Wednesday July 01, 2009
"How does one go about investing in the antibody space?" asks biotech specialist John McCamant. In The Medical Technology Stock Letter, he eyes Immunogen (NASDAQ: IMGN).
"As background, T-DM1 is a second generation Herceptin that may even exceed the original in sales because the armed antibody has been more potent to date by showing effectiveness in mBC patients who have failed either Herceptin or Tykerb.
"The company will continue to benefit from Genetech's extensive antibody experience as they continue to run all development for Immunogen's T-DM1.
"In addition, the armed antibody companies can offer significant patent extensions for naked antibodies after they lose patent protection. This additional patent protection is a significant long-term value, especially given the very strong current and projected sales for naked antibodies.
"Companies will spend lots of money to protect/extend patents on blockbuster drugs. Thus, we believe that a premium buy-out from Roche or one of their competitors could happen in the next few years as antibodes become even more pervasive in the drug sector.
"Given the recent pull back in IMGN’s share price from the low $8 level to $7 after the stock's recent secondary offering -- the company sold 5,000,000 shares of its common stock at $7 per share raising $33 million -- we are raising our buy limit to $8 to reflect our growing confidence in the company and it’s significant long-term growth potential.
"While dilution is rarely positive, the fact that the company raised cash after the stock has almost doubled in price over the last year makes it much easier to digest. Additionally, IMGN has not raised cash in a very long time, making it that much more tolerable as they run a tight fiscal ship.
"With the offering out of the way, we expect more positive news flow either in the form of additional partnerships or more data on T-DM1 later in the year. We believe that T-DM1 is a potential blockbuster drug candidate that will provide the company with a very good revenue stream.
"Any other progress from the company’s pipeline would just be icing on the cake. In addition, any progress in the pipeline would probably trigger a buyer to try and buy them at a premium.
"With cancer antibodies expected to be the largest class of drugs, armed antibodies represent both better drugs and excellent patent extension vehicles. Overall, we believe that Immunogen is an undervalued antibody play. We rate the stock a buy under $8 with a target of $17."
