The Big Reason ImmunoGen, Inc. Shed 24% of Its Value in October

11/8/17

By Sean Williams, Motley Fool

What happened

Shares of ImmunoGen (NASDAQ:IMGN), a small-cap biotech company focused on the development of antibody-drug conjugates for the treatment of cancer, plunged 24% in October, according to data from S&P Global Market Intelligence. The culprit for ImmunoGen's miserable month looks to be none other than a common stock offering.

So what

On Oct. 11, ImmunoGen announced that it generated $108.4 million in gross proceeds by selling 16,675,000 shares of its common stock, which included a 2,175,000 share option that was fully exercised by the underwriters of the offering. The price of the stock offering, $6.50 a share, was 15% below where the company began the month.

A businessman holding a for sale sign.

IMAGE SOURCE: GETTY IMAGES.

Why sell shares, you wonder? It's unfortunately a necessary evil for most biotech companies, because many, like ImmunoGen, aren't profitable. ImmunoGen's share price had run up by 275% through September, year-to-date, so selling shares was a quick way to take advantage of these gains and bolster the company's balance sheet.

According to the press release, the company plans to use the net proceeds to fund research and development, as well as the manufacturing and supply of already approved therapies. The company believes it has enough cash on hand to fund its operations through 2019.

Even more recently, ImmunoGen took a second slug to the stomach. Just days ago, it reported a 10% increase in sales for the third quarter to $8.5 million, as well as a $57 million loss, or $0.61 per share, which was exacerbated by a $22 million charge tied to a debt conversion. Both figures widely missed the mark, with Wall Street calling for $26.1 million in sales and a narrower loss of $0.21 per share.

A person holding a puzzle piece with a question mark drawn on it.

IMAGE SOURCE: GETTY IMAGES.

Now what

Despite the rough quarter and the need to sell common stock to shore up its balance sheet, investors would be wise to keep their eyes on the prize, which in this case represents the topline results for the Forward I study involving lead drug mirvetuximab soravtansine. In early stage studies in folate receptor alpha-positive ovarian-cancer patients, mirvetuximab soravtansine shined, but we're also talking about a relatively small subset of the company's broader phase 1 study. The fact that ImmunoGen is choosing to focus on such a small but seemingly effective subset is a risk.

If the risk pays off, not only will ImmunoGen pad its production portfolio with another approved drug, but it would signal to larger peers that it has an effective antibody-drug conjugate development platform. That could entice licensing and partnering with ImmunoGen, which would provide the potential for upfront or milestone cash.

While ImmunoGen has a substantial pipeline in the works, I'd suggest sticking to the sidelines until we have the Forward I readout. Having lost wholly owned experimental therapies to clinical failures before, it's possible Wall Street may not be as forgiving if ImmunoGen swings and misses this time around.

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