Genmab A/S

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 4/5

Genmab A/S is a biotechnology company that specializes in developing antibody therapeutics, primarily focused on treatments for cancer and other diseases.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Genmab is a leading biotechnology company, founded in 1999, focused on creating and developing antibody therapeutics for cancer and other diseases. It has a unique R&D engine based on its proprietary technologies, which are used to generate next-generation antibody candidates. The company’s strategy involves partnering with other companies, which helps them gain access to new and broader markets. While having only a handful of commercially successful products, Genmab also has a strong development pipeline.

Revenue Distribution

It’s important to note that product revenue is not a reflection of the sales of its marketed products since the company has collaborative agreements with other companies who have commercialisation rights, these are revenue the company earns by giving its intellectual property to those companies. GMAB derives revenue from several sources:

  • Product Revenue: Primarily from sales of DARZALEX, a drug used for the treatment of multiple myeloma, and other approved products. However the profits are shared with partners who own the commercialization rights, for example, sales of DARZALEX in the US are reported by Janssen, and they receive the most profit on the sales from US and Europe. It’s worth noting, revenue from a region will not always be reported due to contractual agreements.

  • Collaboration Revenue: This includes upfront payments, milestone payments, and royalties from collaborative agreements with pharmaceutical and biotechnology partners, such as AbbVie and Janssen.
  • Other Income: Relatively minor revenue from various research and development activities and other services.

The revenue is global, but the majority comes from sales of its treatments in the U.S. and Europe.

The biotechnology industry is characterized by intense R&D, and large investments. The increasing incidence of cancer and other diseases is driving the need for new treatments, leading to strong demand for therapeutic antibodies. The industry is also facing rising regulatory hurdles and pressure to keep drug prices low.

Competitive Landscape

  • Competition in Drug Development: The biotech sector is highly competitive. Genmab faces competition from other biotech companies and large pharmaceutical firms. Some companies are focused on new and different mechanisms to develop treatments, while others are also targeting similar mechanisms as Genmab.
  • Competition for Collaboration Opportunities: Companies compete to form partnerships and collaborations with larger players in the sector. Having the correct technologies, personnel and financial stability is the key for success.
  • Competition in Commercialization: While Genmab has successful partnerships in place, there is fierce competition for new drug candidates and gaining market share once a product is launched, as other companies are in the market and are also innovating.

What Makes Genmab Different?

Genmab uses its proprietary DuoBody platform to create bispecific antibodies (antibodies that can bind to two targets at once), which can potentially generate more effective drugs. They also use their HexaBody platform to create drugs that work in different and newer ways than existing methods of creating drugs. The company is a leader in antibody technology, which should aid them in their efforts to find novel drug candidates, and help sustain long term revenue.

  • Proprietary Technology Platforms: Genmab has focused on creating differentiated antibodies and has invested heavily in proprietary platforms to do that. They focus on creating complex molecules which means that competitors need to follow different approaches than they have before.
  • Strong Pipeline: They have several drug candidates in clinical development, giving future growth potential.

Financials

  • Recent Earnings (Q4 2023)
    • Total revenue for Q4 of 2023 was DKK 4,785 million, a 16 percent increase year-over-year.
    • The growth in revenue is mainly due to royalty revenues from their approved medicines.
    • They also received revenue from collaboration partners such as AbbVie, Janssen, and Novartis.
    • The 2023 full year revenue totaled 18,024 million, an increase of 16 percent from 2022.
    • The net profit was DKK 2,931 million for 2023, a big improvement from a loss of 4,431 million in 2022, which was caused by amortization of goodwill.
    • The company provided a strong outlook for 2024 revenue, in the 16,000-17,500 million range, mainly due to continued sales of existing medicines, which also means, increasing royalty payments.
    • The reported financials and outlook were slightly better than what analysts were expecting, and therefore the stock price went up on the announcement date.
  • Gross Profit Margins: Gross margins are quite high, but the net profit margin is much more variable, as this depends on the level of collaboration income and the expenses needed to bring a drug through development.
  • Operating Expenses: They are heavily invested in R&D, which means operating expenses can be very high at times. However, the returns from successful drug candidates are high as well. The expense in R&D does mean that they must be effective in R&D or suffer massive losses.
  • Profitability: The company is quite profitable, but the high levels of investment required for R&D makes the profit growth more variable year-over-year, it’s important to note as well that royalties are dependent on the success of their collaborators.
  • Cash Position: The company has a strong cash position with low debt and should continue to generate profits. There isn’t any immediate danger of running into liquidity issues.

Moat

  • Intangible Assets (Proprietary Platforms): Genmab’s unique antibody platforms (DuoBody and HexaBody) create a significant barrier to entry, as other companies lack the same proprietary knowledge and capabilities. This is a big moat that competitors have a very difficult time overcoming.
  • Collaborations and Partnerships: Although they have to share profits, strong and existing collaborations and partnerships with large pharmaceutical companies, such as AbbVie and Janssen, provide some protection. Once a partnership is made and there is a great understanding between two companies, changing that requires a high level of competence in other companies who have a lower track record. However, it’s not impossible and can often change, and should therefore be monitored regularly.

Moat Rating: 3 / 5

Genmab has a narrow moat. The moat is based on its unique proprietary platforms and current approved drug revenue, but is constrained by the nature of the biotech industry. The success of their collaborations can determine how strong their finances are in the future and the technology developed by other companies does threaten the sustainability of their drugs over time. They also need to be highly efficient in R&D to ensure their profits are as high as possible, given the high cost.

Legitimate Risks

  • R&D Failures: Drug development is risky and many potential drug candidates fail in clinical trials. If their drugs fail to progress, their profitability and valuation will be hurt.
  • Competition: They operate in a very competitive environment. New drugs and new methods are constantly being explored which poses a potential risk to future profits.
  • Reliance on Partners: Genmab relies on its partners to bring their drugs to market and share revenue with them, if their partners have issues or don’t prioritize their drugs, their profitability would suffer.
  • Regulatory Approval and Pricing: Changes in drug approval processes, or political pressure to lower drug prices, could have a severe effect on the company’s ability to sell products for profits.
  • Market Rejection of Products: Although the results of clinical trials may look good, consumers and doctors could be wary to implement the treatment due to new or old evidence.

Business Resilience

While the biotech business is risky, Genmab has some resilience:

  • Diversification: Despite depending heavily on DARZALEX and collaborations related to it, they have a pipeline of other drug candidates that will create future revenue.
  • Strong Financial Position: Their good cash flow generation combined with their focus on their unique technology positions the business in a more resilient manner to weather market turbulence.

Understandability: 3 / 5

Genmab’s business model is based around drug development and collaborations, which is somewhat complex and difficult to grasp at first. However, its financial statements and overall strategy is not overly complicated. The company’s proprietary technology platforms, and the specific science behind their drug development may not be easy for all to understand fully, but the general business model and how they create value can be readily understood.

Balance Sheet Health: 4 / 5

  • Strong Cash Position: The company has a very strong cash balance and low debt which allows them to weather any temporary market conditions. They have DKK 23.8 billion in cash which more than makes up for their debt liabilities (around 6.8 billion).
  • Debt Levels: Debt to equity ratio is rather low, compared to other biopharmaceutical companies, giving financial stability and less risk of debt distress.
  • Financial Health: They have low leverage and good amount of cash, they are able to finance new acquisitions, research and development, and other business opportunities.
  • Recent Improvements: The 2023 results show how management has been able to return the company to profitabilty, as they have removed the major one-off impacts on the income statement.