Immunogen – Lost In Translation

It finally happened. Yesterday, Genentech announced that they made a “go” decision to advance T-DM1 into a phase III trial. Although no official announcement is out as of yet, Genentech’s President of Product Development, Sue Hellmann, left no doubt in her prepared remarks:

“Additionally, we recently made a Phase III go decision for T-DM1 in the second line setting and plan to initiate a study comparing TDM1 to a Capecitabine plus lapatinib combination in the first half of 2009.”

Evidently, this kind of decision has tremendous implications on Immunogen from a financial stand point, as it is now closer than ever to receiving sales royalties on sales of a product that can be in the market as early as 2010. This kind of move should also trigger a substantial milestone payment. The company has not disclosed the exact size of the payment, but based on the $5 million Immunogen received after T-DM1 entered phase II and remarks made by Immuogen’s CEO, this milestone payment should be in the $8-10 million range. There are also plenty of additional implications on Immunogen’s ability to attract more partners and  sign more licensing deals, which is equally important because it will increase the number of Immunogen’s  shots on goal and provide a non-dilutive source of funding.

Amazingly, Genentech’s announcement is still not translated into an upward move in Immunogen’s stock, but it seems inevitable given Genentech’s position in the biotech field, T-DM1’s huge addressable market and the great validation of Immunogen’s technology. Genentech’s decision is also a good sign with respect to the ongoing phase II trial to be presented at the San Antonio Breast Cancer conference this December, since Genentech has access to up to date unpublished efficacy data.  

Small biotechs such as Immunogen are highly risky in the short run, and normally trying to predict  short-term movement of these stocks  would be futile. Nevertheless, I believe that the imminent official press release Immunogen has to publish (since it is a material event) creates a window of opportunity for  risk-tolerant investors, as the way I see it, a near term jump is inevitable.  Regardless of market conditions, Genentech’s  decision to promote a drug based on Immunogen’s technology into a registration trial is one of the most meaningful events a development stage biotech can have, and meaningful fundamental events eventually translate into meaningful moves in the stock price.

Author is long IMGN & DNA

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