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What: Shares of ImmunoGen (IMGN +0.00%), a small-cap biotech company best known for the development of antibody-drug conjugates to treat various types of cancer, shed another 10% in July, according to data from S&P Global Market Intelligence, after nosediving 45% in June. Two lingering issues appear to be the culprit for ImmunoGen's precipitous tumble.
So what: First, ImmunoGen can't seem to overcome the negatives surrounding its mid-June pricing of $100 million in convertible senior notes, which mature in July 2021. The offering generated valuable capital for ImmunoGen to run its numerous clinical studies, but it came at a steep price for shareholders. In addition to paying 4.5% annually beginning in 2017, these notes are convertible, meaning noteholders could potentially cash their bonds in for shares of ImmunoGen stock. The initial conversion price on such a move is $4.19. Doing so could balloon ImmunoGen's share count and dilute existing shareholders.
The other issue for ImmunoGen arose during the spring, when it amended its FORWARD I trial for leading experimental cancer drug mirvetuximab soravtansine, a potential treatment for folate receptor alpha-positive ovarian cancer. Originally, ImmunoGen was going to run two separate phase 2 studies, but it has instead chosen to run a single phase 3 study, placing its bets on a single subset of patients that showed promising results in phase 1 trials. This subset would get mirvetuximab soravtansine a potentially larger market than initially expected, but risking its fate on a subset from phase 1 studies is a risky move. Investors are clearly worried that ImmunoGen's leading experimental compound could disappoint.
Image source: ImmunoGen.
Now what: On one hand, ImmunoGen's sheer number of partners is impressive for a company its size. It has nine development partners, as well as drugs it's developing in-house. These collaborations offer capital-generating opportunities vis-a-vis milestone payments. Let's not forget that ImmunoGen and Roche also have Kadcyla on pharmacy shelves to treat HER2-positive metastatic second-line breast cancer. ImmunoGen has demonstrated that it can take a drug from concept to market, which could very well be attractive to a larger suitor or simply additional collaborative partners.
On the other hand, ImmunoGen's pipeline seems to be hanging on by a thread, financially. There are a host of early and midstage studies ongoing, but nothing that appears capable of really supplementing ImmunoGen's revenue stream for years to come, with the exception of unpredictable milestone payments from time to time. Without any near-term sales consistency, investors appear to have simply decided to park their money elsewhere.
So what should you do? First, you need to realize that ImmunoGen is an investment for only the most risk tolerant investors. Secondly, you have to understand that the timeframe on a turnaround could easily be three years, if not more. Finally, you have to decide whether ImmunoGen's drug platform and partnerships outweigh expected share dilution and ongoing losses. Personally, I remain hopeful for a turnaround for ImmunoGen, but don't anticipate a move higher for fundamental reasons anytime soon.
