Why ImmunoGen Inc. Pulled Back Today

MarketsMotley Fool

What happened

Last week's boost from an analyst at H.C. Wainwright was short-lived, with ImmunoGen (NASDAQ: IMGN) closing down 12.6% today on no obvious news.

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So what

It shouldn't come as much surprise that the valuation would retreat after it was boosted by an analyst initiating coverage. Just because someone says the biotech is worth $18 per share doesn't actually make it worth that much -- or even more than it was the day before.

These price targets are typically determined by probability of success. For example, if there's a 50% chance of the stock being worth $36 after a positive clinical trial result, it's worth about $18 now. That probability, however, is just an educated guess and investors still have to be willing to wait for the binary event.

In ImmunoGen's case, the major share-moving event -- results from the Forward I trial testing mirvetuximab in patients with ovarian cancer -- isn't due out until the first half of 2019. That's a long time to wait for the plethora of traders who jump in and out of ImmunoGen at the drop of a hat.

Now what

ImmunoGen is scheduled to release earnings on Friday, but after selling off royalties it receives from Roche for breast cancer drug Kadcyla, there shouldn't be much in the numbers to watch other than the biotech's remaining cash and its burn rate -- although there shouldn't be any surprises there. At its third-quarter earnings report, management said the company had a two-year runway, giving it enough time to get through the Forward I readout.

While Forward I is the easiest way for ImunoGen to get mirvetuximab approved, the company is also testing the drug in combination with other drugs in a mid-stage trial called Forward II. Positive data from that trial, which is scheduled to be released in March (for the mirvetuximab and Keytruda combination), and June (for the mirvetuximab and Avastin combination), could help boost ImmunoGen's stock price if the data convinces investors to increase their probability-of-success calculations.

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Brian Orelli has no position in any of the stocks mentioned. The Motley Fool recommends ImmunoGen. The Motley Fool has a disclosure policy.

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