The recent decision by partner BioNTech (BNTX) to give up on co-development of acasunlimab may also be considered as bad news, but if the candidate delivers good data in a pivotal trial, the upside potential is now higher for Genmab.
And while the royalty rate on Darzalex is permanently lower, I believe the overall progress the company made in the last two years was very positive on a net basis, and I fully support the increased spending to expand the pipeline and commercial portfolio, as I believe this is the way for higher long-term shareholder value creation. As such, I continue to see Genmab as very well positioned to deliver above-market share price gains in the second half of the decade.
Total revenues grew 36% Y/Y in the first half of the year to $1.38 billion. The growth was driven by an increase in royalties from partners for Darzalex, Kesimpta, Tecvayli, and Talvey, the growth of Tivdak which the company is co-promoting with Pfizer (PFE) by the strong growth of Epkinly.
As a result of the strong performance in the first half of the year, Genmab raised the full-year revenue guidance range from DKK18.7-20.5 billion (approximately $2.69-$2.94 billion) to DKK20.5-21.7 billion (approximately $2.94-$3.12 billion). The increase was primarily driven by the expected increase in Darzalex royalties as Genmab now expects global net sales of Darzalex to reach $11.4-$11.8 billion versus the previous guidance range of $10.9-$11.5 billion.
Management was playing down launch expectations on Epkinly (it is called Tepkinly ex-U.S.) last year since the initial indication is in a limited patient population - relapsed or refractory diffuse large B cell lymphoma, or DLBCL (or third-line+ DLBCL). But the launch is looking strong so far, with net sales in this limited population reaching $69 million in Q2, its fourth quarter on the market. As a reminder, Genmab is co-commercializing Epkinly in the United States and Japan with AbbVie for a 50:50 profit/loss split and is receiving royalties on net sales between 22% and 26% from AbbVie in other territories.
The recent FDA approval for the treatment of relapsed/refractory (or third-line+) follicular lymphoma ('FL') and the expected approvals and launches in ex-U.S. territories should provide a boost to revenue growth rates in the following quarters, and the strong uptake in R/R DLBCL is a good indicator for follicular lymphoma.
Management said on the Q2 earnings call that the third line+ FL market in the United States is approximately half the size of the current third-line+ DLBCL market, or nearly 2,000 patients compared to approximately 3,600 patients. The very high price point (the list price is $36,000 a month) suggests these two late-line markets have an addressable market that exceeds $2 billion in the U.S. alone and the ex-U.S. market opportunity probably adds another $2 billion if we take into account the expected lower price points and access.
Epkinly was already performing well against the in-class competitor - Roche's (OTCQX:RHHBY) Columvi and the expanded label should further strengthen its lead. The third competitor's arrival has been delayed after Regeneron (REGN) received a complete response letter from the FDA for odronextamab in March.
Given the strong uptake in the first few quarters, and sales largely coming from the United States ($62 million in the U.S. and $7 million ex-U.S. in Q2), I now expect Epkinly to become a blockbuster product even in these smaller late-line indications, with significantly greater potential in earlier lines of therapy where the patient population is much larger and where the average time on therapy is expected to be much longer.
The growth of Epkinly and Tivdak, and the increasing royalties on Kesimpta, Tecvayli, Talvey, and Rybrevant are rapidly reducing Genmab's dependence on Darzalex, and these trends should continue in the following years.
The operating margin pressure was expected to increase further following the acquisition of ProfoundBio, but it was offset by the significantly increased revenue guidance. The operating margin for the full year is still expected to be approximately 250 basis points lower compared to 2023 at approximately 29.5% (based on the mid-point of the guidance ranges for total revenues and operating profit).
The big sequential increases in spending are almost in the rearview mirror and while we should see further Y/Y margin compression in the next 3-4 quarters, I expect the strong growth of Epkinly and continued good performance of Darzalex and Kesimpta to lead to margin stabilization by mid-2025 and renewed margin expansion in the second half of 2025 and beyond. This is later than I previously anticipated but takes into account the increased spending that came from the ProfoundBio acquisition.
Partner BioNTech opted out of the further development of acasunlimab (formerly GEN1046/BNT311) earlier this month. Genmab will develop acasunlimab on its own going forward, and it will pay BioNTech certain milestone payments and tiered single-digit royalties on net sales. Genmab said that "while the emerging clinical profile of acasunlimab is encouraging, BioNTech informed the company that it has taken this decision for reasons relating to its portfolio strategy."
Acasunlimab is "an investigational PD-L1x4-1BB bispecific antibody fusing Genmab's proprietary DuoBody technology platform and BioNTech's proprietary immunomodulatory antibodies." It is designed to drive an antitumor response via conditional activation of 4-1BB on T cells and NK cells, and it is being tested in a phase 1/2 trial in multiple solid tumors as monotherapy and in combination with Keytruda (pembrolizumab).
The two companies recently presented the phase 1/2 data in patients with PD-L1-positive metastatic non-small cell lung cancer who had disease progression after one or more prior lines of anti-PD-L1 containing treatment.
Acasunlimab showed modest activity as monotherapy, with an overall response rate ('ORR') of 31% (confirmed ORR of 13%) and median overall survival ('OS') of only 5.5 months. The combination with Keytruda did better on median OS, with 8.6 months for the treatment regimen administered every three weeks and 17.5 months when it was administered every six weeks.
The difference in median OS between the 3-week and 6-week regimens is striking and is the reason acasunlimab is advancing into a phase 3 trial. This apparently was not enough for BioNTech, but Genmab sounds enthusiastic and management said we should see some translational and updated clinical data in the near-term that further support the advancement of the 6-week dosing regimen to phase 3 trials.
I am reserving judgment here until I see additional data, and at the moment, I am not counting on acasunlimab to create long-term shareholder value.
I covered the acquisition in my April article and believe it is the right move by Genmab that adds a missing piece to its pipeline - an antibody drug conjugate ('ADC') platform.
Following the closing of the acquisition, Genmab reiterated the aggressive development plan for Rina-S, which is ProfoundBio's lead asset. The updated data from the early-stage trials are expected at a medical conference next month, and the phase 3 trial is expected to start before the end of the year.
Genmab anticipates Rina-S could reach the market as soon as 2027, and it would be the company's first wholly owned commercial asset.
Shares of Genmab remain under pressure, as it appears, the market still has doubts about the company's medium- and long-term plans and execution.
I see the overall progress as significantly net positive based on the growth of the commercial business led by the outperformance of Epkinly, the reduced dependence on Darzalex, the progress of the pipeline, and the acquisition of ProfoundBio. I see the reduced royalties on Darzalex as the only real fundamental setback since I initiated coverage two years ago. As such, I continue to see Genmab as very well positioned to create long-term shareholder value.
One of the more important catalysts in late 2024 or early 2025 will be the head-to-head trial data of GEN3014 (the next-generation Darzalex) versus Darzalex. There were no new updates and will reiterate my view from January - I am not entirely convinced this candidate will show improvements in efficacy compared to Darzalex and there is also the risk of GEN3014 showing worse safety than Darzalex. Success of GEN3014 is not required for long-term value creation, but I would be very happy to see any upside from this candidate, given its potential to extend the royalty stream beyond Darzalex's patent life.