It wasn't exactly a game of "Simon Says," but it came close. Analyst Simos Simeonidis with Cowen & Co. initiated coverage on biotech company ImmunoGen (Nasdaq: IMGN ) on Wednesday. Simos said, "Outperform." And ImmunoGen's stock obeyed, rising around 3%.
This game prompted me to ponder about the events that transpired. And I have formed an opinion: Mr. Market has attention deficit hyperactivity disorder.
Legendary investor Benjamin Graham introduced Mr. Market to the investing world in his classic book The Intelligent Investor. Graham noted that Mr. Market exhibits manic-depressive tendencies. Sometimes he is euphoric and pays high prices because of his enthusiasm. At other times, Mr. Market is depressed and sells at ridiculously low prices because of his despondency.
After the events with ImmunoGen, I suspect Mr. Market also has ADHD. One key symptom of ADHD is difficulty paying attention.
Alongside his rating of outperform, Simeonidis stated that ImmunoGen has several other promising drug candidates in addition to its trastuzumab emtansine (or T-DM1) breast cancer treatment. He forecast strong sales of T-DM1 based on an expected approval by the FDA in mid-2013. Simeonidis also said that the current valuation of ImmunoGen doesn't reflect the potential for other cancer drugs in the company's pipeline.
I don't really have serious problems with any of Simeonidis' statements. But they're old news. Mr. Market really should have been unaffected by this information had he been paying attention.
ImmunoGen isn't reluctant to discuss several promising drugs in its pipeline. The company counts ten compounds in clinical development that are based on its Targeted Antibody Payload technology.
Three of these TAP compounds are wholly owned by ImmunoGen. The others involve collaborative partners. Licenses to Amgen (Nasdaq: AMGN ) accounted for 33% of ImmunoGen's revenue for the nine months ending on March 31, 2012. Sanofi (NYSE: SNY ) made up 27% of revenue during this period. Licensing revenue from Novartis (NYSE: NVS ) kicked in another 14%.
ImmunoGen also entered into a new three-year right-to-test agreement with Eli Lilly (NYSE: LLY ) in December 2011. This deal brought in an upfront payment of $20 million with the potential for over $200 million in milestone payments plus royalties on any commercial sales of resulting products.
Mr. Market shouldn't have been surprised by the prospect of strong T-DM1 sales either. It is no secret that the drug, a collaboration between ImmunoGen and Roche's Genentech group, is well on its way toward obtaining regulatory approval. T-DM1 shows great promise in delaying tumor progression of metastatic breast cancer.
Simeonidis isn't the only analyst to think ImmunoGen is attractively valued. Six analysts covering the stock recommend it as a buy. The other three analysts place the stock as a hold. Mr. Market should have paid attention.
Another major symptom of ADHD is hyperactivity. I don't have Mr. Market's medical charts, but I have taken a look at the chart for his activity with ImmunoGen. Take a look for yourself.
Our patient wasn't too restless from the beginning of the year through May. Notice, though, that ImmunoGen shares shot up nearly 50% from May to early July. Then they fell nearly all the way down to earlier levels before bouncing back somewhat.
Why did this seemingly erratic behavior occur? Maybe it's partly because Mr. Market became overly excited about T-DM1 basking in the limelight at ASCO. He then experienced a major letdown on the news of ImmunoGen's announcement of a secondary share offering.
My diagnosis: Mr. Market is hyperactive when it comes to ImmunoGen.
Unfortunately, there aren't any medications powerful enough to fully address Mr. Market's ADHD. We can learn from his unfortunate malady, though.
Foolish investors can be attentive and focused on what is happening. We can remember the big picture about the underlying fundamentals for a given company. Just doing these two things will keep us from exhibiting ADHD investing symptoms. It will also enable us to profit when Mr. Market's ADHD surfaces.
Pay attention, remember, profit. Simon says -- or at least he should.
The team at The Motley Fool is definitely paying attention to what's going on around us -- even if Mr. Market isn't. Check out the Fool's new special report: "Middle-Class Millionaire-Makers: 3 Stocks Wall Street's Too Rich to Notice." Simon says to get your free copy now!