Why ImmunoGen’s Shares Had a Bad Reaction

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of ImmunoGen (Nasdaq: IMGN  ) slid almost 17% today, after its earnings report showed a larger-than-expected loss. An underwhelming licensing agreement with Roche (PINK: RHHBY.PK) for a potential breast cancer drug, also contributed to the decline.

So what: ImmunoGen's earnings came in at $4.1 million, but losses of $0.30 per share were $0.06 worse than the analyst consensus. Full-year forecasts still project the same $78 million to $82 million loss that the company originally offered in August.

ImmunoGen and Roche's combination development-stage breast cancer drug, T-DM1, was originally thought to be licensed to Roche at a 5% sales royalty rate. A disclosure filed today reported that the rate begins at 3%, only increasing to 5% if the drug generates over $700 million per year in sales. That prompted analysts to significantly lower their royalty estimates. Joel Sendek of Stifel Nicoulas dropped his estimated range from $2.4 million next year, and up to $176 million in 2018, to $300,000 and $126 million in the same time frame.

Now what: After the drop, ImmunoGen now trades at a new 52-week low, and its market cap has shrunk to less than $1 billion. However, ImmunoGen has four other major development-stage cancer drugs, as well as a few other compounds in various stages of development. A $50 million reduction in high-end potential revenue is, of course, a significant drop in T-DM1's value, so investors will now have to consider whether the company has any other compounds or partnerships in its pipeline that might make up for it.

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Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 26, 2012, at 8:13 PM, insidetrack22 wrote:

    Once FDA approves TDM-1 with Herceptin, IMGN with a FDA validated TDM-1 technology can begin forming multiple partnerships with multiple companies. Having TDM-1 FDA approved gives IMGN a very nice leverage to negotiate very attractive royalty/contract terms with future partners. Since TDM-1 has the potential to be combined with numerous compounds, there are no limits to IMGN TDM-1 potential revenue streams. Analyst can only value IMGN based on the Roche deal. However, at this point, analyst cannot even begin to appreciate or calculate the value of IMGN when IMGN fully capitalize on its FDA approved TDM-1 technology by forming multiple partners. With each new partnership, upfront payments can be received which can make up for the $50MM in a very short amount of time. Given that a FDA approval is expected very soon, IMGN price will be pop up just as fast as it came down.

  • Report this Comment On October 27, 2012, at 12:22 PM, insidetrack22 wrote:

    IMGN price drop is mostly due to a suprise in the details of IMGN/Roche royalty agreement. Since the details of the royalty structure was already in place for a long time, why was the details disclosed just prior to FDA anticipated approval of TDM-1 and not earlier. Also, part of the increased cost IMGN incurred is due to personnel compensation. It would be nice to hear from the CEO what exactly is the amount IMGN compensated to its personnel given the fact IMGN missed its earning estimates. For IMGN price to bounce back there needs to be 2 catalyst. The catalyst would be a FDA approval of TDM-1 (coming very soon) and investors looking beyond the valuing TDM-1 as a product. Long term investors should focus more on the value IMGN technology that made TDM-1 possible.

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