This drug company's silver bullet is currently valued at zero

Telegraph

31-03-2025

Questor is The Telegraph's stockpicking column, helping you decode the markets and offering insights on where to invest.
The scientists trying to find a cure for cancer know they have to be patient. Likewise, most shareholders who back companies at the forefront of these medical endeavours know they are playing the long game.
This is particularly the case with a company such as Genmab, the Denmark-based biotech business that uses antibodies to develop treatments for cancer and other serious diseases.
But unlike plenty of companies in the sector, Genmab has established treatments, including a blockbuster drug with sales of more than $1bn (£770m) a year. Darzalex, its treatment for blood cancer primarily sold through a subsidiary of pharma giant Johnson & Johnson, clocked up sales of just under $11.7bn last year.
Genmab is highly profitable and has numerous partnerships with other drugs groups, including Pfizer of the US and Swiss multinational Novartis. It also has several exciting new products in its pipeline.
But the company is highly out of favour with investors. Its shares, listed in Copenhagen, have lost more than 45pc of their value over the past two years, and there is no immediately obvious catalyst to arrest the decline.
Why? In a nutshell, Genmab has suffered two big setbacks, both involving Johnson & Johnson. First, it lost an arbitration case with the US group over a newly developed way to administer Darzalex subcutaneously (under the skin).
Genmab had argued the method should count as a new product, which would entitle it to additional royalties, potentially worth billions of dollars.
Second, Johnson & Johnson dropped its work with Genmab to develop a successor to Darzalex, known as HexaBody-CD38, despite decent evidence of its effectiveness in clinical trials. Strong sales of the subcutaneous version of Darzalex could in part explain the decision.
With Genmab's patents on Darzalex due to expire in the late 2020s and early 2030s, the stock market has taken fright at a forthcoming 'patent cliff' likely to result in billions in lost revenues.
Genmab shares are available through the UK's main stockbrokers, but potential buyers should ensure they fill out the forms minimising withholding tax and check with their provider for any additional dealing charges.
But believers in this company argue that Genmab has unacknowledged strengths that could transform its future, in particular based on the way it researches and develops new drugs.
Several of these believers are investors of real note. Genmab is backed by half a dozen of the world's most successful fund managers, each of them among the top 3pc of the more than 10,000 tracked by financial publisher Citywire. The high level of smart-money interest has earned Genmab an AA Citywire Elite Companies rating.
One of the shrewd backers is Graeme Forster, who manages the Orbis Global Equity Fund. His view is that Genmab's R&D platform – its system for finding new treatments – is not only valued at zero by the wider market, but in fact could be worth more than the group's entire collection of existing drugs.
He gives two reasons for this. First, Genmab uses its R&D platform as the basis for each new drug, and every iteration of existing drugs, making each treatment better and more likely to succeed than its predecessor.
Forster likens it to Nvidia, the chip designer, which essentially takes the same approach to chip development. In Nvidia's case, the market attaches huge value to its R&D processes, but in Genmab's case it sees none.
Second, and arguably more important, Genmab has been making huge strides in a new way of using antibodies. Where previously monospecific antibodies become effective by attaching themselves to human proteins, Genmab has been working with bispecific antibodies, which bind themselves to two parts of a protein.
This makes treatments more targeted and efficient, less toxic and less likely to lead to drug resistance – in short, a huge breakthrough. Only a dozen bispecific antibody drugs have so far been approved, and Genmab has four of them.
It's clearly a long game, but Genmab is well equipped to develop more, and more effective, bispecific antibody-based treatments, each with the potential to be a blockbuster. The group is already excited about Epkinly, a bispecific lymphoma treatment it has developed with the US's AbbVie.
Meanwhile, Genmab shares trade on an undemanding valuation of just 11 times next year's forecast earnings. Its smart-money backers are betting that at this price it will take very little good news to get the share moving in the right direction.