US And EU Pricing Pressures Will Squeeze Biologics Margins

Key Takeaways

• Rising scrutiny on drug pricing and biosimilar competition threaten Genmab's revenue growth, particularly for its major antibody therapies as exclusivity is lost.
  
• Heavy reliance on a few key products and partnerships, along with tougher regulatory and competitive environments, increases financial risk and pressures future earnings stability.
  
• Broadening proprietary antibody therapies, operational expansion, and strategic partnerships bolster innovation, recurring income, and profit growth, enhancing Genmab's long-term value and competitive resilience.

Catalysts

A biotechnology company, develops antibody-based products and product candidates for the treatment of cancer and other diseases in Denmark.

• Escalating global cost containment measures and increased payer scrutiny are likely to exert downward pressure on the pricing and reimbursement of Genmab's biologics, particularly in the US and Europe, which could limit future revenue growth and compress net margins even as the company expands its commercial footprint.
  
• Growing adoption of biosimilars and a shift by health systems and payers towards lower-cost alternatives threatens the longevity of Genmab's revenue streams from its key antibody therapies as they lose exclusivity, putting substantial pressure on long-term recurring revenues and earnings once patent cliffs are reached.
  
• Genmab remains heavily dependent on a small number of flagship collaborations and products, notably DARZALEX and Kesimpta, so any renegotiation of royalty agreements, partner underperformance, or eventual market erosion will disproportionately affect overall revenues and earnings stability as opposed to a well-diversified product portfolio.
  
• Lengthening regulatory timelines, heightened scrutiny of safety and efficacy in clinical trials, and increasing complexity around lifecycle management are likely to raise research and development costs, delay time-to-market for new medicines like Rina-S and acasunlimab, strain cash flows, and defer meaningful earnings contribution from pipeline assets.
  
• Intensifying competition in the antibody therapeutics space, both from established large-cap biopharmas and innovative new entrants, will likely dilute Genmab's market share, necessitate higher commercialization and selling expenses to maintain leadership, and ultimately result in lower net margins as competitive pressure squeezes both top
• and bottom-line growth.

Genmab Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Genmab compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Genmab's revenue will grow by 12.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 35.3% today to 30.8% in 3 years time.
• The bearish analysts expect earnings to reach $1.4 billion (and earnings per share of $20.93) by about July 2028, up from $1.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.6x on those 2028 earnings, down from 12.3x today. This future PE is lower than the current PE for the GB Biotechs industry at 11.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.9%, as per the Simply Wall St company report.

Genmab Future Earnings Per Share Growth

Risks

• Genmab's expanding portfolio of differentiated antibody therapies such as EPKINLY and Tivdak, with new regulatory approvals in key global markets (US, EU, Japan), increases recurring revenues and the addressable patient population, supporting continued revenue and profit growth over the long term.
  
• Robust proprietary pipeline advancement-highlighted by Phase 3 program acceleration (Rina-S in ovarian and endometrial cancer, acasunlimab in lung cancer), as well as positive efficacy and safety data with durable responses, positions Genmab for sustained innovation and multiple future blockbuster opportunities, bolstering long-term earnings potential.
  
• The company's transition to fully integrated commercialization, including wholly owned launches in Europe and Japan, demonstrates growing operational capabilities that can drive higher net margins through improved revenue capture and value chain participation.
  
• Strategic collaborations and partnerships (such as with AbbVie and Seagen) are facilitating rapid clinical development, innovative regulatory pathways, and broader global market penetration, thereby de-risking portfolio execution and providing milestone and royalty income stability to underpin long-term cash flows.
  
• Genmab's strong balance sheet, demonstrated by over $3 billion in cash, rising operating profits, growing recurring income (now 95% of total revenues), and continued share buybacks not only reinforce its financial foundation but also provide resilience and strategic flexibility to invest in innovation and capitalize on industry consolidation or business development opportunities, supporting long-term value creation for shareholders.

Valuation

• The assumed bearish price target for Genmab is DKK1000.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Genmab's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of DKK2700.0, and the most bearish reporting a price target of just DKK1000.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $4.6 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 9.6x, assuming you use a discount rate of 4.9%.
• Given the current share price of DKK1449.5, the bearish analyst price target of DKK1000.0 is 45.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.