#t-dm1

[finotype-blog-blog]

IMGN Up

Immunogen (IMGN) skyrocketed last week (~30%) after the company announced PhII clinical data on their lead compound, T-DM1 (Trastuzumab emtansine, collaboration w/ Genentech), in HER2+ metastatic breast cancer. T-DM1 is Herceptin conjugated to IMGN's drug DM1 (emtansine). The drug is currently in a number of clinical trials, including two PhIII trials. The data released show a significant improvement in progression free survival (PFS) in the treatment arm vs. the control arm (trastuzumab + docetaxel) of the study. Preliminary data from this study were presented this past fall at ESMO (European Society of Medical Oncology) but the survival data and analysis were not available for presentation at that time.

This is good news for Genentech/Roche and very good news for IMGN. Approval of T-DM1 has the potential to significantly expand the lifetime of the Herceptin program and has the potential to further establish the field of antibody-drug conjugates (Targeted Antibody Payload - TAP - in Immunogen lingo). We recently shared our thoughts on Seattle Genetics (SGEN) and our belief in the potential (commercially and scientifically) of the company's 2nd-generation antibody technology. The same goes for IMGN. Naked antibodies have revolutionized the pharmaceutical industry and caused a paradigm shift in therapeutic strategies for cancer and other diesaes. However, antibodies conjugates are theoretically superior (and as more and more data are showing, including IMGN's, clinical superior) to nakeds. This is in large-part due to the potency and specificity of the drug-conjugates, which should result in better efficacy and safety profiles than traditional chemotherapies or naked antibodies. SGEN and IMGN are the leaders in this space and we anticipate the approval of a drug from either company will be good for both companies.

IMGN's current stock success is a nice comeback from last August's issues and FDA delays. IMGN enjoyed a nice uptrend over the last month before last week's jump and the stock is up about 100% since last year's low. Such a good performance over a few months can push some medium-term investors to take their profits. Although IMGN has a lot of potential, a consolidation could happen over the next week. The next step is to watch for additional data clinical data or updates and follow FDA approval, watching the stock pre-decision to check if an approval is priced in.

Disclosure: one of us owns stock in SGEN and  in IMGN and we may add more.

This is not a solicitation to buy or sell securities. By using finotype.com (the Site) you agree to the statements made on the Site’s Disclaimer page. 

[jq1234t]

Negative News Without Change in Fundamental

There are 4 types of negative news in biotech: clinical trial failure, regulatory setback, partnership dissolution, commercial launch disappointment. While clinical trial failure is a game changer, not all other negative news, however, necessarily change the fundamental of the biotech company. Recently 3 biotech companies experienced negative news without changing the fundamental of the companies.

Exelixis (EXEL) On June 21, 2010, BMS returned XL184 rights to EXEL. XL184 are currently in phase III, II for different oncology indications. The reason BMS gave up the rights to XL184 according to EXEL was "Given the recent progress of BMS' wholly-owned oncology pipeline and positive data generated by XL184, Exelixis and BMS were not able to align on the scope, breadth and pace of the ongoing clinical development of XL184." EXEL presented extensive data from XL184 at ASCO2010 (http://www.exelixis.com/asco/2010). While the data were not earth shaking, but nevertheless positive. While this news is negative, EXEL stock dropped from $4.58 on June 18, 2010 to $3.84 on June 21, 2010, then drifted futher down to $3.12 on July 30, 2010 even though July was a spectacular month for stock market overall, it doesn't change the potential of XL184, and EXEL's 19 other candidates in pre-clinical and clinical development.

ImmunoGen (IMGN) on August 27, 2010, Roche received Refuse to File from FDA on T-DM1 BLA submission based on one single arm 110 patients study for 3rd line Metastatic Breast Cancer. Roche will submit new BLA in mid 2012 based on larger randomized phase III trial. While this news is negative, IMGN stock dropped from $8.39 on August 26, 2010 to $5.16 on August 27, 2010, then recovered to $5.51 on September 10, 2010, it doesn't change the potential of T-DM1, and IMGN's ADC technology platform.

Celldex (CLDX) on Spetember 3, 2010, PFE returned CDX110 rights to CLDX. CDX110 is currently in Phase II clinical trial for GBM. The reason PFE gave up the rights to CDX110 according to CLDX was "rindopepimut program is no longer a strategic priority of Pfizer". PFE presented CDX110 promising interim data at ASCO2010 that are consistent with previous phase II trials (http://www.celldextherapeutics.com/wt/page/sci_articles). While the news is negative, CLDX stock dropped from $4.78 on September 2, 2010 to $3.53 on September 3, 2010, then stayed flat at $3.49 on September 10, 2010, it doesn't change the potential of CDX110, and CLDX's promising vaccine and ADC candidates.

After initial sharp drop in stock price, it is difficult to predict where the stock will go in short term (1-6 months) without immediate catalysts. Since the fundamental didn't change in the long term (6+ months), one strategy to mitigate this uncertainty is to sell slightly in-the-money put or out-of-the-money put 6-month into the future. If the stock price recovers or stays flat but above strike price, you can benefit from retaining the put premium sold; if the stock price drops below strike price, you will be assigned the stock at essential strike price minus option premium but well below stock price when the news was announced. In case of IMGN, the stock dropped to $5 range, you could either sell out-of-the-money APR2011 $5 put for $1.1 or APR2011 $4 put for $0.65 on August 27, 2010. If the stock price drops below $5 or $4, you will effectively buy the stock at $3.9, $3.35 respectively. Which strike price you choose ($5 or $4), and how far into the future, it depends on your risk tolerance. The higher the strike price, the higher the risk, thus higher potential return as well.

Posted on Sept. 10, 2010