Is Immunogen Helping to Build a 'Supercharged' Herceptin?

It’s that time of year again, between the annual AACR and ASCO meetings, where I begin to really analyze the up and comers among the smaller biotech companies reporting real clinical data. Don’t get me wrong, there’s a great deal of wonderfully exciting pre-clinical research going on as well, but this is the time when I start to think about what I’ve heard at AACR and what might be worth watching for and paying close attention to at the ASCO meeting. These meetings can often be signals for either a positive stock move in the second half of the year or signs the stock will stagnate with little impending news to move.

With that as background, I recently read a very exciting article by Luke Timmerman at Bloomberg that happened to focus on two companies I’ve followed for a long time: Genentech (DNA) and Immunogen (IMGN). Now, Genentech I’ll leave for another article; it’s a well-known company doing a great deal of exciting things. But Immunogen, I think, is less well-known, though probably not for long. Let me take a stab at why I think the company is ‘on the clock’ so to speak for a chance at stardom.

A quick bit of background on what Immunogen does. They are, essentially, an ADC (or TAP) company, ADC standing for Antibody-Drug Conjugate and TAP for Tumor-activated Prodrug. The gist is, you take an antibody that is expressed predominantly on a particular type (one or more) of cancer, you attach a very potent chemotherapeutic agent (in Immunogen’s case, this is usually a maytansinoid like DM1 or DM4). From Immunogen’s website:

ImmunoGen, Inc. develops targeted anticancer biopharmaceuticals. The Company\'s proprietary TAP technology uses tumor-targeting antibodies to deliver a potent cell-killing agent specifically to cancer cells. Two TAP compounds wholly owned by ImmunoGen are in clinical testing - huN901-DM1 and huC242-DM4. Three anticancer compounds are in clinical testing through ImmunoGen\'s collaborations with other companies - AVE9633 and AVE1642, in development by sanofi-aventis, and trastuzumab-DM1, in development by Genentech. Multiple compounds are in research/preclinical development.

You’ll see right away in that summary one of the things that makes Immunogen so intriguing, and that is it’s lineup of top-notch partners, including the aforementioned Genentech, as well as Sanofi-Aventis (SNY), Centocor, and others. Take a quick look at Immunogen’s current pipeline page before we turn back to what got us started here.

Again, a nice lineup of both clinical and preclinical opportunities, headlined, at least for me, by what’s innocuously labeled “Trastuzumab-DM1” (this does point out one of the company’s glaring faults, which is its inability to communicate well to the public what it does and what’s so exciting about it, making partner-driven news all the more important). Trastuzumab-DM1 would be far more recognized by its ‘street’ name, which is Herceptin-DM1. Got your attention now, right? People know Herceptin and they should; it’s Genentech’s blockbuster drug to treat breast cancer, doing over a billion in sales ($1.2 billion in 2006). That’s a very big drug. Now, here’s where things get exciting for Immunogen. From Timmerman’s article:

Genentech Inc., the world\'s second- largest biotechnology company, is testing a breast-cancer treatment that may add $1.5 billion in annual sales to its Herceptin drug business… The experimental therapy increased the effectiveness of Herceptin against drug-resistant cancer cells by linking the drug with chemical toxins… binds tumor- killing chemicals to Herceptin, causing fewer side effects by attacking cancer cells and mostly avoiding normal tissue.

According to Geoffrey Porges at Sanford Bernstein & Co., this ‘supercharged’ Herceptin could potentially allow Genentech to generate as much as 25% more annual sales than the original Herceptin. That’s a very big increase for an already huge drug.

So the question becomes, how is clinical testing (back where we started) on this drug going? Marc Tessier-Lavigne, head of drug discovery for Genentech, is quoted in Timmerman’s article saying that emerging data ‘has been positive’ and that in the first Phase I study of the drug, with 18 patients, the ‘supercharged Herceptin’ produced “sustained anti-tumor activity” at low doses, with minimal side effects, in multiple patients who had stopped responding to Herceptin and other drugs.

This is important. Somehow, this new Herceptin, in early testing, is getting response from patients for whom Herceptin (and other drugs) had stopped working. Somehow, this drug overcomes that resistance and brings much-needed hope to this very tough to treat patient population. THAT is very exciting news, both for cancer patients and investors alike. More data is expected to be reported on June 2, 2007 at the ASCO annual meeting. Genentech has also begun a second Phase I study of Herceptin-DM1 to study a different dosing schedule and ascertain the most effective administration schedule for this drug before deciding, sometime this year, whether to ‘go/no-go’ on Phase II. Obviously given the early results and Genentech’s ever more frequent mentions of this conjugate as one of their most exciting opportunities, you have to believe Genentech is leaning to ‘go.’

Now anyone that follows biotech knows that a great many things can happen in early clinical testing, so continue to do your diligence and watch the data and other signs closely. Immunogen itself has had several disappointing early clinical results, causing their CEO, Dr. Mitchell Sayare to note essentially that’s it take a very long time to get to this point with what seems like a simple concept (attach deadly toxin to targeted antibody) but behind which there are a great many complexities as well described by the folks at Genentech in recent presentations (do you alter the way the body ‘sees’ the antibody if you attach other molecules to it, what type of linker do you use to attach the toxin, is the antibody internalized or not, etc.)

So with all that in mind, ff and when Genentech does make a ‘go’ decision on Phase II for this drug, I’d expect Immunogen to already be a good 50% more expensive than it’s current approximately $5 price tag and I’d expect it to again move significantly higher from there, given the sales expectations for this drug. Obviously Genentech will keep the vast majority of the profits, but Immunogen makes a reasonable royalty rate (which was increased in 2006 when Genentech asked Immunogen to also assist them with setting up commercial processes for manufacturing the Herceptin-DM1 conjugate) on Genentech’s sales of the drug while also being paid to help Genentech with the manufacturing, so they get a little ‘double-dipping’ of their own here at what should be very good margins given that the real hard costs should be borne by Genentech.

I expect that late in Q3 or so, we’ll have a better idea of what else is going on with Immunogen’s pipeline and I’ll provide more market-cap expectations and comparisons at that point. There are plenty of other possibilities for positive news, including Immunogen’s own drug for multiple myeloma and small-cell lung cancers (HuN901-DM1), it’s soon to be begun Phase II in gastric cancer (HuC242-DM4) and several other partner’s conjugates potentially moving forward. For now, study up, keep a close eye on Immunogen and Genentech at ASCO, and let’s hope this early excitement bears out for patients and investors alike.

Disclosure: Author has a long position in IMGN