ImmunoGen, Inc.'s Earnings Play the Amortization Blues

ImmunoGen (IMGN) released earnings for its second fiscal quarter on Friday, but with the lack of any meaningful revenue, it was the update on its pipeline investors should be most interested in.

ImmunoGen results: The raw numbers

What happened with ImmunoGen this quarter?

• Don't freak out about ImmunoGen going from a profit to a loss; the year-ago profit is just an accounting issue. In that quarter, two of ImmunoGen's partners, Novartis (NVS -0.55%) and Eli Lilly (LLY -0.64%), took licenses on drugs developed using ImmunoGen's ADC technology. Novartis and Eli Lilly had already paid upfront fees for the rights, but the upfront fees get amortized over the life of the project. Then when Novartis and Eli Lilly took action on the licenses, the remaining upfront fees get registered as revenue. The most recent quarter only had one such event from Takeda.
• In November, ImmunoGen gave an update on its ovarian cancer drug mirvetuximab soravtansine, showing that the drug was able to help 35% of patients with tumors that expressed FRalpha, the drug's target.
• The company began enrolling patients in a phase 2 trial dubbed FORWARD 1, testing mirvetuximab soravtansine in ovarian cancer patients that have failed three or four regimens. If positive, the trial could be enough to gain accelerated approval from the FDA given the unmet need.
• Mirvetuximab soravtansine is also in another trial -- dubbed FORWARD 2 -- testing the drug in combination with other oncology drugs.
• ImmunoGen's partner Bayer started a phase 2 trial for anetumab ravtansine, triggering a $10 million milestone payment.

What management had to say
Even though ImmunoGen sold its royalty rights to Kadcyla, the company is keeping track of the potential expansion of the drug's label by Roche because it can keep 85% of the royalties after they reach a cumulative milestone, either $235 million or $260 million, depending on timing.

Daniel Junius, ImmunoGen's president and CEO, explained:

Roche expects data from their neoadjuvant trial, KRISTINE, to be reported this year, and if positive, to bring the findings to regulatory authorities for potential filing in 2016. As you recall, KRISTINE is one of several Roche trials assessing Kadcyla in an early breast cancer testing and compares a Perjeta-Kadcyla regimen to a Perjeta-Herceptin regimen.

Given that the company is a ways from being cash-flow positive, investors have to keep an eye on its nest egg. CFO Dave Johnston says investors have nothing to worry about, "We expect to end our fiscal year with between $165 million and $170 million in cash. Our cash position is strong, allowing us to aggressively invest in advancing our portfolio of product candidates led by mirvetuximab soravtansine."

Looking forward
The readout for FORWARD 1 is ImmunoGen's most important upcoming event because it's the quickest way for ImmunoGen to get its first wholly owned drug on the market.

But investors should keep an eye on drugs that are further back in the pipeline that can add a little value now -- and hopefully revenue later. Phase 2 trials for two blood cancer drugs, IMGN529 and coltuximab ravtansine, are expected to start "early this year" and the second half of the year, respectively.

A phase 1 trial testing IMGN779 for the treatment of acute myeloid leukemia is expected to start in the first half of the year. While it's an early trial, IMGN779 is worth keeping an eye on because it uses a new tumor-killing agent developed by ImmunoGen. If successful, we could see it incorporated into future ADC molecules, both those developed internally and as licenses to partners.