Genmab A/S (OTCPK:GMXAY), based out of Denmark, is a biotechnology company at core. It has excellent research expertise, of which Darzalex (daratumumab), and to some extent Arzerra (ofatumumab), are proofs. Darzalex is Johnson & Johnson’s (JNJ) fastest growing drug; Arzerra is Novartis’ (NVS) drug approved for chronic lymphocytic leukemia (‘CLL) . Both drugs were developed at Genmab and licensed out to these big pharma partners. Both drugs are currently in trial for additional indications; as well, Genmab has a long-tailed pipeline of what looks like excellent drug candidates in various diseases and indications.

Another angle to the Genmab investment is its pure play aspect. While an investment into its bigger partners forces you to include a number of drugs which have been tritely called “lard” by another author, Genmab, at least by its history, is a more efficient investment. Moreover, this is Europe; so, to some extent, you have a hedge against US market headwinds. These are some of the broad reasons we like Genmab.

Genmab specializes in developing treatments for various ailments, with a focus on cancers. The company mainly collaborates with pharma giants to develop drugs. Genmab announced a number of positive developments in the recent past including the announcement of solid financial numbers for the first nine months of the financial year. These positive announcements, coupled with a healthy pullback in its stock price make Genmab a good investment prospect.

The company’s mainstay is its approved blood cancer drug Darzalex (daratumumab) and they recently announced a $20 million milestone payment for the drug, which it is also developing in additional indications in collaboration with Janssen Biotech Inc. The milestone payment has come due on the basis of the progress made in a first Phase III study other than multiple myeloma. The development is important on several fronts. First off, it goes to strengthen the company’s drug pipeline while at the same time, Genmab also boosted its outlook for the financial year 2017. Daratumumab is currently approved in the United States for treatment of patients with multiple myeloma who have received at least one prior therapy or more. It was the first monoclonal antibody treatment for multiple myeloma to be approved in the US and it works by using the patient’s immune system for targeting cancer cells. It is also approved in Europe for multiple myeloma patients in certain conditions. Currently, the company is in Phase III study for testing the drug for conditions other than multiple myeloma.

Darzalex has done well for Janssen, which is an affiliate of Johnson & Johnson. The drug proved to be one of the fastest growing products for the company. Genmab is set to gain from this growing revenue and the drug’s overall potential as it is entitled to receive healthy royalties based on the revenue generated by the drug. While Genmab looks attractive on the basis of Darzalex alone, the company has a healthy pipeline of drug candidates. It is in Phase III trial for ofatumumab for treating follicular lymphoma and relapsing multiple sclerosis. The drug was initially developed in collaboration with Novartis for treating chronic lymphocytic leukemia, for which it is already approved. Genmab is in Phase II development for Teprotumumab for treating Graves orbitopathy. Apart from these drug candidates, the company also has other products under development which are still Pre-clinical or Phase I stage.

Genmab recently reported its financial results for the first nine months of FY2017. The company reported $871 million worth of Darzalex sales, for which it received DKK 707 million in royalties. This figure translates to roughly $111 million. Its total revenue for the nine month time period was reported at DKK 1.3 billion ($205 million), up 52 percent on year over year basis. The company’s operating income for the time period stood at DKK 641 million ($101 million), up 86 percent on year over year basis. A deeper analysis of the company’s revenue shows that it is steadily moving from milestone based revenue structure to royalty based structure, which lends more credence to the company’s financial standing.

However, it is not just the results so far but also the company’s outlook for the coming period which is expected to be the main catalyst for the stock in the coming quarters. Genmab recently revised its financial outlook for the year 2017 upwards. The company now expects its full year revenue to be in the range of DKK 2.24 billion and 2.44 billion while revising the Darzalex royalty outlook to be in the range of DKK 930 million and 1.1 billion. With its operating expenses in the range of DKK 1 billion and 1.1 billion, the company expects the operating income for the entire year to be in the range of DKK 1.19 billion and 1.39 billion. Genmab earlier expected its operating income to be in the range of DKK 1.06 billion and 1.26 billion. This recent upgrade in the projections will allow the company stock to move forward in the market.

While Genmab has a number of factors going on for it and these factors range from blockbuster product Darzalex to the company’s cost efficient organizational structure. Genmab is able to keep its operating costs low as it does not have any manufacturing facility and derives its revenue by developing drugs for other major drug companies. In return, it derives its revenue in the form of milestone payments and royalties, making its operations and organizational structure lean. However, it exposes the company to a unique type of risk as well. Genmab’s revenues are directly affected by the efforts of its partner companies. Genmab stands to lose if its partner company is not able to inject the products in the market in the right manner or the product fails to gain traction in the market. However, the chances of this risk factor materializing are minimal since most of Genmab’s collaborations are with established pharma companies with proven track record.

Genmab stock showed strong movements this year as it oscillated between $79.72 and $117.75. However, the stock has seen steep decline in its value since October this year. Since there was no corresponding negative news coming out during the period, the decline in the price is simply the pullback from steady growth it had seen in the middle of the year. The pullback in the price presents an exciting opportunity for medium to long term investors to create a position in the stock. Upcoming catalysts such as the announcement of full year financials in the coming months and pipeline development news are expected to provide a strong positive fillip to the stock.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.