Wednesday, October 22, 2008

Marcial: ImmunoGen Attracts Big Pharma

Marcial: ImmunoGen Attracts Big Pharma

A lot of investors probably haven't heard of tiny biotech company ImmunoGen (IMGN), but the Street and Big Pharma know it well. The five stock analysts who follow ImmunoGen all recommend buying its shares. And six large drugmakers, including Bayer (BAYRY), Genentech (DNA), Amgen (AMGN), and Sanofi Aventis (SNY), have entered into partnerships with ImmunoGen. That's especially noteworthy: Partnerships in the biotech world sometimes lead to deeper relationships, often culminating in mergers or acquisitions.

In ImmunoGen's case, there is increasing interest in its program to develop cancer therapeutics using its proprietary tumor-activated prodrug (TAP) technology platform, which combines therapeutic proteins called monoclonal antibodies with highly potent molecules to selectively target and kill tumor cells.

The Bayer HealthCare unit is the latest to link up with ImmunoGen. On Oct. 21, Bayer signed a deal to license worldwide rights to ImmuoGen's TAP technology, paying $4 million up front. ImmunoGen could receive up to $170.5 million in milestone payments from Bayer for products developed under the licensing agreement, plus royalties on sales.

Debt-Free Balance Sheet

Bayer's move "continues to validate the importance and demand for TAP," says Pamela Bassett, health-care analyst at investment firm Cantor Fitzgerald. Bassett rates the stock, now trading at 4.06 a share, a buy and expects it to double in a year.

"We are impressed that ImmunoGen could negotiate such terms, which are far superior to the $30 [million] to $40 million milestone terms that we are historically accustomed to," says Shiv Kapoor, biotech analyst at investment firm Morgan Joseph, who also rates the stock a buy. The higher payout is a "validation that the value of ImmunoGen's technology has vastly improved with recent clinical successes," says Kapoor.

Analysts believe the company could become a big player in cancer drugs. With its debt-free balance sheet, a solid business model, and a number of drug candidates emanating from its TAP technology platform now in clinical trials (with more on the way), "ImmunoGen is poised to play a meaningful role in the battle against cancer for years to come," says Brian Rye, biotech analyst at investment firm Janney Montgomery Scott, who also recommends buying the shares. (Janney may seek compensation for investment banking services from ImmunoGen in the next three months.)

Of ImmunoGen's many partnerships, the one with Genentech may be the most significant. On Oct. 14, Genentech announced it has decided to go ahead with a phase III clinical trial to study trastuzumab-DM1 (T-DM1), which links Genetech's trastuzumab antibody to ImmunoGen's cell-killing agent, DM1, as a second-line treatment for the particularly aggressive HER-2 metastatic breast cancer. The first patient for the trial will be enrolled in early 2009. Genentech has already begun enrolling patients in two previously disclosed phase II studies involving T-DM1.

Genentech Boost

Cantor Fitzgerald's Bassett says that since Genentech is the leading monoclonal antibody company, its participation in ImmunoGen's TAP platform indicates that conjugated (attached) antibodies could become important next-generation monoclonal antibody therapeutics. Because Genentech is the leader in this field—and therefore an indicator of where opportunities are and which companies own leading technologies—its partnership with the company focuses attention on ImmunoGen's potential role in cancer therapeutics, she says. "To be a part of Genentech's quest for added drugs against cancer is a huge thing," says Bassett.

Morgan Joseph's Kapoor notes that Genentech's plans to study ImmunoGen's T-DM1 drug for breast cancer could help lead to its approval in the U.S. He expects to see data from around 120 patients from the ongoing phase II studies evaluating T-DM1 in December at the San Antonio Breast Cancer Symposium. Interim data from those studies reported in September were "positive," he notes. In the next two to three years, Kapoor figures, ImmunoGen's partnered programs will burgeon at little, if any, additional cost to the company.

Bassett says the proprietary and partnered drugs in ImmunoGen's pipeline—eight product candidates in clinical trials with six big partners—should produce several positive near-term events that could propel its stock to much higher levels. She points to the fact that 50% of the products in Sanofi's oncology portfolio are licensed from ImmunoGen.

Indeed, it appears big drugmakers are betting that with ImmunoGen they could produce a blockbuster product over the next few years.

Unless otherwise noted, neither the sources cited in Gene Marcial's Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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