A couple of days ago, an author called Mako Research published this article on Seeking Alpha.
The article outlines what the author painted as a compelling short argument for Immunomedics, Inc. (NASDAQ:IMMU), with a number of seemingly damning aspects of the company’s current operations and history used to underpin the argument in question.
Prior to the reports release, Immunomedics went for $11.74 a share. By market open on the day of the report, this had dipped to $11 flat on no other news than said report hitting press.
The company currently trades for $11.45, having recovered somewhat but still trading at a discount to midweek pricing.
Regular readers will know that this is one we have covered on a couple of occasions in the past and it’s one that we have long felt is undervalued. In line with this, then, we think the latest it is an opportunity to pick up an exposure at a discount and that the continued development of the company’s pipeline should drive further appreciation in value throughout the latter half of 2017 and beyond.
Before we get into what’s going to drive value, let’s quickly debunk a number of the Mako research arguments.
First, Mako points to a history of failed development assets as indicative of a guaranteed failure for the company’s current lead prospect, IMMU-132. This is obviously nonsense. 132 is a new generation antibody drug conjugate (ADC), the structure of which allows for a far higher concentration of delivery of an active compound than was the case with any of Immunomedics’ previous development assets, especially as relates to oncology – which this drug is targeting and in a number of cancers, has already shown to be incredibly effective.
A second point made by Mako is that insiders and institutional investors are selling The stock. The author points to this sec filing as supportive of this statement. In fact, the filing details the registration of shares from PIPE, which is standard procedure as part of a secondary offering. It’s not recording the selling of the shares by the entities named – at least not in an exit position sense.
Third, Mako points to what the author calls a talent exodus as indicative of executive lack of faith in the company’s pipeline. Again, this is nonsense. A number of the executives that the author points to as resigning did so 10 years ago and one of the most attractive things about Immunomedics in its current iteration is that it has a fresh and strong management team – this point is a positive rather than negative, however, Mako frames it as the opposite.
So where does the opportunity lie?
By far and away the most promising indication right now is triple negative breast cancer, which Immunomedics is targeting with the above-mentioned IMMU-132. There is an ongoing phase 3 study (protocol available here) that kicked off in March this year and that is set to complete (primary completion) by the end of 2019. There’s also a good chance of accelerated approval in this indication, meaning markets might not have to wait until end 2019 for some serious upside catalysts associated with this drug in triple negative breast cancer.
Again, somehow Mako frames the length of the trial as a negative element of the Immunomedics story. Sure, everybody wants things to turn around quickly, but this is a breast cancer trial and if the company is to give itself the best chance of success on regulatory submission it needs solid overall arrival and progression-free survival data – data that is going to take 24 months at least to collect.
We aren’t saying that this is a sure thing. This is development stage biotechnology and there’s every chance that something could trip the drug up during the trial. What we are saying, however, is that this is far from the fall to zero stock that Mako is implying and that there’s opportunity in this misinformation.
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Disclosure: We have no position in IMMU and have not been compensated for this article.