Mystery and intrigue surround change of helm at Genmab

Analysis

Lisa Drakeman’s sudden departure this week from her role as chief executive at Genmab is certainly an intriguing development for the Danish biotech, clearly struggling to arrest a startling decline in investor confidence which has seen its shares plummet 87% in the last two years to a seven-year low last Friday of DKr43.26.

The timing has surprised many company followers, given that she was pencilled in to make analyst presentations next week, as has the company’s refusal to comment on the reasons behind the decision or the severance costs involved. Meanwhile the decision to promote chief scientific officer, Jan van de Winkel, into the chief executive role and project a “business as usual” message has also drawn strong criticism.

Fall from grace

Founded in 1999 as a spin out from Medarex, Genmab was certainly a darling of the European biotech scene for many years, culminating in its $2.1bn deal with GlaxoSmithKline in 2006. Glaxo gained rights to Genmab’s lead pipeline candidate, an anti-CD20 antibody which recently gained approval as Arzerra to treat CLL, as well as a 10% stake in the Danish biotech.

Shortly after the Glaxo deal, Genmab’s shares traded at over DKr400, valuing the biotech at around $3bn. However, the ensuing years have seen a number of pipeline and regulatory setbacks, as well as broader stock market declines, ensuring some lofty expectations have not been met. Genmab is currently valued at around $440m.

The largely disappointing commercial and regulatory outlook for Arzerra prompted Genmab to ditch plans to become a fully integrated pharmaceutical company (Genmab cuts costs and jobs as it goes back to its roots, November 6, 2009).

Meanwhile the chances of its next big pipeline hope, zalutumumab, making it to the market or attracting a partner appear slim to zero (Genmab's bright spot dims leaving little on the horizon, March 9, 2010).

As for Genmab’s financial position, a lot hinges on its ability to sell its Brooklyn Park, Minnesota, manufacturing facility which the company has valued at $150m and hopes to dispose of by the end of the year.

Surprise and intrigue

Given some pretty fundamental issues facing the company it would be perfectly understandable if Genmab’s board and management team are feeling the pressure and undergoing some serious soul searching.

In this context the fact that Ms Drakeman has left the company should not be that surprising, clearly something needed to be done and a change of management is often a logical move. However, the sudden and unexplained nature of her departure has certainly surprised many.

“I’m 95% certain the board decided it was time for change”, said Samir Devani, an analyst at NomuraCode, who is also disappointed the company did not take the opportunity to conduct a proper strategic review of where Genmab is going.

The message from new chief executive, Mr van de Winkel, on a conference call yesterday that Genmab would continue on the same strategic path was also criticised by Mr Devani, pointing to Genmab’s lacklustre share price performance as plenty of evidence that investors have little to no faith in the current strategy.

More announcements?

As to the appointment of Mr van de Winkel, given the chequered pipeline development there is also some scepticism he is the right man for the job. As another analyst put it, off the record: “This is just moving from Genmab 1.0 to 1.1 instead of moving to Genmab 2.0”, implying an external candidate with a fresh perspective could have more chance of taking the company to the next level.

Meanwhile, there is also some concern that the mysterious nature of Ms Drakeman’s departure suggests more bad news could follow, or that it masks more deep-rooted problems at the company.

Luc Otten, an analyst with Helvea, said: "The story is not over, there will be more announcements.” Another analyst, speaking off the record, was also quite concerned by the sudden development: “The worry is, whether her departure belies something else going on at the company – maybe the sale of the Minnesota plant was too optimistic, something material – that will come out later.”

Whether this materialises remains to be seen, but for Genmab to start the long road to recovery what is clear is that a change of strategic direction may be required, or at the very least a thorough review of where it is going.

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