There's good news and bad news for ImmunoGen (NASDAQ: IMGN) shareholders. The good news is that the biotech stock is up more than 230% so far in 2017. The bad news? Shares have dropped nearly 20% in the last couple of weeks.
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Certainly, ImmunoGen's tremendous performance this year outweighs its recent decline. But is ImmunoGen now running out of steam -- or is it just taking a breather?
What drove ImmunoGen higher
ImmunoGen stock started off the year with a nice pop after announcing positive results from a phase 1 study of mirvetuximab soravtansine (IMGN853) in treating ovarian cancer. However, the stock really soared in late February, seemingly on no news at all.
Investors appeared to be pushing ImmunoGen shares higher in anticipation of solid results from a biopsy expansion cohort in the biotech's phase 1 study of mirvetuximab soravtansine. That anticipation was rewarded when ImmunoGen provided an encouraging update from the study at the Society of Gynecologic Oncology meeting in March. The data presented by ImmunoGen boosted investors' confidence in the pivotal late-stage study for the experimental drug.
The stock pulled back in early April after the glow faded from the results presented a few weeks earlier. However, ImmonoGen received another huge boost in the middle of April thanks to an analyst's upgrade and hefty price target for the stock.
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By mid-May, ImmunoGen's market cap had already doubled from where it stood at the beginning of 2017. Things would only get better. The stock went on a tear in the second half of May after Leerink analyst Michael Schmidt raised his price target for ImmunoGen from $8 per share to $11 per share.
The stock slumped yet again in July as the euphoria wore off and some investors took profits. However, ImmunoGen was the bearer of even more good news in August. The company announced a strategic collaboration and option agreement with Jazz Pharmaceuticals (NASDAQ: JAZZ) that included two early stage antibody-drug conjugate (ADC) programs. ImmunoGen received a $75 million upfront payment as part of the deal and $100 million over seven years to support clinical studies. If Jazz exercises its option for either program, ImmunoGen stands to receive another payment of "mid-double digit millions or low triple digit millions" plus milestone payments and tiered royalties on any sales.
What caused the drop
After all of the excitement, ImmunoGen stock had quadrupled by late August. But that's when the latest drop began. What happened?
ImmunoGen did what many small biotechs do after their stocks shoot up: It issued new shares. Instead of another public stock offering, though, the company took the approach of exchanging some of its 4.5% convertible senior notes due in 2021 for stock.
This move made sense for ImmunoGen. By swapping the notes for stock before the maturity date, the company reduced its interest expense. However, the value of ImmunoGen's existing shares were diluted because of the newly created shares, causing the stock to fall. Thus far, ImmunoGen stock has dropped around what you'd expect it to do based on the level of dilution the issuing of new shares creates. But could this drop be the beginning of ImmunoGen losing its tremendous momentum?
Just a breather?
There are two reasons to think that ImmunoGen's recent stock decline is only temporary rather than long-lasting. First, the reason for the decline shouldn't be scary for investors. This kind of thing happens all the time and in no way reflects negatively on ImmunoGen's future prospects. Second, the pattern for ImmunoGen's share price has been to bounce back even stronger after each pullback. There's no reason at this point to think that pattern will change.
ImmunoGen shouldn't have to go back to the well to raise more cash in the immediate future. The company thinks that its current cash position of $150 million plus revenue from partners and collaborators will allow it to fund operations into the second half of 2018.
The real key for ImmunoGen, though, will be its pivotal late-stage study for mirvetuximab soravtansine in treating ovarian cancer. ImmunoGen is currently enrolling patients in this study and is on track for a futility analysis in the first half of next year. If there are significant problems with the study, ImmunoGen stock won't just run out of steam -- it will be steamrollered. But if things go well, ImmunoGen's current pullback will only be a breather that leads to much larger gains.
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