Immunomedics Inc (NASDAQ:IMMU): Here's What's Happening

Mid February, we took a look at Immunomedics, Inc. (NASDAQ:IMMU). At the time of our coverage, the company had just announced a deal with Seattle Genetics, Inc. (NASDAQ:SGEN) that was set to see it pick up a large infusion of cash in return for the rights to its lead development asset. Our thesis on the piece was that the cash infusion removed a dilution risk that had – to that point – been weighing on the company's PPS, and that as a result, we could see some strength as the deal matured towards closing, and ahead of the cash hitting Immunomedics' account.Well, we have seen some strength, but it's not come from where we expected. The company ran up close to 20% during the Thursday session, on the news that the deal with Seattle has been ruled as subject to a 30-day halt by a Delaware court, and as long as the halt is in place, it's not eligible for closing. After the thirty days, there's also the potential for a hearing, which could draw things out further.So, the natural response to this sort of thing would be a sell off. We've not seen a sell off, of course, so what's going on?Well, it's a grass is greener situation. The deal that the two companies set up initially, as we outlined in our previous coverage, involved a $250 million upfront payment in return for development rights to a drug called IMMU-132 (good), the potential for up to $2 billion in development commercialization related milestones and royalties (also good) and the sales of a 9.9% stake of Immunomedics to Seattle Genetics at $4.90 a share (not good at all, in fact, very bad). The dilution associated with the equity issue made the whole deal a sort of bitter sweet affair for shareholders, and one stakeholder, an activist firm called VenBio, took its disgruntlement to court.VenBio claimed that the dilution made the deal not worth it for Immunomedics' shareholders, and that the company had not afforded other interested parties (of which there were up to 30, according to reports) fair opportunity to submit bids. VenBio also managed to get some new board members elected, and tried to give the company's leadership the axe. It didn’t manage to do the latter, but as noted above, the suit has resulted in the thirty-day halt that is now in place, and the halt has thrown any potential outcome completely open.So the question is, what happens next?Well, somewhat contrary to VenBio's opinion, we actually thought the Seattle offering was pretty solid. Sure, the dilution isn’t great, but Immunomedics needs cash and a $250 million upfront tranche for a development asset is a decent bid.With that said, we can understand from where the distaste derives, and so we think it's now all about the new board team pushing for an improvement on the deal with Seattle. There's the potential for the reopening of bidding and a new entrant, or two, to bring numbers to the table, but we don't expect this. Instead, we expect the board members will be happy to maintain current terms, so long as the equity offering isn’t dilutive (or is less dilutive) than at initial announcement.There's an outside chance that the process will result in a complete buyout of Immunomedics by Seattle – something that shareholders would probably be happy to settle on, assuming the premium is substantial enough to offset the foregone forward value of IMMU-332 if and when it hits shelves.Whatever happens, we think it's going to be good for the company, and it seems markets agree. That's why Immunomedics is trading at a 20% premium to its post initial deal pricing. We're now looking to Delaware, and the outcome of any potential hearing, as offering clarity to the situation.Cash remains an issue without the deal in place, so the downside here is that things fall through and Immunomedics shareholders are diluted in a different way.We will be updating our subscribers as soon as we know more. For the latest updates on IMMU, sign up below!Disclosure: We have no position in IMMU and have not been compensated for this article.