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Rough Road Ahead for ImmunoGen

Shares of biotech ImmunoGen were slammed Friday after the company endured a major regulatory setback related to a breast cancer drug.



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(IMGN) - Get ImmunoGen Inc. Report

shares plummeted on heavy volume Friday after a regulatory setback derailed the product closest to generating new revenue for the Waltham, Mass.-based biotech.

RBC Capital Markets, which downgraded ImmunoGen's stock to sector perform from outperform and cut its 12-month price target to $7 from $11 following the news, estimates the

Food and Drug Administration's

decision to issue a "refuse to file" letter for proposed breast cancer treatment trastuzumab-DM1, or T-DM1, will delay approval of the drug until early 2013.

"We and most investors were expecting an ODAC

Oncology Drug Advisory Committee meeting in the fall and approval by January 2011," the firm told clients in a research note accompanying the downgrade.

The stock closed down 38.5% at $5.16 on Friday. Volume of 7.3 million was more than 10 times the issue's trailing three-month daily average of a little less than 650,000. The session's worst level of $4.96 was a new 52-week low, busting through its prior low of $6.25 from late February. It was the first time the stock dipped below the $5 mark since March 2009. As recently as April 19, the shares were sitting at a 52-week high of $10.90. 

ImmunoGen and partner


, which was acquired by

Roche Holdings

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in March 2009, were seeking accelerated approval of the biologics license application submitted for T-DM1 in July. In its statement about the FDA's action, ImmunoGen said the FDA determined "all available treatment choices approved for metastatic breast cancer, regardless of HER2 status, had not been exhausted in the study population."

HER2 status refers to breast cancers that test positive for a protein that's been found to promote cancer cell growth. The T-DM1 drug pairs up ImmunoGen's DM1 cancer-cell killing agent with an HER2-targeting antibody developed by Genentech.

"It is a significant disappointment that there will be a delay in the opportunity for T-DM1 to be approved for patients with advanced HER2 positive breast cancer," said Daniel Junius, the president and CEO of ImmunoGen, in the statement. "In the meantime we continue to focus on the development of our robust and expanding pipeline as well as advancing our technology through new partnerships."

The company said Genentech is still moving forward with a phase III trial of the drug, and that it now expects to file a new application in mid-2012.

The news prompted ImmunoGen to throw out its previous financial outlook for a net loss of between $50 million and $53 million for the fiscal year ending June 30, 2011. It plans to provide investors with updated expectations at a later date.

In its note, RBC Capital said ImmunoGen has a "small royalty interest" of 4-5% in the T-DM1 drug, and that Roche was anticipating annual sales of between $2 billion and $5 billion for the product. On August 4, ImmunoGen reported revenue of $13.9 million for fiscal 2010 ended June 30, down from $28 million the previous year, as milestone payments decreased. Its loss for fiscal 2010 was $50.9 million.

While RBC Capital thinks there is "zero chance" that Roche would walk away from the T-DM1 development program, it still sees a rough patch ahead for ImmunoGen -- hence the lower rating and price target -- because the company's pipeline is "relatively weak."

"IMGN has a large pipeline in terms of number of programs," RBC told clients. "However, in our view, none stands out as an expected winner and major value driver."

RBC thinks right now ImmunoGen has sufficient cash -- estimated at $110 million, or $1.70 a share -- to make it into calendar 2012. The company was previously expecting to have cash and marketable securities of between $74 million and $77 million at the end of June 2011 before it pulled its financial outlook on Friday.


Written by Michael Baron in New York.

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