For a drug company with a product on the market, investors have to balance valuations in terms of sales of existing products with the development of new products that will drive future growth.
Source: Roche
ImmunoGen's (IMGN) valuation comes almost entirely from the latter. In its first fiscal quarter ending on September 30, the biotech received only $4.2 million in royalty payments from Roche for sales of the cancer drug Kadcyla.
Fortunately, the company's pipeline is fairly packed. ImmunoGen's partners have eight drugs in clinical trials using its antibody drug conjugate technology, and the biotech expects more to enter next year.
And there's potential for the royalty checks from Kadcyla to grow. Roche has two phase 3 clinical trials which will read out shortly and could expand the drug's use. MARIANNE, which is testing previously untreated patients with HER2-positive metastatic breast cancer, is set to read out by the end of 2014. Kadcyla is currently approved as a second-line treatment for breast cancer after patients have failed Herceptin and a taxane. Next year data is expected from a trial dubbed GATSBY, testing the drug as a second-line treatment for advanced HER2-positive gastric cancer. If either clinical trial is positive, Roche would ask regulators to approve Kadcyla for the expanded indications next year.
ImmunoGen also has three wholly owned drugs in the clinic and expects to file an Investigational New Drug application, a prerequisite for running clinical trials, for IMGN779 in the second half of next year.
The biotech's lead compound, IMGN853, is in an expanded phase 1 trial for ovarian and endometrial cancers. In that trial, the company is dosing the drug once every three weeks, but has another trial testing weekly dosing to see if that helps alleviate side effects. In the middle of next year, both trials should have enough data for ImmunoGen to know how to proceed further.
We'll get to see data for IMGN529, which is designed to treat B-cell malignancies, including non-Hodgkin lymphoma, at the American Society of Hematology annual meeting in December. InnunoGen is still trying to find the maximum tolerated dose for IMGN529, but should be able to start testing efficacy next year. Given the large number of drugs to treat B-cell malignancies, ImmunoGen will probably try to combine IMGN529 with other drugs to increase the response rate so it doesn't have to compete directly with established drugs.
Further back there's IMGN289, which is still in the dose finding stage. The drug targets EGFR, a popular pathway to target, so look for ImmunoGen to go after tumor types that have unmet clinical need.
ImmunoGen used $19 million of its cash on operations in its first fiscal quarter and expects to burn another $36 million to $41 million over the next three quarters. With over $120 million in the bank, the company has plenty of cash to get its lead programs through proof of concept.
At that point, the company will need to make a choice to either partner out one or more of its drugs -- perhaps licensing international rights, but retaining U.S. rights -- or raise funds through a secondary offering. If the proof of concept studies are successful, the company's valuation would presumably be higher, especially if Roche expands sales of Kadcyla, so the dilution won't hurt as much.
