Genmab - the tale of the little boy that cried wolf

This article seeks to explain why Genmab will likely fall prey to a takeover before 2016 comes to an end. It thereby covers a topic that has become enigmatic at best and highly controversial or even laughable at worst. The apparent ambiguity of the M&A topic, however, isn't discomforting enough to discourage your author from publishing further deliberations on the ideas originally described in the article "Wake Up Denmark - The big bad wolf is coming". 

You can read the original publication by following this link: 

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You can also continue and read a shorter version which follows here at Linkedin. 

Genmab is currently for sale! Any attempts by the management to reject this is merely a classical corporate charade that is played to ensure the interest of the shareholders.

Articulating the elephant in the room so clearly might discourage some from continuing to read. If you are one of those that are thinking about discontinuing now, then you are properly anticipating that the following is going to be far too colorful and speculative for your taste. Some will even say that this is understandable as the topic of an imminent acquisition has become rather controversial as also stated in the beginning of this article. However, the precariousness of a potential takeover mainly arises as the investor community is fed up with the constant trumpeting of takeover rumours. This fatigue is sad as it basically represents a fallacy. You simply can't use what didn't happen yesterday to justify that it isn't going to happen tomorrow. This article seeks to peer deeper into the likelihood of a future takeover and offer new unpretentious arguments in the process. The ambition goes as far as to convince some the most hardheaded takeover opponents.

THE FIRST TAKEOVER RUMOURS AND A TRIP DOWN MEMORY LANE
We have all heard it several times. The talk of a potential acquisition has been all the rage for quite a while now. However, you might not remember that the first serious whispers of a looming takeover actually begun as far back as when Jan van der Winkel started his tenure as CEO. The chair of the CEO had barely cooled down from the heated departure of Lisa Drakeman when the first alarm bells were rung. Genmab was a true ugly duckling back then. The company was struggling to secure short-term survival due to a major liquidity crisis that surfaced in the wake of "Zaltumumab" failing in late stage clinical trials. The "ice-queen" Lisa Drakeman had over-optimistically invested an obscene sum of roughly 1 billion DKK in a turnkey factory that stood ready to produce Zaltumumab. This was unfortunately before the drug failed late stage clinical trials obliterating any chance of getting FDA's stamp of approval. This blatant management mistake did not only bring Genmab close to the brink of bankruptcy. The misery also sparked the arrival of the first serious takeover rumours. Several observers close to the company speculated that Glaxosmithkline would exploit the dire calamity of Genmab to buy the company.

This was, by the way, back in the days when I wrote an article that described Genmab as an ugly duckling and proposed that the company could potentially re-emerge as a beautiful swan one day when the new CEO (Jan van der Winkel) had gotten his kingdom securely under control. I still clearly remember how I urged investors to get aboard the train as it was about to leave and hurdle towards the land of fairytales with Jan van der Winkel as the driver setting the pace. Walking down memory lane, I kindly ask you to ignore the hideous Danish "Jantelov" as everyone that stepped aboard the train back then can now confidently exclaim: "...Oh boy, we were right..". We got nothing short of a real-life fairy tale and the best part is that we still miss to see the final and most exciting chapter unfold.

PUTTING ALL THE CHIPS ON THE TABLE
Enough shameless self-promotion. It suffices to conclude that I have benefitted from a healthy dose of luck in calling the investment case so far. I remain very bullish as I still firmly believe in my one-year-old +$10 billion topsales forecast for DARZALEX. A growing number has now joined me in this believe as an increasing array of compelling evidence mounts and continues to build the foundation of a future MEGA BLOCKBUSTER. This is of course happening, not at least, thanks to the strong dedication of Janssen who has been the best possible partner for Genmab until now.

My bullishness is basically so extreme that I have placed all my chips on the table in an all-in bet for a takeover happening before the end of this year. The stakes involved in writing this are thus outrageously high. I literally feel that I'm juggling between the odds of either being ridiculed or taking home the big prize as the strategist who ingeniously managed to uncover the truth and make an absolute killing in the process. The flipside of the coin doesn't scare me as the risk-reward perspective is very favourable. That is also the reason why you may rest assured that my chips stay on the table regardless of the high stakes involved in this all-in bullish move. Let's not worry too much about the flipside of the coin now. Let's instead worry about calling the bluff of the management who are clearly in the initial phase of covertly preparing Genmab for a sale and conditioning the shareholders for a coming bid. The prefered acquire would undoubtedly be Janssen. But, there are also others which could become likely first-movers, so a blue sky scenario could realistically include the prospects of an outright bidding war. It is premature to start talk about the bidders before we fully understand why an acquisition is in the cards for Genmab.

Granted, this might seem like very speculative reflections but, we have just bared witness to an astonishing event that clearly hints at M&A actions lurking right around the corner. The market has although largely chosen to ignore the clear hints received. This is an example of irrational behaviour and it is a symptom that clearly underlines how the market has become immune to takeover-talks. Years of persistent rumors and a continuous buzz from the takeover proponents has caused an investor fatigue that paralyzes the market as we are essentially very close to getting the ball rolling. You should ask yourself one very important question at this point of time. Who has the possibility to exploit and benefit from this situation? Try to let this question linger in the back of your mind before we will jointly return to it at the end of this article.


THE BOY THAT CRIED WOLF
Think of the fable about the "little boy who cried wolf". It is a tale about a shepherd boy who repeatedly fools nearby villagers into thinking that the wolf is coming to take his flock of sheep. The sheep then finally winds up being eaten by the wolf as none of the villagers believes the boy when he warns about a real wolf. Let me spell it out for you. Genmab is our sheep, the little boy embodies the M&A alarm bells, the villagers represents the market and our wolf is the acquiring party.


EXAMPLES OF STEPPING STONES ON THE PATH TOWARDS COLLECTIVE DENIAL
Let it be said immediately, I have participated in driving the sentiment of the market towards the same state of mind as the villagers in our fable. However, this was done in a good faith and with sincere motives. Other important market players have participated more disdainfully in a game of unblushingly promoting the takeover scenario. They are thus guilty on an equal footing with the shepherd boy from our fable. Remember how Michael Novod from Nordea included an alternative M&A target in an analysis published last year. Remember how Goldman Sachs amazingly decided to include a weighted part of their target from a seemingly arbitrarily established potential acquisition price of 1500 DKK. Remember how the Danish pension giant ATP -very strangely- suddenly started talking publicly about a strategy for mitigating the risk of a takeover. Think about Jeffries who recently issued a report which identified Genmab as a hot acquisition target. The list of examples goes on and on. We have generally witnessed so many small hints of an impending takeover that we have a giant chorus of shepherds singing about the advent of the wolf. The magnitude and scope of the clues available are thus so overwhelming that we need to narrow our focus. This is why all of our attention is soon turned to a earthshattering event that took place in Amsterdam recently. It is this event that will be used as our focal point in the quest to understand why Genmab won't survive 2016 as a separate legal entity.

Our key takeaway from the fable of the boy that cried wolf is so far that 99% of the market are in collective state of denial about the immense and rapid value creation that is ongoing at Genmab. The market is in a "villager" state of mind and this prevents the vast majority of shareholders from seeing the forest through the trees. Exactly this phenomenon is also what constitutes your chance to invest with an edge. You can currently buy Genmab shares with what corresponds to a free call option on a takeover premium. This window of opportunity ought to close as the stock market eventually wakes up and start to price in the increased likelihood of a takeover. You will therefore need to move fast if you want to exploit the prevailing market inefficiency. The stigmatized aurora has so far successfully extinguished every M&A fire that was lid. Someone will although manage to light a fire that persists and it very quickly gets scorchingly hot once this happen.


NO SMOKE WITHOUT A FIRE AND THE CEO THAT ALSO SUDDENLY STARTED CRYING WOLF
Our villagers are only seeing a very faint pouf of smoke before it quickly evaporates each time someone has been crying wolf. But, my dear fellow investors, please do remember that there is never smoke without a fire smoldering somewhere.

The smoldering fire became much more evident as the stakes in our fable were abruptly raised when the king himself entered the scene. Our CEO amazingly became part of the smoke puffing cast when he verbalized the existence of a wolf at a small investor meeting held in Amsterdam on the 09/03-2016. Jan van der Winkel was actually exhaling such thick smoke that one might wonder if he visited one of those famous "coffee shops" which Amsterdam is so notoriously known for. For the sake of clarity, our CEO was clearly not high on substances that are illegal in most jurisdictions outside of the Netherlands. But. he must have been high on naturally induced endorphins as he would otherwise not have been inclined to talk so freely as he did about takeovers and acquisition premiums. However, let's not focus too much upon what "floats the boat" of our CEO when visiting his home country. Let's instead focus on what he actually said as the words he used truly makes his speech a "landmark presentation" in communication terms.

It was the landmark presentation that secured our CEO a lead role in our fable. His choice of words during the presentation propelled him safely into a lead role among our big group of shepherds. Jan van der Winkel was not just crying wolf like the rest of the shepherds. No, he was actually screaming it from the top of his lungs. The loud noise that emanated from the meeting was so convincingly clear that it constitutes a solid proof of assumptions for those who are already firm believers of the takeover hypothesis. The problem is that many villagers continues to defy all logic and vigorously reject the likelihood of a takeover even after they have witnessed the king himself screaming wolf. This means that the smoke from the M&A fire which Jan van der Winkel tried to ignite didn't even reach the treetops and the market therefore completely missed the boat.

Mr Rob Gossens who is an acclaimed journalist from the most prominent dutch newspaper (De Telegraaf) was participating in the meeting where Jan van der Winkel held his landmark presentation. The CEO was not aware that a journalist was participating and his adverse reaction once he learned about this makes it fair to assume that he was indeed speaking more freely than usual. Rob Gossens had not been immunized by the prevailing aurora of stigmatization that stifles all Genmab related M&A buzz. So we are essentially very lucky that he was present to capture the full scope of the startling remarks that Jan van der Winkel was iterating during his presentation.


THE WOLF AS ARTICULATED BY JAN VAN DER WINKEL
Rob Gossens was so mesmerized by what he was hearing that he decided to focus heavily upon the M&A hints in an article that he wrote shortly after the meeting. It is only thanks to this article that we have know how Jan van der Winkel effectively jumped out of the closet and confirmed the likelihood of a takeover by Janssen.

The article was published in dutch and it thus failed to garner the international awareness that it deserved. It is difficult to replicate the exact messages of all the minuscule details without risking to alter the meaning a bit. This risk of slippage has been mitigated by seeking the advice of the journalist directly. Mr Rob Gossens has been consulted several times concerning the article and its quotes. This allowed Rob Gossens to repeatedly confirm that the content of the article represents an accurate, valid and honest account of what was said during the investor meeting. Kindly notice how the following direct citations from the article primarily focuses on republishing explicit quotes from Jan van der Winkel:

-----Start of citation from "Telegraaf"-----
Van Winkel ignites the fire by referring to the fact that January was the worst month ever for biotech. "This is a good moment to get onboard". He subsequently continues to appraise his company Genmab that has a fabulous drug with its cancer medicine Darzalex.

The market has acknowledged Genmab as ripe for takeover for two years now. Van der Winkel is not retracting the rumors. He, to the contrary, refers to the takeover of Pharmacyclics by Abbvie for 21B USD. Johnson and Johnson were outsmarted by this a year ago. Van de Winkel: "J&J won't let this happen again. They even have 35B "stored" overseas. A takeover is becoming more and more appealing to them"."Not that I want to let go of Genmab" he continues. But if it comes that far, then it will be a friendly takeover. However, I expect a premium of 100% on the current share price."
-----End of citation from "Telegraaf"-----

The above statements were so astonishing that they compelled your author to call the journalist immediately upon having read the original newspaper article. The conversation paved the way for an understanding of the explicit circumstances under which the quotes were obtained. It became clear how Jan van der Winkel was largely unprompted and acted independently when making the statements. The level of autonomy is significant as it truly underscores how strategically amazing the applied rhetoric is.

Let's now spend a couple of minutes investigating and discussing the quotes in a bit more detail. Jan van der Winkel starts his amazing journey into wolf territory by emphasizing that it is a historical attractive moment to buy biotech now that we are in the wake of the most ferocious biotech correction ever. This remark does, at face value, not seem particularly remarkable. But, it certainly becomes very remarkable once considering that it was used to set the scene for what followed. A CEO from a biotech firm should generally refrain from offering unprompted comments about the state of the biotech sector at gatherings that are held exclusively for biotech investors. It has very limited relevance as the risk remains the same across the entire sector. The risk is unrelated to the unique and specific long term equity story that the CEO should focus upon promoting instead.

Jan van der Winkel continues his talk and utters something about the existence of persistent acquisition rumors. If this isn't already controversial, well then it truly does become controversial once the next breath of air is used to state that the speculations can't be taken off the table. This is an absolutely shocking remark from a CEO that has previously remained very conservative and muted whenever being asked about M&A rumors!

There is no doubt that a similar statement from an american CEO would have resulted in an almost instantaneous reaction. A buying frenzy often takes place within minutes after such remarks disseminates to the US stock exchange. It must be said that an upswing on this basis would tend to exist only as a short-lived spike unless further M&A indications emerges. The question is not how big a reaction we should have seen. It is more a discussion of the fact that we should have seen some reaction. However, the stock price didn't even budge the slightest bit after the news of the landmark presentation hit the market.

Yet the most intriguing signal from Amsterdam is seen in the way that Jan van der Winkel decided to promote a sense of takeover-urgency. He cleverly underlines that Janssen has a burning platform due to historical events that really doesn't concern him or Genmab. He does so by describing how a fear of losing acquisition battles prevails after Janssen failed to acquire Pharmacyclics that was stolen by Abbvie right at the finishing line. It is very inappropriate for our CEO to talk about this at an investor conference. His remarks are very peculiar and it almost seems as if he has drawn inspiration from "Wake up Denmark - the big bad wolf is coming". His way of articulating and conveying a sense of urgency certainly bares a striking resemblance to the way that the Pharmacyclics affaire was originally presented in "Wake up Denmark - the big bad wolf is coming".

The astonishing revelations seems to come in an almost endless stream as Jan van der Winkel continues to deliver more firepower that arms the proponents of the acquisition scenario. He actually goes as far as to promote Janssen's bulky overseas cash reservoir as evidence for the existence of the means to make a takeover bid. To ensure that people fully grasps what is likely to ensue he also takes the time to underline that the attractiveness of a takeover keeps growing.

Jan van der Winkel then finally reaches his conclusion as he states a price tag with 100% premium as a reasonable entry level ticket for any considering to embark upon a takeover. This is essentially a standard high-range biotech acquisition premium and the most surprising about his conclusion therefore is that he names this as the expected price level for "friendly takeover".

Ladies and Gentlemen, or should I say shepherds, wake up and smell the coffee, it has actually been brewing for quite a while now! The wolf is indeed coming and our sheep has no intentions of running away anymore. Jan van der Winkel has essentially just planted a huge "FOR SALE" sign right in front of your nose and you should be buying Genmab shares like there was no tomorrow. The writing on the wall is crystal clear and the accompanying artwork that we can marvel at has now been signed by the CEO. Failure to realize this means that you must belong to the group of villagers from our fable.


A HALF-HEARTED ATTEMPT AT EXTINGUISHING THE FIRE
Jan van der Winkel gave a televised interview at the annual general assembly of the shareholders. It was during this interview that he was confronted with the article from the "De Telegraaf". Let it be clear that he simply had no other choice than to repudiate the content of the article. He was refuting the content of the article so vigorously that he actually winded up laughing as he dismissed the quotes as the wishes of the journalist. This essentially leaves us in a situation where we have the word of journalist Rob Gossens against the word of Jan van der Winkel.

Your author personally talked to Rob Gossens at several occasions over the last weeks and it must be said that he isn't exactly an expert on Genmab. Rob Gossens had no knowledge of a long background with M&A rumors when he was writing his article and he certainly did not stand to gain anything from falsely fabricating the impugned quotes he published. He did in fact not even recognize the controversy of the whole matter. Rob Gossen quite simply had no idea that he was opening a true Pandora's box. His lack of knowledge goes a long way in proving that he must be truthful in his quotes. The weighty argument for the reliability and validity is that Rob Gossens did not know anything about the failed pharmacyclics acquisition before Jan van der Winkel explained about this during his presentation.

Genmab has been extremely irresolute and vague in their actions following the newspaper article. "De Telegraaf" is the biggest dutch newspaper and Genmab should have demanded a immediate retraction. Rob Gossen confirms that neither he nor his newspaper has been contacted by Genmab with such a request. Genmab should also have reacted more sharply when the danish newspaper "B?rsen" followed up on the story by publishing a short summary of the article in "De Telegraaf". Genmab instead winded up giving a few very unfortunate quotes that explained how it is "business as usual" for their CEO to answer questions about hostile takeovers. This is like comparing apples with oranges as Jan van der Winkel wasn't answering questions and certainly also wasn't talking about hostile takeovers.

Jan van der Winkel is a very enthusiastic and engaged CEO. He basically has a long track record that reveals repetitive problems with keeping his enthusiasm restrained once he gets too excited. The talk in Amsterdam took place in an intimate setting with roughly 25-30 investors and Jan van der Winkel did not know that a journalist was present in the crowd. We know this as Jan van der Winkel was very surprised when Rob Gossens presented himself and explained that he was a journalist. Needles to say that Jan van der Winkel did not wish to add any further colour to the picture he had so artfully painted from the stage only minutes ago.


FATTENING THE SHEEP
Villagers or not, some of you might surprisingly still doubt about the imminent arrival of the wolf. Such feelings of disbelief can basically only be rationalized if they are justified on the basis of lacking of evidence. The average villager will properly argue that a single presentation and the quick slip of a tongue plus the subjective interpretations of a journalist constitutes an insufficient basis for putting all their eggs in one basket. However, there is plenty of unrelated evidence that is mounting up. Remember how we started our journey by looking at a few examples that each points towards the likelihood of an acquisition. This article has although not focussed any further on all of this yet. Have no worries, this article only represents the first in a series of publications that will gradually venture much deeper into the topic of the looming takeover and uncover why the market capitalization of Genmab currently should be at least 50% higher than what the market realizes today.

A shortcut to a more justifiable share price is although to convince the villagers. It is by activating them that we will see Genmab trading higher like in a physical manifestation of how we get more flesh on our sheep. We quickly need some extra fat before the hungry and desperate pack of wolf moves in for the kill.


A QUICK TWIST OF OUR TALE AND A HINT AT WHAT FOLLOWS
A table of content for the sequel to "the boy that cried wolf" has already been devised. The exact release date regrettably remains shrouded in mystery. The timing of the release partially depends upon unfolding and emergent market events. But, it unfortunately also depends very much upon making time in the agenda of your author to write it.

So why should you look forward to the sequel? You probably think you got it all worked out as you are sitting there with a clear image of the roles and the cast in our fable. You think that you know who the sheep is and you certainly think that you know who the wolf is. Well, the sequel to this article will offer you a quick twist on this. You will have to come to terms with the fact that things unfortunately aren't as simple as portrayed so far.

You might vaguely remember that we left one question unanswered earlier on. You had to think about it and let it linger meanwhile reading on. It was at the end of the section called "putting on all chips on the table" that the unanswered question was posed. The question is very crucial in the game of Genmab. It also represents the foundation of a twist to our tale which only the likes of Dan Brown or Stephen King would include in their writing to thicken the plot.

You have surely heard the expression "smart money" and you therefore most likely know that it is generally defined as a term for money that is invested by "those-in-the-know". Think of our shepherds again. The lineup of shepherds consist of very large multinational investment banks like Goldman Sachs and Merrill Lynch. Those are in fact the very same banks whose behaviour was the subject of attention in the previous publication "Wake up Denmark - the big bad wolf is coming". It is these banks and some of the other shepherds that represents the smart money in this context. They know exactly what they are doing and they are very much benefitting from keeping all of the villagers in the dark.

Recent events have profoundly underscored the motives of smart money. One could actually use this to justify an entire shift of who's who in the cast of our fable. Are you confused? Well, it is actually simple, we are just looking at a classical example of something that bares an eerie resemblance to the wolf being dressed in sheep's clothes and that will be the focus point of the sequel.