The article was written by Harry Chiang, a Financial Analyst at I Know First.

ImmunoGen Stock Analysis

“Almost everybody is enthusiastic about the promise of biotechnology to cure disease and to relieve suffering” – Leon Kass, American Scientist

Summary:

The Birth of ImmunoGen

Keeping Cash Close At Hand

An Impressive Lead Compound

Major Partnerships

An Enthusiastic Outlook on the Future

(Source: Ambic, https://www.ambic.org/industrial-advisory-board-members/)

The Birth of ImmunoGen

The biotechnology industry is one of the most controversial and volatile ones in the financial market. Last year especially was difficult for the industry since the presidential race at the time led to many prominent people giving powerful statements regarding the biotech industry. Statements like these were significant in pricing these stocks and the entire industry went through a rough patch from which it is only now starting to recover.

In particular, one can see that ImmunoGen suffered last year an experienced an overall decline from around $14 at the start of 2016 to $2 at the beginning of 2017. This is not the first time ImmunoGen has experience such massive fluctuations. The company, headquartered in Massachusetts, was founded in 1981, and twenty years later had spiked rapidly to a value of $30 per share. However, over time the company crashed back down and has since been fluctuating within that thirty dollar range. Unfortunately, or perhaps fortunately to some investors, this volatile movement is inevitable when dealing with a company that operates on successful test results. ImmunoGen focuses on the development of antibody-drug conjugate (ADC) therapeutics for cancer treatment. An ImmunoGen ADC contains a manufactured antibody that binds to a target found on cancer cells, with one of the company’s potent cell-killing agents attached.

ImmunoGen scientists specialize in target selection, including assessment of appropriate levels on tumor vs normal tissue and rate of internalization. This, in theory, makes ADC technology potentially superior to classic chemotherapy. Currently, several companies are betting on this possibility. Companies licensing ImmunoGen’s technology include Amgen, Bayer Healthcare, Biotest, Genetech/Roche, Eli Lilly, Novartis, Sanofi, and Takeda. These companies might not be far off the mark by hedging their bets on ImmunoGen. Although the stock was trading dangerously low at pennystock level at the end of 2016, there are several factors to consider at play. For example, the company experienced an unfortunate combination of cash loss selling, a recent bad quarter, a convertible bond offering, and an unexpected, recent removal from ETFs. Combined with the macropolitical problems at the time, these factors hammered down ImmunoGen’s stock price.

On the other hand, and the reason why it might be a good idea to bet on ImmunoGen, the company has several factors which are working in its favor for 2017. It currently has a cancer fighting technology that has already given rise to a marketed therapy. Furthermore, the company has a significant pipeline planned out, with recent successful tests. Lastly, the company also has a large stash of cash on hand. All of these factors spell out a possible ride up for ImmunoGen.

Keeping Cash Close At Hand

In April 2017, ImmunoGen reported its first quarter results in a press release. Before examining the product performance of the company, it is important to take a look at the financial fundamentals. The company reported revenues of approximately $29 million. This number includes $6 million in partner milestone payments. It also includes $13 million in amortization of a non-cash fee related to a license agreement with CytomX. Finally, it includes $7.6 million in non-cash royalty revenues.

Operating expenses in the first quarter were approximately $41 million, driven by $33 million of R&D expenses. The company accounted the remainder to G&A expenses. For the first quarter, ImmunoGen reported a net loss of about $17 million, or $0.20 a share. Although this was overall a net loss, the company was still performing better than many analysts expected, and the loss it experienced was not as high as expected by the overall market. As a response, share value went up after the release of the Q1 earnings.

It is important to remember in this scenario that ImmunoGen does not actually have products on the market driving revenue. It is primarily obtaining revenue by licensing and partnerships. Hence, it is most important for the company to have continuous positive results and enough money to continue obtaining these results. This is for as long as it needs to either obtain more cash or to take its products to the public. In this case, ImmunoGen reported approximately $127 million of cash and cash equivalents at the end of the first quarter, as well as $100 million of convertible debt outstanding. The company expects this to be able to fund operations into the second quarter of 2018.

It is also important to keep in mind that financial guidance for 2017 has not changed. Although this is not always on target, it is a good indicator as to how the company publicly feels about its performance so far, and public information and presentation is often what drives stock movement. Not changing the financial guidance indicates that nothing unexpected has happened and the company believes it is still on track to achieving its objectives. As laid out by CEO Mark Enyedy, these were fourfold. Firstly, the company aimed to “complete development and obtain approval for mirvetuximab” by 2020. Secondly, the company aimed to accelerate the “development of early-stage portfolio with an emphasis on IGN programs”. Thirdly, “building upon leadership position in ADCs”. Finally, the company aimed to lever its platform to support existing relationships and pursue new collaborations to generate revenues, mitigate expenses, and expand innovation reach.

This last objective is particularly important in terms of strong financials and positive indicators for ImmunoGen. By generating more revenue and mitigating expenses, the company will be in a good position to continue to pursue successful trials. This is set to increase the company value in 2017.

An Impressive Lead Compound

One of the driving factors of any biotechnology company is successful lead products. In the case of ImmunoGen, the company is hoping to rebuild and recoup with its latest lead drug in development. ImmunoGen previously struggled in October 2015. The company disclosed that Kadcyla had failed to meet its primary endpoint in the Phase II/III GATSBY trial. This investigated the second line treatment of HER2-positive advanced gastric cancer. This set back the company as failed trials often lead to dips in stock price.

However, two years later, the company is hoping that it has a winner in its hands. This lead product everyone is talking about is Mirvertuximab soravtansine. Mirvertuximab soravtansine is an ADC targeting folate receptor alpha (FRa)-positive cancers including ovarian, endometrial, and other solid tumors. It is currently being studied in phase III study (FORWARD I), since enrolling patients in January 2017 as a monotherapy in platinum-resistant ovarian cancer. If upcoming test results come back positive, it is very likely the company will see a massive spike in value.

Here’s why this experimental treatment is so important. Analysts expect the market for ovarian cancer to quadruple by 2025 to $5.2 billion. This includes analysts’ expectations of $10 billion for Her+ breast cancer. Furthermore, the endometrial cancer is expected to reach $27 billion by 2023. In other words, ImmunoGen stands to own a treatment which is worth a whole lot of money if it is successful with its further trials. Since speculation so far based on reports is that ImmunoGen will succeed with FORWARD I trials, then one can see that a spike in value is possibly not too far off in the horizon.

Major Partnerships

Sanofi is a major player in the biotech industry and ImmunoGen has a well documented history of partnering with them. Recently, Sanofi and ImmunoGen reworked one of their deals which indicates a bright future for ImmunoGen. The deal is as follows. Sanofi obtains fully paid and exclusive license to develop, manufacture, and sell a series of experimental cancer compounds developed by ImmunoGen. These include several drugs such as Isatuximab, which is used for relapsed and refractory multiple myeloma. It also includes SAR566658, an ADC which targets CA6 for triple negative breast cancer. Lastly, Sanofi obtains SAR408701, an anti-CEACAM5 ADC targeting solid tumors.

In return for this range of high performance compounds, ImmunoGen receives a $30 million payment from Sanofi. The company has “agreed to forego a limited co-promotion option in the US with respect to the compounds covered by the 2003 agreement and future milestones or royalties under both license agreements”.

ImmunoGen has released statements regarding the reworking of the deal. “Amending these agreements allow us to continue to focus on the development of our lead program, mirvetuximab soravtansine, while advancing our earlier-stage portfolio and further strengthening ImmunoGen’s cash position”. This statement is important because it demonstrates ImmunoGen’s commitment to mirvetuximab soravtansine in FORWARD I testing. It also indicates that the company is giving the process every possible asset to help it succeed.

Another important point here is that ImmunoGen is aware that it has to have a strong cash position to keep operating. Often the downfall of many new biotech companies is the rate at which they burn through cash. Although ImmunoGen is no longer a new biotech company strictly speaking, it does have a record of burning through high amounts of cash. Hence, it is important that the company continues to strike deals to keep it alive and fully operational.

In this vein, ImmunoGen has deals with groups such as Debiopharm. Debiopharm received an anti-CD37 non-Hodgkin’s lymphoma candidate in return for $25 million up front. All these cash deals continue to strengthen ImmunoGen’s position and position it well to deal with mirvetuximab soravtansine’s possible success.

An Enthusiastic Outlook on the Future

Looking forward, ImmunoGen is poised to perform well over the next few months. In particular, ImmunoGen is releasing earnings on July 28th and investors believe that Q2 results will be positive. Zacks Equity Research expects ImmunoGen to beat expectations. This year, ImmunoGen’s shares have significantly outperformed the industry by gaining 189.2% so far. The industry has only experienced an increase of just 6.9% so far.

If ImmunoGen outperforms its expected earnings, then the company will experience a surge in stock price. Combined with the possibility of successful drug trial results, ImmunoGen is in a good position to see strong growth this year. Furthermore, the company also has many exciting projects lined up in its pipeline. Besides mirvetuximab soravtansine, ImmunoGen is working on developing a couple of other candidates, including IMGN779 and IMGN632. These have both shown fvorable tolerability and encouraging activity in patients. The drugs have demonstrated safe levels.

This strong pipeline combined with its lead product indicate that ImmunoGen is poised to have strong future growth. It is growth that various investors are currently excited about.

Conclusion:

Biotech is a dangerous industry to be in. However, when the correct indicators are available it can be a good opportunity to ride the stock up as the company grows. In the case of ImmunoGen, the combination of its leading compound with the smart cash on hand and future pipeline projects indicate growth. Investors can expect a possible spike on July 28th when earnings are released. If the company’s approach continues as is, then the stock will likely experience continue to grow. This is especially since prospects for its lead compound being tested look good.

Current I Know First Forecast for IMGN:

Below is the latest forecast I Know First algorithm released as of today on July 25, 2017. I Know First rates ImmunoGen as bullish. The stock rates extremely bullish with strong predictability and signal as seen below.