With ImmunoGen (IMGN) shares sliding by more than 39% in the past 12 months, its investors are bound to be looking for salvation. What's more, despite recent clinical trial results that management hailed as positive, the biotech's stock just might continue to struggle in the run-up to potential regulatory approval for its first therapy.
But does the combination of a recent pullback and positive, late-stage clinical data make ImmunoGen an attractive purchase for value-conscious investors? Not really, and here's why.
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Advanced drugs don't always make for a high-performing stock
ImmunoGen's specialty is developing antibody-drug conjugates (ADCs), which you can think of as especially complicated medicines that excel in delivering molecules with therapeutic effects to the precise physiological locations where they're needed most (in theory). The company doesn't have any products on the market yet, though it does have a few drug development collaborations that netted it $69.8 million last year.
Its lead program is called mirvetuximab, which is intended to treat ovarian cancer that's both resistant to platinum-based chemotherapy regimens and expresses a high level of a specific, disease-related biomarker. The company is investigating mirvetuximab in a trio of late-stage clinical trials, and it also has an earlier-stage project.
ImmunoGen reported on March 19 that one of the recently concluded phase 3 trials for the drug met its primary endpoint, with 32.4% of patients responding to treatment. Similarly, the trial results showed that people who responded to treatment continued to do so for a median of 6.9 months, which works out to be a median progression-free survival of 4.4 months.
If you think that the response rate or the progression-free survival time sounds a bit lower than would be expected for a "successful" drug trial, you aren't alone; the market's reaction to the results was quite negative. Its shares have fallen by more than 11% in the past month, which is likely due to investors pricing in the expectation of lower-than-initially-predicted uptake of mirvetuximab, assuming it gets approved.
Still, it's important to remember that people with treatment-resistant ovarian cancer don't have any options that are likely to be much better. Per the company, the drugs that constitute the existing standard of care can deliver a response rate of around 12%, so mirvetuximab's performance is a significant improvement.
But investors are right to wonder what the stock's future will look like if this is the market's response to a nominally successful trial. So far, the reaction to the March 29 announcement that ImmunoGen submitted its Biologics License Application (BLA) to the Food and Drug Administration (FDA) has been quite positive, with its stock rising by around 12% during the day.
This stock still isn't priced at a bargain
Given ImmunoGen's ongoing efforts to commercialize mirvetuximab, there's a solid chance that the company will eventually start to realize revenue from sales of the drug -- perhaps as soon as later this year. Therefore, if its shares are undervalued after its recent period of decline, bargain hunters might be able to grab them a discount.
Unfortunately, ImmunoGen is still valued quite expensively. Its price-to-sales (P/S) multiple is around 13, whereas the biotech industry's average clocks in at 5.6. That valuation might increase still further if mirvetuximab gets regulatory approval, but at this point, it's unlikely to get much cheaper unless there's an unexpected negative catalyst, such as poor results from a clinical trial. Similarly, it's hard to strongly advocate for investors to buy the stock right now.
The company only has $18.7 million in debt, and its hoard of $478.7 million in cash is considerable compared to 2021's total expenses of $194.9 million. Nonetheless, there are only an estimated 2,100 patients who are eligible to be treated with mirvetuximab annually under the indication that ImmunoGen is currently seeking. And of that small patient population, concerns about the drug's limited impact on survival time are likely to be weighed against its cost.
So, even if you're a typical biotech investor accustomed to facing long odds, this could still be a risky late-stage pick, so act accordingly. On the other hand, if you're a more conservative type or a discount-loving investor, you should definitely steer clear.
