Dear Genmab investors
NOT ANOTHER WOLF SERIES PUBLICATION - BUT MIGHT STILL BE WORTH READING
This is NOT another publication in the "wolf series". It is instead a short intermediary update that there was an urgent need for publishing given that the market lacks understanding and appreciation for the events that has unfolded lately.
Genmab is slowly gaining increasing international recognition and it is therefore more relevant than ever to communicate in English. Our fellow American investors are in denial about the relentless pace with which value creation happens at Genmab currently. So, this publication is in English to target the broader scope of an international audience and increase awareness of the ugly duckling from Denmark that has turned into a beautiful swan. It is a swan that will soon enter the realms of such extreme territory that one can fairly start to speculate that it will turn black. Genmab is in other words starting to represent a "black swan event" in the corporate history of Denmark.
ASCO
I would like to mainly focus on the content of the webcast from the 37th annual Goldman Sachs healthcare conference held yesterday. However, let's not forget to first pay some attention to how Darzalex completely dominated ASCO and literally seemed to prevail as the hottest thing to have ever hit the multiple myeloma community.
ASCO offered a few glimpse of future prospects that are so bullish that they could surpass even the wildest blue-sky scenarios. I personally articulated one such outrageous prediction more than a year ago when stating that Daratumumab would reach 10-double blockbuster status meanwhile all others were dragging their feet considering top sales of no more than 5 billion USD at the most.
TIME FOR A BOLD PREDICTION
My dear fellow investors, tonight I'm making an even bolder prediction than I did one year ago. Tonight is the night that I will allow myself to publically make the most outrageous call that I will possibly ever have the chance of making. Sit down my friend and hold on to your hat and then please count to three as you take a deep breath before you start to read the next paragraphs which will send your pulse into overdrive if you are a devoted Genmab investor.
Darzalex is going to decimate all previous records and become the best selling drug ever in the entire medical history. I posit that we will see top sales going far beyond what anyone had imagined just a few months ago. So you might be thinking how high will we go? Well, that is hard to pinpoint exactly. But, I'm confident that we will break the record for the highest ever sales and I'm also sure that we will hang onto our record for at least for a couple of years before another innovative breakthrough will surpass our wonder drug.
Darzalex, my friends, is no longer Darzalex as we know it. Darzalex is quite simply going to be known as the universal wonder drug that will contribute to saving an unbelievable number of lives and ease so much human suffering. You may already now feel very proud about being a shareholder in the most ethical investment opportunity on the Danish stock exchange. But, I promise you that this feeling will only grow stronger later on. That is of course assuming that our black swan biotech adventure isn't stolen by an acquiring organization.
Most of you did not really believe me when I was calling for doubling the peak sales estimates more than a year ago. I realize that I'm now sticking my neck out even more with the current prediction about Darzalex becoming the world record holder for highest drug-sale in year. I further realize that the established community of the financial industry will have a hard time to fully fathom or quite simply acknowledge that I might be right. But, my dear friend and proud Genmab shareholder, I frankly don't care since history will eventually prove me right! Okay, this was a heavy stuff. So let me leave you hanging there for a moment to think about the prospects of these hefty claims before I will attempt to justify them after we had some "takeover talk".
TAKEOVER TALK
The talk about the impending takeover of Genmab has reached new highs. It seems that an ever increasing number of investors are now buying into the basic idea and it has thus become almost daily that the matter is being discussed either online on social media or via the more traditional media outlets.
It is not the aim to explain the lack of action in this article. Efforts of doing so will instead be presented in a future article under the title "The little red riding hood and the big bad wolf". The publication of "The Little red riding hood" of course requires that the acquisition doesn't actually materialize before the article has been finished.
I'm sorry if I disappoint some readers. But, we must await "The little red riding hood" to have the final closure in our trilogy about the takeover of Genmab. However, having said this we can still talk a little bit about the coming takeover now. Certain aspects of the present situation have recently evolved in such profound directions that they require our immediate attention if we want to stay up-to-date.
Let me first make clear that the most likely scenario still remains to have Genmab devoured this year. The new mega bullish and record-breaking peak-sales estimate that I issued as the jaw dropping opening statement of this article although changes things a bit as it of course plays a role by fuelling an even greater takeover determination among several large pharmaceutical companies.
However, let's leave the obvious argument of higher top-sales as motivation for a takeover behind us and discuss the validity later. Now, instead I ask you to take a few steep back and elevate your mind to reach an objective viewpoint that allows you to encompass the breadth of the entire pharmaceutical industry. Looking at things from this helicopter perspective enables you to marvel at a large and slightly clumsy pharmaceutical industry that is under increasing pressure.
The patent cliff continues to move dangerously close and threaten several big pharmaceutical giants. These giants are going to suffer from the stark consequences of poor innovation and lacking timely pipeline investments as they fall off the cliff. They will see their toplines start to erode as previous blockbusters suddenly face generic competition due to patent expirations that hasn't been followed up by investments in new key drugs. Previously great companies like Gilead or Pfizer are excellent examples for which the suffering has just begun.
It will get much worse! We are essentially approaching a ferocious double whammy and we have already witnessed the first effect so excellently illustrated by the impact of a few tweets from the first female presidential candidate. The tweets instigated a global pharma-meltdown when investors who fearing the impact of a legislative horror scenario started to unload shares. Yes, the effect was of course only temporary and Hillary Clinton will never fully succeed in a crusade against the mighty and powerful lobby organizations of the huge pharmaceutical industry. But, the effect of her presidency will still be enough to devalue pharmaceutical companies in the wake of her inauguration as the first female president. It might again be a temporary correction, but it is not going to be pretty and it will most certainly increase the stress level which is already very high in parts of an industry where many incumbents have their future prospects constrained due to the patent cliff and a lack of timely R&D investments.
Gilead, for instance, was propelled into the position as a powerhouse by the means of an ingenious and relentless M&A strategy wisely engineered by the former CEO. Everyone thought that the company had unlimited growth potential. But, the good times have ended and Gilead has lost approximately a third of its market capitalization seeing 60 billion vanishing into thin air. This immense destruction of shareholder value has happened meanwhile the CEO has been sleeping in the bed of "procrustes". The CEO of Gilead has failed to strike meaningful deals to fend of the inevitable decline from top-selling drugs that has saturated the hepatitis market. So why did Gilead's CEO sleep in a procrustean bed? He has clearly been biased by performance anxiety that stems from the legacy of the former CEO who was a true M&A wizard. The current CEO must have been stunned by the perception of an obligation to strike a golden acquisition. Inertia has circumvented his organization as the golden deal was seen as the only way he could possibly hope to fill the shoes of his predecessor.
We are now dealing with information that is absolutely essential for understanding why Genmab won't survive 2016 as an independent company. Gilead lost the 60 billions meanwhile the company spent a couple of years fooling around doing research sniffing in the role as the mysterious "secret partner" of Genmab. It simply isn't possible to sniff for that long without smelling something that seems to have the right odor. Gilead knew all along that Janssen immediately smelled the potential and they also witnessed Janssen as they rushed to ink a historically large commercial deal for 20 Duobody progams carrying unbelievably big milestone packages. Milestones that, by the way, will soon start to drop like torrential rainfall on our beloved Genmab and poor right down to our bottom line.
Gilead was surely already planning to sign a major commercial deal when the secret collaboration was officially revealed in the beginning of this year. Let's now quickly leave Gilead and return to them in a bit.
Gilead, Novartis and JnJ are in my humble (and speculative opinion) the three most likely acquires of Genmab. All three companies are (along with the rest of the industry) historically loaded with cash. The pharmaceutical industry is preparing to embark upon the biggest wave of acquisition that we have ever seen and we are now very close to the onset. There is simply no denying this as we have the patent cliff and generally favorably low biotech valuations to match with the insane amount of cash ammunition that is being pilled up in the war chest of the pharmaceutical giants.
We have almost seen a kind of strategic posturing with press coverage of both Gilead, Novartis and JnJ focusing on their M&A readiness. Each company has from the level of the CEO or CFO underlined how big their muscles are in the media lately. Gilead has announced that they are cancelling a share buyback program. Novartis has announced that they are executing a fire sale of their 6% stake in Roche due to imminent corporate action. JnJ has continuously been criticized for their huge overseas cash balance and the have despite of holding on to this only made a minor acquisition. It basically drags down the company's financial performance to an extend that would make any CEO unload the cash rapidly.
All of the three companies must have extremely good reasons to hoard cash like they have been doing. The behavior and the posturing is beyond the norm for the pharmaceutical industry and their actions are simply stunning. Why does Gilead cancel a share buyback program when it would create so much value for the shareholders to execute this program right now? Why does the CEO of Gilead, when being interviewed roughly a little month ago, frantically underline that a deal is imminent? He was under heavy attack for sleeping in his procrustean bed and yet another month has now passed without actions despite his promise? Why does Novartis first announce that they want to sell their stake in Roche only then to announce roughly a week later that they are willing to sell with very attractive conditions as long as the a deal can be swiftly reached?
Listen up, it isn't normal behavior and I would be outraged if I was a shareholder of Novartis that had to see my CEO wave goodbye to billions just to secure cash slightly faster than otherwise possible. I would be outraged by the share buyback cancellation if I was a Gilead shareholder and I would finally be raising stark criticism of Janssen for hoarding of cash if I were a shareholder.
Let's continue to focus on Gilead now. It is clear that Gilead was ready to sign a deal with Genmab a while ago. I personally have no doubt about this. Jan van der Winkel has previously taken good care to explain how prolonged research sniffing is positive as the price of commercial deal keeps rising proportionally with the amount of sniffing being done. The more you look at the goods, the more you have to pay. Now, the clever thing is that Genmab retains the intellectual property rights to any discoveries made during a research-collaboration.
Gilead needs a deal and they need it very badly right now! Jan van der Winkel holds the key to this deal and he sets the price for it. Genmab doesn't need the deal thanks to the immense success of Darzalex and the rapid progress of Duobody, the advance of Ofatumumab in RRMS and an industry leading pipeline. Gilead has been aware of the steep standard terms for a long while as Jan van der Winkel has publically stated this many times. Everyone knows the terms, it is 50% ownership or the possibility to opt-in taking 50% ownership along the way. The thing is that Genmab remains the winner no matter what happens and Jan van der Winkel is therefore stalling the negotiations and very deliberately putting forward completely unreasonable terms. I can almost guarantee you that it isn't just the dislike of an opt-in option that is keeping Gilead away from signing a deal. This requirement has been crystal clear almost since the beginning and it was most certainly known when the collaboration was publicly confirmed in January.
Jan van der Winkel knows that both Novartis and Janssen are potential buyers of Genmab and that both companies have hoarded cash with the intention of making their move. But, he is cleverly pushing Gilead into a corner by refusing to sign a deal. The CEO of Gilead is now under almost inhumane pressure as he has no deal, sits with his company that just lost 60 billion in market capitalization and now also faces the prospects of loosing two years of research. Even worse, this research will be lost to Janssen once they take ownership of Genmab. Gilead has thus been pushed into a corner that leaves the company with no other options than to make the first move. Jan van der Winkel personally prefers to be owned by his primary partner Janssen and he knows very well that if he pushes Gilead into firing first then there will be immediate counter actions by Janssen. One should really feel sorry for the CEO of Gillead who right now is in a very dark place and this is also his reason for cancelling the share buyback program in a last desperate attempt to fill his war chest sufficiently to be able to successfully outbid the other contenders.
Enough talk about the looming takeover for now. We are very close to an epic acquisition party and all Genmab shareholders are invited as VIP guests. Safely concluding that you have secured you VIP acquisition party invitation by simply being a shareholder, we now turn our attention to understanding why we are so damn close. You will understand why we are close ones you understand why it sure to bet on the Darzalex sales going through the stratosphere.
GOLDMAN SACHS HEALTHCARE CONFERENCE AND THE NEW TOP SALES ESTIMATE
Listen to the webcast from the GS conference and then listen to it again. Jan van der Winkel talks about the possibility of an early interim read-out for one or several of the three phase 3 trials in first line treatment. He very clearly states that he believes that the interim event will become pivotal for at least one of the trials during 2017. None of the analysts are sufficiently modeling the likelihood of interim readout in 2017 and subsequent first-line access by late 2017 or early 2018. We were in exactly the same situation for both Pollux and Castor which were also being modeled for much later completion thereby drastically lowering the anticipated uptake speed in the key scenario which prevailed as the consensus until the most recent adjustments and target upgrades from the analysts.
Remember how the primary investigator of the Castor study talked about conditional approval in the first line treatment regiment. This is unprecedented that someone, like him, decides to actually promote such an idea. It is a slippery slope for the FDA, but we all know that rules are there to be broken by exceptions. We thus have two routes that could take us into a first line treatment way faster than currently anticipated. Now, this does obviously not affect the peak sales very much as it "only" has an impact on the uptake speed. What although does impact the peak sales is how Jan van der Winkel sees amble opportunities for Darzalex across all lines of treatment even when considering that it will also be the backbone of all first line regiments. He sounds very confident that Darzalex won't exhaust its potential although the front line cocktail might wind up being used for a very long time before patients eventually progress to second line (if ever). This really confirms the true backbone therapy potential. Put let's use a direct quote from Jan van der Winkel to illustrate this in his own words:
"...It is inevitable to do MM trials without Darzalex in the future...".
Amazing my fellow investors, this statement alone warrants a rather aggressive upgrade of peak sales estimates. However, it is also even more important that Jan van der Winkel at one point mentions (on his own initiative) that there is hope for Darzalex in other types of blood cancer. The interviewer doesn't immediately recognize this and moves ahead with his scheduled questions. The interviewer then returns later and asks Jan van der Winkel where he is most excited about the prospects outside the scope of Multiple Myeloma. It is here that we get an absolutely mind blowing insight when Jan van der Winkel the replies:
"...we have stunning data in AML, ALL, NHL, CLL, VLL... .... ... so we have STUNNING pre-clinical data there (referring literally to all blood cancer indications).. ".
Doesn't people listen to what Jan van der Winkel is saying. He is literally confirming that we are close to being able to say with good certainty that Darzalex will be the best selling drug ever and will remain so for many years to come. Yes, I know, now some will say that there is a long way from pre-clinical settings and then to the market. But no, not in this case, the situation is different as we are dealing with a tried and tested compound as this implicitly lowers the chances of negative clinical surprises. Yes, okay then some will state that the blood cancer arena is awfully crowded with competitors. This is correct, but it is also a huge market and Darzalex will by then be heralded as one of the biggest cancer brands, so there is nearly certainty that a healthy market share can be obtained.
As if this wasn't enough, Jan van der Winkel advances and talks about CD 38 cells being highly expressed on the immune-suppressive cells in solid tumors. He says that the CD 38 mechanism might therefore hold promise in solid tumors by facilitation of the core mechanism itself and thus way beyond the hope of the market which is currently only pegged to the immuno-modulatory effect. This literally gives Darzalex a two-fronted way to attack solid solid tumors and that significantly increases the chances of the drug being effective (maybe even in mono-settings).
My dear fellow Genmab investors, please understand that we now have two avenues which can be used for leveraging our total probability of Darzalex becoming the most successful drug ever. We can either secure the most selling drug via "all-around blood cancer action" or otherwise via modest success in solid tumors (considering the two potential pathways that we now know exist).
Our chances in blood cancer are rather good due to the stunning pre-clinical data and the relevance of the inherent CD38 mechanism. We also have immensely good odds in solid tumors due to the two effects delivered via independent pathways. If you doubt about this then please listen once more to the webcast and hear specifically how bullish Jan van der Winkel is on this matter.
This is unprecedented territory for any biotech company. Nothing before has ever held the promise that Darzalex currently does. We thus have very good chances of experiencing a level of value creation that lies far, far beyond even the wildest blue-sky scenario that anyone could dream up only a few months ago.
Okay so you aren't convinced yet. Then consider this final statement from Jan van der Winkel. He makes the statement shortly after he confirms that the collaboration with Genentech in solid tumors will advance soon. He continues by underlining that the Genentech/Roche setup is non-exclusive and that we will very soon see other trials starting up. He freaking then says
"..We believe that Daratumumab holds promise to become backbone treatment across (all) cancer..".
What, what.... !!!!
Is the world not listening, is the world not understanding what he is saying. Of course, Jan van der Winkel has always been a notorious optimist and you should sometimes only listen to what he says with half an ear. But, Jan van der Winkel must have earned some credibility by now. So, why didn't the stock price explode after statements like this? We are either facing a scenario where the market simply doesn't understand what Jan van der Winkel is saying or we are facing a scenario where the market absolutely refuses to believe (even parts) of what he is saying.
Now, we shouldn't care about "the market". But, don't forget that Janssen sits in the driver seat when it comes to Darzalex and they are surely hearing and approving every word that Jan van der Winkel utters. They would therefore stop him if he becomes too disconnected from reality. However, more importantly, as you should also realize now, they have no other option than to acquire Genmab almost immediately.
Remember we have two shots and mega success as it looks now. That was one shot in blood cancer and one in solid tumors. Genmab only needs to hit one of the two shots (not even with a "bulls-eye" just within the frame) and we are then looking at 15-20 billion in peak sales and possibly even much more. I have trust in Jan van der Winkel and I most certainly believe that Janssen has trust in our CEO.
The acquisition price of Genmab will skyrocket over the next quarters and it is time to act now. Here was the best proof that I could offer in hurry. Yes forgive me as this was written in a bit of a hurry. However, listen to the webcast and you will hear the key points yourself as they are articulated word per word by Jan van der Winkel at nowhere less than in the devils own dent. Yet the market doesn't budge.
Having said the above. Nothing can surprise me about the movement of the market although. It is not and will never be rational. Be thankful for this and it is your ticket to riches!
And yes, I know that there will still be people who are doubting. They will come forward with their usual key arguments typically started with a reference to the lack of previous action. For that you must wait for the next article in the wolf series. However, I can say for now that the US based companies are truly having troubles accepting that a European biotech was the one to "make it big" and outcompete the whole range of bi-specific technologies even leaving the huge CART-T based investments in the dust with a superior drug that literally demolishes all competition. Give them a bit more time and they will accept this.
Disclaimer: The author owns Genmab shares and has significant interest in the company. The author doesn't seek to advise anyone about buying or selling shares and cannot be held reliable for any loss arising from decisions to do so. Arguments presented are based partly on facts but some conclusions are also very much relying on speculation.
