Genmab run through the rumour mill again

Analysis

The market is once again buzzing with rumours of Genmab’s imminent demise at the hands of a large pharmaceutical company, and more specifically GlaxoSmithKline's.

The shares may not be moving upwards this time, as they did earlier in December when the rumours resurfaced again, but trading volumes in the stock have been double their usual amount in the last few days.

If a pharma giant, or Glaxo, which already has a 10% stake in the company and is co-developing five treatments with Genmab, were considering making a move, it would not be too surprising given the company’s obvious attractions.

Genmab currently has five compounds in phase III trials. Three of them are cancer treatments, all for unmet medical needs and all of them have fast-track designation.

Combine this with a platform technology that can keep pumping out fully human antibody after antibody and you can see at least six reasons why the Danish company is continually the subject of speculation.

The best things in life aren’t free

But any acquirer would have to a pay a decent price for such quality. Genmab is not steal. The total NPV of the company’s products, including its lead candidate HuMax-CD20, is $2.88bn according the EvaluatePharma NPV Analyzer.

This figure is pretty much in line with the group’s market capitalisation of $2.78bn meaning, that with the bid premium, Genmab does not look like an obvious takeover target. Glaxo’s 10% stake could also prove a deterrent, if the company was not the acquirer.

But with big pharma paying pretty much what it feels is necessary to get the right assets these days, the valuation might not be a deal breaker. Genmab is also in the uber fashionable world of monoclonal antibodies, which has seen a number of big deals including; Eisai’s scooping up of Morphotek and Astellas’s purchase of Agensys.

In September when EP Vantage asked Lisa Drakeman, Genmab chief executive, about the chances of Genmab making it to the end of 2008 as an independent company, Ms Drakeman, said: “We have to do what ever is best for the shareholders. Right now our job is to keep moving these projects forward, and find ways to have them marketed appropriately.”

If you can’t beat them, join them

If there is no bid on the table, Genmab is more likely to turn the tables and do a spot of M&A itself. The company’s almost obscene cash position of DKr3.9bn ($770m), albeit 93% in marketable securities, means that Genmab has more options than most when considering its future.

In-licensing of other products would be the easiest and least risky option for Genmab, but the group could be setting its ambitions higher and be looking to swell its pipeline with the acquisition of a small biotechnology company.

“Its always a possibility,” Ms Drakeman said in the interview with EP Vantage. “We have put aside a small budget for acquisitions, just so we are in a position not to miss opportunities.”

Share price triggers

The lack of upward movement in the shares indicates, despite the rumours, no one is expecting the company to be taken over any time soon. As such, the next share price triggers are likely to be the slew of phase III data, which should come trickling in between the middle and end of 2008.

This will include an update on HuMax-CD20, the company’s antibody for chronic lymphocytic leukaemia, which was partnered with Glaxo in 2006, in a record $2.1bn deal. Glaxo also owns the rights to the treatment in four other indications including Non-Hodgkin’s Lymphoma and rheumatoid arthritis. Consensus estimates show peak sales of $1.9bn for the drug.

If all the data are positive it should be a transforming event for the company. Not only will the data trigger milestones, they will also validate Genmab’s business model, that has yet to see it put a foot wrong and report any failures in its pipeline.

Further upside could be provided by a partner being found for HuMax-EGFr, a treatment for head and neck cancer, which is forecast to have peak sales of $1.17bn. So even if a deal is not on the table, patient investors should see some returns from the company whose shares have fallen 17% this year to DKr314.5.

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