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Research Tree provides access to ongoing research coverage, media content and regulatory news on Genmab. We currently have 10 research reports from 1 professional analysts.
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 10 research reports from 1 professional analysts.
We have updated forecasts ahead of tomorrow’s Capital Markets Day, which we expect to provide a comprehensive update on innovation strategy, R&D plans and commercial progress. We continue to argue that the market’s negative reaction on the Trading Update on 1st February, which highlighted FY2017 EBITDA in line with our forecast, represented an overreaction. We reiterate our Buy recommendation with a revised target price of 230p (from 250p).
Companies: Horizon Discovery Group
Bacanora Lithium—Readmission. No new money. Mkt cap £140m. Due 21 March. the new holding company for Bacanora Minerals Ltd | Stirling Industries—Acquisition vehicle focusing on industrials. Offer TBA. Due 5 March | GRC International Group— holding company for a group of companies providing a range of products and services to address the IT governance, risk management and compliance requirements of organisations. Offer TBC, expected 5 March 2018 | Core Industrial REIT—established to invest in Irish-based industrial properties, predominantly located in the Greater Dublin Area . Vendor placing and new funds to a total of €225m, Target gross proceeds €207m. expected 21 Feb | Polarean - Medical drug-device combination company operating in the high resolution medical imaging market. Offer TBC. Due 22 Feb | Block Energy—a NEX Listed UK based oil exploration and production company whose main country of operation is the Republic of Georgia, looks to join AIM end of February 2018. Offer TBC
Companies: RRL TMT CNC GHH EVRH IHC BILB EUSP VRS SBTX
Shire reported a solid set of numbers for Q4 and the full year 2017. Immunology drove most of the growth while neuroscience lent strong support. The guidance, understandably, was not taken positively by the market, with the company expecting the top-line to grow at mid single-digit and profits at a slower pace. While we will be tweaking our estimates to account for the softer-than-expected outlook for 2018, we do not alter our already-modest long-term estimates.
In the February 2018 edition of the Hardman Monthly Newsletter, Nigel Hawkins addresses the issue of the UK's infrastructure expenditure, much of which is energy-related.
Companies: OPM ABZA AVO AGY APH ARBB AVCT BUR CMH CLIG COS DNL EVG GTLY GDR INL MCL MUR NSF OBT OXB PPH NIPT PHP RE/ REDX SCLP SCE SIXH TRX TON VAL
Deltex has announced that its French distributor, Gamida, has been awarded a new tender to supply hospitals in Paris with the Deltex CardioQ-ODM+ equipment.
Companies: Deltex Medical Group
Following Derek Martin’s resignation as FD, Angela Hildreth (formerly UK FD of Shield Therapeutics), has joined Futura Medical in the role as FD and COO. Meanwhile we reiterate our positive stance on Futura Medical and continue to look forward to the start of the first Phase III trial for MED2002 (Eroxon®), a topical, fast-acting treatment of Erectile Dysfunction, in H1 2018, following completion of the ongoing PK trial.
Companies: Futura Medical
A look back at our 2017 ideas In aggregate our analyst picks outperformed the FTSE All Share last year by 9% and the cumulative performance of our portfolio over 6 years would have given a total return of 300% (almost double the return on the FTSE All Share). In addition, many of our top-down themes played out very well such as our focus on secular growth in Tech, Life Sciences, Healthcare and Financials, an increase in M&A, our cautious stance on the Consumer and especially our bet on continued strength in the Industrials last year and solid growth in the global economy. What does 2018 have in store? We continue to play ongoing secular growth themes in Tech, Life Sciences, Healthcare and Financials. In addition, we tap into domestic areas of cyclical strength such as regional construction and house building, plus self-help initiatives and potential market share gains. We maintain a favourable view of Industrials given the global economic backdrop but think this could moderate during the year. Other changes of nuance include the potential for a better H2 in the Consumer sectors, which remain under pressure for now, and a better outlook in Media from a mini-quadrennial year in 2018.
Companies: AMO AVG CBP CVSG DNLM EKF FENR IOM SAA GLE RLM SFR PGIT RLM SFR SOG VRP
The latest Office for National Statistics (ONS) survey, ‘Ownership of UK quoted shares: 2016’, shows that retail investors are more important than most company managements realise or most capital markets professionals admit. When it is also appreciated that the data shows that retail investors set the share price for most quoted companies, most days, it becomes clear that engaging with such an audience enhances a company’s standing, whilst ignoring them courts disaster.
Companies: OPM ABZA AVO AGY APH ARBB AVCT BUR CMH CLIG COS DNL EVG GDR INL MCL MUR NSF OBT ODX OXB PPH NIPT RE/ REDX SCLP SCE SIXH TRX TON VAL
The AIM Healthcare index has shown positive returns in all but three out of the past 11 years (2007, 2008 and 2011), growing at a CAGR of 7.6% over the period. This compares with a CAGR of -0.3% for the broader FT AIM All Share, +0.6% for the AIM 100 and +3.5% for its more senior FT All Share Health index. Sector growth and relative performance to the AIM All Share index has accelerated over the past five years; the sector having risen 19.19% CAGR since 1 Jan 2012. This compares with 6.8% growth in the AIM All Share and 6.1% in the FT All Share. This outperformance can be attributed to the increasing success amongst the Healthcare constituents which have progressed their business plans to a point where substantial value has been/is being created and where many companies have successfully scaled their businesses to sustain future growth. We highlight four companies that have different business models but exemplify the opportunities that are increasingly becoming evident within the sector.
Companies: ABZA AKR AGY APH AGL AVCT BVXP COG CTH IHC LID MTFB ODX OPTI NIPT PRM SDI STX SNG TSTL
BCA Marketplace and stevia sweeteners developer Purecircle are the latest former AIM companies to be moving into the FTSE 250 index. The changes take place on 18 December and will take the number of former AIM companies in the FTSE 250 to 20 – although Booker and Paysafe are being taken over.
Companies: CITY TRAK bmn BXP TRCS SND
GSK’s Q4 results were ahead of our as well as the street expectations. Forex had a negative impact of 3ppts on sales and 4ppts on adjusted EPS. All segments outperformed sequentially, but vaccines stood out with 9% growth (vs flat Q3). The main drivers included HIV in pharma, flu and meningitis in vaccines and international markets in the consumer health business. Management maintained interest in consumer health assets but ruled out a compromise on the pharma focus.
Oxford BioMedica (OXB) has announced a collaboration and licence agreement with Bioverativ to develop gene therapy products for the treatment of haemophilia. Under the terms of the agreement OXB will receive a $5m upfront payment, plus milestone payments (potentially worth in excess of $100m) and royalties on net sales of any commercialised products. This agreement further validates the value partners see in OXB’s LentiVector expertise and manufacturing capabilities. OXB now has multiple partnered products in various stages of development. Clinical progression and potential commercialisation of these could lead to substantial milestone and royalty revenues over the coming years. We place our numbers under review.
Companies: Oxford Biomedica
Sulforaphane, a natural compound first isolated from a precursor in Brassica plants, has shown therapeutic potential, but has also proven too unstable to be manufactured as a drug on commercial scale. Evgen Pharma (LON:EVG) has developed a proprietary technology - Sulforadex® - that allows the synthesis of sulforaphane in the form of a stable, solid powder that can be easily manufactured as an oral drug. The Company has then developed several analogues with slightly different biophysical properties that could reveal beneficial effects in specific therapeutic indications, and reinforce their IP estate. Evgen's lead drug, SFX-01, is a patented combination of synthetic sulforaphane and alpha-cyclodextrin (as a stabilising complex).
Companies: Evgen Pharma
Since April, our growth style screen has performed very strongly, outperforming the main small-cap index by 20pp and 24pp on an unweighted and weighted basis respectively, also comfortably outpacing microcap. In this note we provide more detail on the constituent and basket performance in the period and present the new screen constituents. As usual we focus on 10 of the current constituents, providing brief summaries and financials for clients to consider. We will refresh again in 5-6 months time and report back on performance.
Companies: SUN DOTD ERGO TEF AVG SOG IDE FEN LOOP YU/
Following Vectura’s recent trading and strategy update, we have updated forecasts principally to reflect lower expected R&D expenditure, partially offset in valuation terms by later expected VR315 approval and launch. We note that the stock has risen 29% since our upgrade to Buy on 10th November at 90.7p. Our revised target price of 120p (from 113p) leaves limited upside from current levels. We downgrade to Hold.
Companies: Vectura Group