Genmab (NASDAQ:GMAB) announced that it was engaged in a legal battle with Johnson & Johnsons’ (NYSE:JNJ) division Jansen regarding royalty payments for its cancer drug, Darzalex. The company started binding arbitration regarding two matters as per its license agreement with Jansen.
Genmab takes Janssen to arbitration court over royalties
The Danish biotech company, which develops cancer antibody therapeutics, receives royalties on sales of Darzalex, which is used in treating multiple myeloma. Genmab wants to receive royalties for sales of Darzalex in both intravenous forms and Darzalex Faspro, which is for subcutaneous administration. The company said that the arbitration will establish whether it can receive part of Janssen’s royalty payments to Halozyme Therapeutics (NASDAQ:HALO). Currently, Janssen pays a single-digit percentage in royalties to Halozyme, responsible for the enzyme technology employed in subcutaneous Darzalex formulation.
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Janssen began reducing royalty payments on sales to Genmab in what it claimed to be the Danish company’s share of royalty payments to Halozyme in Q2. However, the Danish company has not indicated the severity of these reductions or what impact the reduction will have on its finances.
Most importantly, the arbitration court will determine the duration Genmab is expected to continue receiving Darzalex royalty payments. They will determine if the royalties will end in 203o when the patents of Genmab expires or by 2035 when patents of Janssen for Darzalex injections will expire.
Genmab uncertain on the outcome of the arbitration
According to most analysts, Genmab is expected to receive royalty payments until around 2035. However, Jefferies analysts indicate that should the arbitration rule against the Danish company on the duration of receiving royalties, then that will reduce its value by 25%. In a statement, Genmab indicated that although the company is prepared to defend its rights as per the agreement, there is still uncertainty around the arbitration process and duration of receiving royalties.
Citi analysts indicted that this legal battle will create uncertainty and an overhang on shares of the biotech company that will be the price in easily.