News and Comments


Prohost Biotech - Friday, November 02, 2012

Before we comment on what some ImmunoGen’s (IMGN) shareholders’ believe was a staged, premeditated assault on the firm during the question and answer segment of the firm’s financial conference call, we decided to revisit with the recorded session. ImmunoGen reminded its shareholders and the analysts about the advantages of its conjugated monoclonal antibody Trastuzumab emtansin (T-DM1) over the use of (Herceptin alone in all HER2+ metastatic breast cancer patients. Various trial results demonstrated T-DM1 significantly improved both overall survival and progression-free survival of HER2+ metastatic breast cancer patients with fewer adverse events than Herceptin. These results were the basis of the NDA submitted to the FDA and the European Medicinal Agency in August 2012.

ImmunoGen acknowledged the following:

- The drug approval in the U.S. is expected in late 2012, or early 2013; The European approval will come up later in 2013.

- The approval could open T-DM1 to all of the HER2+ metastatic breast cancer patients previously treated with Herceptin.

- T-DM1 will also be given to some first-line patients in the metastatic setting, as well as all second-line metastatic patients.

- The approval for the rest of HER2+ metastatic breast cancer is pending data from the ongoing MARIANNE clinical trials, which is expected in 2013. 

- The registration trials for early-stage breast cancer, include: Adjuvant, neoadjuvant and patients with residual invasive disease are on track. Data, for the neoadjuvant patients are expected in 2015.

T-DM1 is being developed for all Herceptin key usage today plus additional uses. For the sake of knowledge, Herceptin is approved for first-line treatment of metastatic disease and for adjuvant use in patients with high-risk disease (patients who are node positive).

T-DM1 additional uses include:

- Patients who previously received Herceptin - a new indication.

- Early-stage disease,

  - Neoadjuvant use and use on Patients for invasive disease following surgery - two new markets.

This summary is important as it confirms that the T-DM1 market will be much larger than Herceptin's market.

T-DM1 is not priced yet. However, it is not difficult to speculate that T-DM1 will be priced at a premium to Herceptin based on Roche’s comments and on Roche’s pricing of its recently approved drug Perjeta (pertuzumab), which is $5900 a month vs. $4500 for Herceptin. The product would be probably priced above the recently approved pertuzumab’s price, or at least at its same price, which is $1400 a month higher than Herceptin price.

In addition, T-DM1 will likely be given for longer periods than Herceptin especially in the metastatic group. This conclusion was made based on data from the Phase 2 first-line study as patients were on T-DM1 a median of 10 months versus 8.1 months for the Herceptin. All of the aspects speak to significant commercial potential for T-DM1.

In conclusion, the sales revenues of T-DM1 are expected to be higher than Herceptin current sales,which are around $5.6 to $6.02 billion/year.

Regarding ROYALTY, ImmunoGen has a minimum of 10 years and a maximum of 12 years in each country. In the three major markets, i.e., the U.S., Europe and Japan, ImmunoGen expects full twelve years of  royalty payments.

The actual royalty rate is based on the level of annual sales in the U.S. as one territory and the rest of the world as a second territory.    

The firm will receive royalty rates as follows:

$250 million in sales: The royalty rate is 3%.

$250 million up to $400 million in sales: The royalty rate is 3.5%,

Above $400 million up to $700 million in sales: The royalty rate is 4%

Sales above $700 dollars: The royalty rate is 5%.

In a country that the firm has no intellectual property (IP), the royalty level would be 2%. However, ImmunoGen believes it is in good shape in all of the major markets.

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Trying to get the precise revenues ImmunoGen would generate from the royalties on the sales of T-DM1, the analysts took a relatively large part of the Q&A session asking exhausting questions, reaching the minutest details about the royalty percentages in spite of the fact that the firm had explained and continued to do the same with greatest details. The angry shareholders categorized the reiterated wide-ranging questions as prosecutorial. “It looked as if analysts were questioning the firm, rather than trying to figure out the amount of royalty Immunogen would generate from T-DM1 sales”, an angry caller said.

“Did analysts need to ask all these questions in order to know the amount of revenues the firm would generate from T-DM1 sales? They surely know that Herceptin generates around $6.2 B in revenues. They recognize that Roche’s intention is to replace Herceptin with T-DM knowing in fact that Herceptin’s patents in the U.S. and Europe are due to expire in a two to three years. They are surely aware that T-DM1 works when Herceptin stops working in recurrent HER 2 breast cancer at least, which would add to T-DM1 revenues.”

After a moment of silence the man added, “They didn’t have to make a show out of the various percentages because they know well the drug will sell for more than the $6.2 billion, which Herceptin is generating. As the bulk of sales comes from the three big markets, the U.S., the European and the Japanese, it must have have been obvious to them that the drug will sell much more than $700 million in each of these markets, especially in the U.S. and Europe, guaranteeing the maximum royalty in the major markets.”          

Whether it was meant or not, the questions that were not followed by any clear remarks by analysts left investors with a negative feeling about the firm. Feeling only is what investors have gotten.  Impression has been, indeed, the sole basis for their selling, or shorting the stock. Giving a detailed accurate answer to each and every question didn’t help ImmunoGen erase the doubt from investors’ minds. There are limitations to what firms have to say, especially when it comes to speculation about sales numbers of a drug that has yet to be approved.  

On the other hand, it is analysts’ duty to do whatever it takes to get to the deepest details of the basis of their expectations. In this case, however, all investors have gotten was an impulse, bringing nothing but negative feeling about ImmunoGen, nothing else. They sold the stock without asking for explanation, or questioning the reasonableness behind their own skepticism. Adding fuel to fire was that during the whole session, no analysts praised the firm on its success in perfecting a technology that no other small or large drug developer has been able to accomplish in spite of the huge efforts and money spent for years by dozens of small and large firms towards producing one. Only another small firm, Seattle Genetics (SGEN), has succeeded in developing an equal technology and in providing proof of concept, through getting FDA and a European approvals on the first cancer drug based on a similar technology. 

Moreover, no analyst in the session has acknowledged the value of the proof of concept following the approval of the firm’s first drug.

In this respect, in its introduction, ImmunoGen said, 

“ We are excited about T-DM1. We think that it can make a significant difference for cancer patients. We’re very proud of the technology. In the mean time, we believe it will be a very successful product that will provide ImmunoGen with substantial royalty income for many years to come. It is however, by no means, the only value driver for the companyWe have wholly-owned compounds in clinical testing and expect to advance our fourth into the clinic next year. Our proven technology is used in these compounds and in many other partnered compounds in clinical and preclinical development by our partners.”

What the firm said seems to have gone with the wind. None of the analysts congratulated the technology that promises saving lives of HER2 breast cancer patients, especially those whose cancers recurred, or metastasized sometime following Herceptin treatment. 

None of the analysts attending the session wished the firm success of its proprietary treatments and partnered treatments, in addition to bringing hope to HER2 patients who had lost hope prior to joining clinical trials with T-DM1. 

ImmunoGen's wholly owned TAP drugs are:

1. Lorvotuzumab mertansine (IMGN901) is a CD56-targeting TAP compound - a potential new treatment for small-cell lung cancer and other cancers that express CD56. NORTH – a phase 2 study for patients with extensive small-cell lung cancer is enrolling patients in 33 centers across the U.S., Canada, Spain, and the UK, Data announced earlier this year revealed that the drug can be administered in combination with etoposide/carboplatin at the dose established when assessed as monotherapy. This is important because indicates a lack of added toxicity, when combined with the existing first-line therapy for extensive small-cell cancer. Equally important is that etoposide/carboplatin were able to be administered at standard doses.

IMGN901 has demonstrated activity in spite of the fact that the patient population in the study was not the firm’s target patient population for the drug. Among others, the firm didn’t limit the population to small-cell lung cancer patients. Also, the patients did not even need to express the target of CD56. So it was a very heterogeneous patient population and it’s not reflective of the target patient population for the Phase 2.

The results were very encouraging in the few small-cell lung cancer cases.  

For multiple myeloma, IMGN901 is being assessed in combination with Revlimid and dexamethasone on patients who have previously been treated with the standard of care. Phase I data on the single-arm  study of 901 in combination with REVLIMID and dexamethasone for multiple myeloma patients will be announced at ASH in December. The data from the combination study can add value to IMGN901 if and when ImmunoGen decides to select a partner.

2. IMGN853, which targets the folate receptor 1 is intended for ovarian and non-small cell lung cancers.  Data from several dose escalation trials is expected in 2013.

3. IMGN529: The antibody in this TAP drug targets CD37 for patients with Non-Hodgkin’s Lymphoma. In preclinical trials, the activity of the antibody was at the same level of Rituxan’s activity. Rendering the antibody targeting C37 safer and more effective with the firm’s TAP technology as it did with Herceptin will be huge.

Partnered pipeline:

In addition to TDM-1, there are seven compounds in this pipeline - all are in clinical trials. Theannouncement of data from these trials is expected for most if not all of them over the course of 2013. These would include the Phase 2 data on the Sanofi compound that targets the CD19, andSAR3419s three phase 2 ongoing studies. Several partners have begun to prepare for advancement into pivotal testing.


The firm has cash and cash equivalents between $172 million and $176 million. The firm believes this cash combined with the expected cash inflows from royalties and other revenue sources is enough to fund the firm’s activities through 2015 fiscal year.  

A Final Word:

The one thing analysts should not have done is demean ImmunoGen through insinuating that it has signed a bad agreement with Genentech (Roche). ImmunoGen’s great technology was not the work of a few months, or a year, but several years during, which time, the analysts refused to understand the value of this technology. They kept hammering the firm, basing their evaluation of its worth based on the amount of money it spent towards achieving the very difficult great goal, which many firms have failed to achieve. They always stopped short of admitting the greatness of ImmunoGen's TAP technology and its impact on saving lives. Providing proof of concept for TAP through its huge success in rendering Herceptin effective in cases when it was not will definitel open the door for the technology to improve the safety and efficacy of many approved and investigational monoclonal antibodies. Many antibodies are now used in the treatment of various cancers in different organs and most need improved safety and efficacy that ImmunoGen's TAP technology can offer.   

ImmunoGen’s TAP technology is working. The firm's pipeline is full of drugs and its T-DM1 breast cancer drug will be approved. The firm’s agreement with Roche contributed a lot to the proof of concept of TAP and proof of efficacy and safety of T- DM1. It contributed to the huge xpansion of the market. With regard to the royaltyl, we believe it would reach between $210 million to $300 million/year. This estimation is based on several facts, including: 

The current revenues Herceptin is generating

The premium expected to be added over Herceptin’s price, 

The longer treatment duration expected for patients with recurrent metastatic HER2 breast cancers. 

This estimation was not based on the maximium 5% royalty, but on an average of 3.5%. Investors must realize that the royalties reimbursed are almost cost free, especially the cost of development, which is in the hundreds of millions of dollar, and the cost of marketing, which is a very expensive and extremely difficult task - a heavy load that a small firm cannot bare and should not bare, especially when it is a first drug born of a technology capable of breeding many many extremely safe and effective cancer drugs.  

We long ImmunoGen.   

FORWARD-LOOKING: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

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