict our recommendation to an ‘Add’, as we await the ‘on the ground’ performance of the drug in the second line setting and interim data from the frontline studies. Business and Trends Genmab is a Denmark-based biotech company with two approved antibodies for cancer treatment – Darzalex (c.79% of 9M 16 revenue) and Arzerra (c.5% of 9M 16 revenue). The remainder of the revenue is attributed to deferred/reimbursement income from the pipeline drugs. Darzalex was approved by the FDA in November 2015 (Europe in May 2016), as a monotherapy for the fourth line of treatment for MM. Based on superior clinical efficacy data vs rival drugs, Darzalex was also approved in the second line setting (Europe approval expected by H1 17). The second line approval has significantly expanded the target population of the antibody, more than doubling the number of patients eligible to use Darzalex. Moreover, patients tend to stay on therapy for a long time (patients are less sick when the treatment starts in second line vs third line), resulting in higher revenue per patient and, in turn, higher royalties for Genmab. The company is also conducting trials for the third line and frontline setting, and, once approved, Darzalex has the potential to change the current landscape of the MM industry further. The global market for MM is valued at $8.9bn and is dominated by Revlimid/Celgene (c.43% share) and Velcade/Takeda/Janssen (c.33% share), with Darzalex holding an insignificant market share (<5%; it was used in the third line-plus setting until late 2016). The MM market size is expected to more than double to $22.4bn by 2023 and, given the better clinical profile of Darzalex, it is expected to grab a significant slice of the market in the mid/long term. Genmab’s other antibody ‘Arzerra’ was approved in 2009 in the US (Europe in 2010); however, it has not been a commercial success due to its narrow label approval and the lack of differentiation vs the market leader ‘Rituxan/Roche’. Genmab is now working to revive its Arzerra franchise by making inroads in the multiple sclerosis ‘MS’ market. Although the $14.9bn MS market offers larger market opportunities, it would not be easy for Genmab to compete with Roche in this domain. Need to know Genmab has relied on strategic partnerships with pharmaceutical companies to fund its R&D activities and bring the products to the market (Darzalex is out-licensed to Janssen/J&J and Arzerra is out-licensed to Novartis). Genmab is entitled to milestone payments (c.52% of 9M 16 revenue) and royalties (c.39% of 9M 16 revenue) under these collaboration agreements, which are also the primary FCF drivers as the operating expenses have been kept under control over the last five years. However, the royalty income is expected to contribute the lion’s share in the top-line post Darzalex’s approval in the second line setting. Genmab is also building a pre-clinical pipeline of c.25 programmes to identify the ‘next big winner’ and ensure sustainable long-term value creation. The company plans to bring the next product to the market by 2025 with complete/significant ownership (plans to hold on to at least 50% of the rights) and is focusing on next-gen antibody technologies (duobody, hexabody and antibody drug conjugate). The diversity of antibodies in the clinical pipeline reaffirms our belief in Genmab’s long-term growth potential. Upcoming triggers We expect the next triggers for the company to be the second line approval of Darzalex in Europe (expected by H1 17) and third line approval (in combination with pomalyst and dexamethasone) in the US (expected to come before the PDUFA date of June 2017). Moreover, the interim data from one of the studies in the frontline setting (expected in H2 17) is also highly awaited.
Q1 sales were DKK 170m (vs DKK107m); operating expenses were DKK154m (vs DKK110m); operating income was DKK16m (vs 173m); the cash position was DKK3,491m similar to the end-FY15 position.
Daratumumab accounted for 62% of FY15 revenues (DKK1,133m) and is expected to account for 82% in FY16. FY15 operating income was DKK730m and is expected to be between DKK25-75m in FY16. The cash position at end of year was DKK3.5bn and is expected to be DKK3.3-3.4bn at end of FY16.
1/ The FDA has granted accelerated approval to Daratumumab for multiple myeloma patients who have received at least three prior treatments. Approval comes ahead of the 9 March Pdufa date. 2/ Q3 revenues increased by 2.3%, operating profit by 2.9% and net profit decreased by 12.5%. The cash position at the end of September is DKK3,206m. For the first nine months, revenues decreased by 12%, adjusted operating profit by 12.2% and net profit increased by 61%.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Genmab. We currently have 13 research reports from 1 professional analysts.
Hardman & Co recently welcomed Milan Radia to our roster of established, industry expert analysts. Milan has 25 years of equity market experience at major investment banks and in asset management, and has worked on many high-profile successful IPOs. In 2017, he was ranked the No.1 earnings estimator in the UK for his sector in the Thomson Starmine Awards. Milan has also been techMARK Analyst of the Year and achieved top three Institutional Investor sector rankings for his coverage of the software and telecoms sectors. In our lead article this month he gives an insight into his thinking on some key themes in the sector.
Companies: OPM ABZA AVO AGY APH ARBB AVCT BNO BUR CMH CLIG COS DNL EVG GTLY GDR INL KOOV MCL MUR NSF OXB NIPT PHP RE/ REDX SCLP SCE SIXH TRX TON VAL
When we last published the FTSE 100 was reaching an all-time high of 7877. We have subsequently seen increased volatility and some of the previous progress made by markets surrendered. The escalation of the potential trade war between the US and China and the imposition of more tariffs has unnerved markets. At home, we have continued to see M&A activity. While company results have largely been as anticipated, the outlook in some sectors looks less promising. In Share News & Views, we comment on Aortech*, ECSC*, Location Sciences*, Norcros, NWF, Tricorn* and Warpaint London*.
Companies: AOR APC BMS CRPR DMTR ECSC ESC EUSP FDM GETB LSAI SNX SPRP TCN W7L
AorTech has raised a gross total of £2.6m to fund two new projects. As a licensing and royalty business of its patented Elast-Eon technology, AorTech has been marginally EBITDA positive. We believe there is substantial potential share price upside as, in our view, each of the new projects could create £50m of shareholder value. Textiles (patches and grafts) should have initial sales within two years while heart valves will potentially progress to a licensing stage in a similar timeframe. We initiate coverage with a 400p TP and Buy rating.
Companies: Aortech International
Legalisation of online sports betting in the US will provide opportunities for AIM online gaming companies. The Supreme Court of the United States has decided to overturn the Federal prohibition of sports betting. The state of New Jersey argued that congress had exceeded its authority and the judges agreed. The US sports betting market, both onsite and online, could be worth $6bn by 2023, but individual states will have to enact legislation to enable online sports betting to commence in their territory.
Companies: AOR TYR SML STR MWE RNWH
A trading update for the year to 30 April 2018 points to better-than-expected revenue growth as well as the benefits of a reduced tax charge, reflecting increased R&D tax credits for FY 2018 and a re-assessment of FY 2017 claims. We now expect Scientific Digital Imaging to report revenues of £14.1m, an increase of 31%, c.11% of which arises from a full year’s contribution from the Astles acquisition. This is 2% (£0.33m) higher than previously forecast and is attributed to strong demand from both Sentek (single-use electrodes) and Atik Cameras. We upgrade our forecast for FY 2018 adjusted EPS by 7% (5% attributed to lower tax charge), but given our current thoughts as to the recurring nature of these revenues, we have left our FY 2019 forecasts broadly unchanged. We raise our target price to 37p, which is based on rolling forward multiples to FY 2019. At this level, the stock would trade on EV/Sales of 2.1x, EV/EBITDA of 10.0x and adjusted P/E of 16.3x.
Companies: Scientific Digital Imaging
Epigenomics has announced H116 results, which highlight the launch of Epi proColon in the US jointly with Polymedco, the largest distributor of colorectal cancer (CRC) screening tests. Epi proColon has been included in the guidelines of the US Preventive Services Task Force (USPSTF), which underscores the potential of the test as a valid screening method for CRC and recognises the need for additional screening options. The test is also now commercially available through LabCorp’s website. The company expects available cash to last into 2017.
In light of the Brexit vote, we reflect upon the implications for the NHS and the wider healthcare industry. We take a pragmatic approach to how the referendum result will affect staffing, recruitment, clinical trials, drug pricing and small company grant funding in the coming months and years.
Companies: AKR AOR BVXP BYOT COG DPH EKF LID ODX NIPT PRM SDI SNG TSTL VEC
The court ruling upholding the validity of the Orexo ’996 Zubsolv patent precludes Actavis from launching a generic before September 2019. Orexo has 30 days to decide whether to appeal the court decision that a second patent (’330 with 2032 expiry) is invalid. A worst-case scenario allowing imminent launch of Actavis generic(s) has been averted. Zubsolv’s IP portfolio includes two additional patents (’900 and ’421) that extend to 2032, which coupled with the prospect of an appeal on ’330, means that significant hurdles remain ahead of Actavis generic launch.
Animal Health is a vast market with multiple long-term growth characteristics and opportunities. In this report we have outlined valuations, M&A activity and the key growth drivers in two animal health subsectors: companion animal health and livestock health. Although the commercial positioning of the eight companies covered in this report (Animalcare, Anpario, Benchmark Holdings, CVS Group, Dechra, ECO Animal Health, Genus and Pets at Home) differ significantly, all have exposure to positive market trends.
Companies: GNS ANCR CVSG DPH BMK EAH ANP PETS
The growing Contract Research Organisation has published H1 June 2017 results. Despite the deferral of a late phase project into Q1 2018 VENN still managed to deliver 1% revenue growth to €9.15m and EBITDA growth of €0.414m. Growth was further held back by an underperformance of elements of the early-phase part of the business. However, infrastructure and systems are now largely complete and Venn is confident of its ability to execute new business opportunities leveraging its full drug development lifecycle range of services and to reduce the concentration risk of business weighting amongst its top 10 clients.
Companies: Venn Life Sciences
The Quoted Companies Alliance has set out its proposals for taxation ahead of next month’s Budget. The smaller company pressure group believes that the UK needs to build a post-EU tax regime that supports and incentivises smaller companies. One of the key aspects of the proposals is a levelling of the playing field between debt and equity. At the moment, a company can claim tax relief for costs incurred in raising debt but not the costs of a share issue. The QCA believes that the government should encourage long-term equity finance.
Companies: ITX CLIN OPM STEL PEN KAPE
Scientific Digital Imaging reported strong interim results to 31 October 2017, with a 34% increase in revenues and adjusted EPS of 1.22p (+74%). Results included a first-time contribution from Astles and ATC, which contributed £1.1m (67%) to revenue growth. Legacy businesses also grew, by a commendable 11%. Despite this, we leave forecasts unchanged given that H1 included a one-off licence payment (£0.15m) that boosted underlying profits, without which EPS growth was 50%. These results, however, clearly demonstrate the improved free cashflows, driven by high-margin profitable businesses (c.20% EBITDA margin). Our target price and forecasts are unchanged, although both look exposed to upgrades based on the prospect of sustained strong underlying trading and additional EPS-enhancing acquisitions that the company is currently reviewing.
Companies: Scientific Digital Imaging
2018 is the year of the Great Exhibition of the North. This summer, Newcastle and Gateshead will play host to a government-sponsored, 80-day marathon of events. Billed as the largest event in England this year, the Great Exhibition will showcase the best of the North East’s art, culture, design and innovation and we expect it to highlight the region’s ongoing success in high-end engineering, technology and life sciences. It may also reflect on the success of the North East’s plcs, the most striking example of which is Sage’s transition from 1980’s start-up to £9bn FTSE100 stalwart. We remain on the look out for the next Sage and expect the region to continue to produce attractive IPO candidates following Ramsdens’ success last year. Overall 2017 was a positive year for the region’s listed companies, one highlight of which was the takeover of Quantum Pharma, an N+1 Singer client, by Clinigen for £150m. We are confident that 2018 will be another successful year. Our top regional picks this year are Hargreaves Services, Zytronic and Applied Graphene Materials.
Companies: AGM BWY GRI GRG HSP IDH KMK NTG RFX UTW VNET ZYT
SDI is acquiring Quantum Scientific Imaging (QSI), a manufacturer and supplier of high-performance cameras that have applications in the astronomy and life sciences fields. Considered a bolt-on acquisition, it will be incorporated into SDI’s Atik Cameras business. SDI is paying £246k ($350k) for the assets, trademarks and patents of QSI, representing prospective EV/Sales of 0.7x. The acquisition is being funded by SDI’s recently enlarged banking facility. We expect the acquisition to be 2% accretive to adjusted EPS in FY 2019. We are raising our target price by 6% to 34p, which places SDI on a CY 2018 P/E of 15.3x and EV/EBITDA of 9.7x.
Companies: Scientific Digital Imaging
Vernalis has provided a trading and operational update to its guidance for Tuzistra XR prescriptions for financial year-end 2018. Despite dynamic management of commercial initiatives, Tuzistra XR prescription growth is not accelerating fast enough to meet Vernalis’s guidance of 105-115k prescriptions (given at the FY17 results). Following a disappointing uptake in the current cough cold season (~65% of the season is complete), Vernalis is downgrading guidance on prescription numbers and, in light of slow progress in the US cough and flu business, is seeking alternative strategies for the US business and the group. As such, we place our financial forecasts and valuation under review until we receive clarity on strategic next steps and the potential impact on cash burn, given a cash balance of £44m (unaudited at 31 January 2018).