Inflation, Chairman Powell and the Wall Street tug of war
Throughout 2022 the world has been experiencing demand-pull inflation. Demand pull inflation is the upward pressure on prices that follows a shortage in supply where too much money is chasing too few goods. However supply shortages are now abating as the world slowly eases its way out from the pandemic. Economies, shipping routes and supply channels are opening back up again. Yet the danger is always that with rising prices comes rising wages. Cost-push inflation (also known as wage-push inflation) occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials. Hence the news on Friday in the US that wages were not increasing at a rapid rate was music to the ears of Wall Street. Any sign of inflationary pressures subsiding leads to an increase in equity values as investors look ahead to a time when interest rates no long need to be lifted in an effort to combat inflation. There is usually a tug of war at this stage in the economic cycle between equity yields (i.e., dividends), treasury yields (i.e., bank interest) and government or corporate bond yields (i.e., coupon rates). As interest rates rise and corporate earnings fall the pendulum swings towards treasuries and bonds, but at the earliest signal of a slowing in interest rates and a subsequent pick up in earnings, the pendulum swings back toward equities, as it did on Friday. The jury is still out as to whether US Federal Reserve Chairman Jerome Powell can tame inflation and at the same time navigate a soft landing for the US Economy. From where I sit he does not appear to have the Midas touch possessed by former US Fed Chairman Alan Greenspan. It does appear as though a mild recession in the US is inevitable, with a slowing in manufacturing figures on Friday another reason to suggest such an outcome. Though in Australia where demand for our own commodities and raw materials is still relatively strong, perhaps we ourselves can take the higher ground in this cyclical downturn. Once again our fate may well be determined by the strength, or lack of strength within the Chinese economy.
Imugene, Chairman Hopper and “The Letter to Shareholders”
But enough of US Federal Chairman Powell, what about the Chairman of our family owned and operated Imugene (IMU). I say family owned and operated as I do believe by writing to us personally, shareholders in Imugene can feel apart of the inner circle. Apart of the Imugene family as it were. In sales we once had the saying, “They don’t care how much you know, until they know how much you care”. And in writing to each and every one of us I do believe Chairman Hopper revealed he in fact does care. He does indeed feel the pain experienced by IMU shareholders young and old during 2022, wherein the share price dumped unceremoniously to year end lows. Hoppers “Letter to Shareholders” was both frank and forthright in its assessment of Imugene. He noted that despite the recent slump, Imugene’s fundamentals were every bit as strong, if not stronger than they were prior to the share price route. If anything we can ascertain from his letter Imugene has many more strings to its bow than it did in late 2021. Added to which the company now has a powerful management team with more cash in the bank to deliver ongoing milestones from their successful cancer killers. In addition to outlining the deep product development and pipeline progression ongoing within the company, Hopper spoke of engagement within the US. He spoke of the ongoing desire to out license and reach commercial outcomes in what is a competitive landscape. It goes without saying the financial team appointed by both Hopper and CEO Leslie Chong, including Chief Business Officer Monil Shah, have ongoing pressure to attain key performance indicators, meet monetary targets and ultimately “bring home the bacon”.
I felt buoyed this week when reading in Hoppers letter the significance he placed on the Vaxinia trials forthcoming combination with Keytruda. Both Professor Yuman Fong and Leslie Chong see this combination as a major step forward in the fight against cancer. As shareholders we may not even have to see out Q1 2023 before hearing news of this combinations commencement. With this combination but moments away investors at the upcoming JP Morgan Healthcare Conference may wish to pull the trigger and start buying the stock. After all many would not as yet have heard of CF33 and Vaxinia’s ability to identify, target, and destroy solid tumour within a cancer patient. That’s right, breast cancer, lung cancer, gastric cancer, why even solid tumours within the brain of cancer patients are on the CF33 and Vaxinia radar. And given the JP Morgan Conference is wall to wall with biotech investors, what could be more appealing? The solid tumour market as we know is the holy grail of cancer treatment, lucrative, untapped and financially limitless, for those with the investment experience and risk appetite to take advantage of Imugene's scientific prowess.
Imugene, clinical trials and 2023
Unlike others on these threads I do believe 2023 is Imugene’s year. All their major “in human” trials are either underway or on the way. In 2023 shareholders can expect ongoing wrap ups on existing in human trials including those for the B cell vaccines Her Vaxx and PD1 Vaxx. Hoppers “Letter to Shareholders” noted the fact PD1 Vaxx had produced excellent results thus far. When one considers a patient is still living cancer free after two years of taking PD1 Vaxx, another has had a partial response and others are experiencing disease stabilisation, the drug is sure to be in hot demand from others outside of Roche. Keep in mind Roche is keen to pursue their supply agreement with Imugene and the upcoming combination trial between PD1 Vaxx and Roche’s Tercentriq. As the word on PD1 Vaxx spreads the B cell vaccine is sure to be a hotly contested item in the biotech world. Cost effective, easy to administer and efficacious drugs are potential cash cows for Big Pharma company’s on the look out to replenish their own dwindling stocks in the cancer treatment arena. But ongoing wrap ups aside, the realisation CF33’s TNBC trial is 15 months in, whilst at the same time the Vaxinia trial is well and truly on its way, is starting to resonate with media channels, patients and oncologists throughout the US. Demand for participation in these Oncolytic Virus trials is picking up exponentially as more and more people are made aware of the potential benefits in receiving Professor Fongs wonder drugs. Imugene is said to be receiving enquiry after enquiry when it comes to participation in these trials. I have no doubt this demand is sure to set a fire under US regulators throughout 2023, with pressure mounting on them to commence registrational trials, as opposed to continuing the pursuit of ongoing clinical trials.
Immunotherapy - A competitive landscape
The cancer research and immunotherapy landscape is undoubtedly more competitive in 2023. The news on 7 December 2022 that AstraZeneca and Daiichi Sankyo’s Enhertu improved progression-free survival by 22 months vs.T-DM1 in patients previously treated with HER2-directed therapy in the DESTINY-Breast03 Phase III trial, has raised the bar somewhat for Imugene’s Her Vaxx and others competing in the HER 2 space. Yet I cannot go past Hoppers recognition in his “Letter to Shareholders” that Imugene is much further down the track fundamentally than they were 12 to 15 months ago. The PD1 Vaxx Phase 1 trial results spoken of herein, the OSR results for Her Vaxx released in June 2022 and the 3 Oncarlytics poster presentations in November are all reasons to feel confident about 2023. But perhaps more importantly the fact CF33 and Vaxinia are coming to the pointy end in their existing trials is reason to sit up on the edge of our seats. Yes, the results may be less than overwhelming when they come to hand. Yes, they may not portray the outstanding results Professor Fong and his team at the City of Hope medical research facility displayed pre-clinically. But what if they do? What if CF33 and Vaxinia do show signs of efficacy within late stage cancer patients? What if the solid tumour market moves closer into view for prospective biotech investors? And what if the thought of curing solid tumours within patients is not simply a mirage on the horizon of cancer sufferers worldwide? Now that would be front page news in 2023.
Leslie Chong and the IMU Team
The team at Imugene from their leader Leslie Chong down display a strong work ethic at all times. But sometimes it’s simply about not just working harder. As a young economics graduate in an account executive position I was visited by our then company owner Walter Tomlinson Junior, one of the ten wealthiest Americans at the time. We proceeded to tell him of all our hard work and efforts to improve the business. Our faces almost fell to the floor when he surmised “Sometimes it’s not simply about doing what you do better, it’s about doing better things," he said. And in short that is why I continue to support Imugene, as they continue to do better things. Let’s take two examples. Firstly consider Imugene’s Oncarlytics acquisition in mid 2021. They could have rested on their laurels with CF33 and Vaxinia, but no, they chose to raise the bar and add to the already strong platform laid by Professor Fong and his team at the City of Hope. Secondly as recently as 2022 we as shareholders learned the CF33-CD19T ONCOLYTIC VIRUS (onCARlytics) was employed to target hepatocellular carcinoma in combination with CD19 Artemis T cells, resulting in significant tumour killing. This collaboration, like the Vaxinia and Keytruda combination I alluded to earlier, were masterstrokes. Hopper noted in his “Letter to Shareholders” the market tends to price stocks, as opposed to valuing them. But rest assured when it comes to valuing Imugene (IMU) one day, the market shall value Imugene accordingly. Monil Shah and his team may not to date have closed out a deal with CAR T providers, but they shall at some time in the future. The opportunity for CAR T providers to broaden their product reach from that of purely blood cancers, to the extensive and lucrative solid tumour market, is simply to much for Big Pharma to ignore.
IMU - WMHB A personal opinion
Having spent years as an adviser and fund manager I thankfully do not have to worry about diversified and balanced portfolios, when it comes to investing in Imugene. Nor do I have to perform risk profiling. If in turn I lose money on this investment, thankfully it is my money, not a clients. Personally speaking I am willing to take a risk on Imugene succeeding in their existing oncolytic virus trials. Chairman Hoppers “Letter to Shareholders” simply reaffirmed my own belief in Leslie Chong and her teams ability to deliver the goods in 2023. For Imugene has several products designed to meet a huge unmet need in a market segment that is predominantly untouched. The world awaits, although as I have said on numerous occasions previously, I wish I could.
The IMU share price in 2023
As Imugene is not an income play the macroeconomic downturn in 2022 did result in many funds and investors seeking solace in income or value stocks, as opposed to growth stocks such as IMU. Yet as we enter 2023 much if not all of the rebalancing of portfolios has taken place, with higher interest rates already factored in by most if not all fund managers. From a growth perspective whilst some institutions such as Macquarie Bank noted IMU may struggle in the past quarter (as it did), many institutions, analysts and brokers have a strong buy on IMU. Roth Capital and Diamond Equity Research who have a target price for IMU at up to four times its current share price, may even be perceived by some to be on the low side if Vaxinia efficacy and now a potential FDA approval for Oncarlytics are factored into their analysis in 2023. In November we heard the oncolytic virus CF33 was replicating itself within triple negative breast cancer patients in the US. Any further signs of efficacy in that trial would underpin extremely strong valuations for IMU moving forward. Given the fact Imugene has funding for its broadening pipeline for over three years now, there is no stopping the ongoing development and strengthening of their value proposition, with the potential materialisation of income producing products becoming a distinct possibility within that time frame.
Maybe in 2023 we can draw a parallel between the IMU share price and the demand pull inflation concept referred to at the beginning of this post. Doesn’t it all come back to supply and demand?One would assume that when thousands of biotech investors come face to face with IMU for the first time at the JP Morgan Conference this week there is sure to be an increase in demand for the IMU stock. Even if 10’s or hundreds of investors are engaged demand for IMU is set to increase. There is sure to be new analysts and research houses casting their eye if not microscope over the IMU canvass, with added interest from healthcare, life science and pharmaceutical enterprises. Whilst one cannot rule out visiting entrepreneurs at the Convention wanting a piece of Imugene’s pie. Remember it only took one Australian entrepreneur to move the IMU share price significantly upward through the acquisition of approximately 290 million shares. How much would the stock move if one or two US entrepreneurs entered the fray? It’s all food for thought. Though upon casting my eye back over Paul Hoppers “Letter to Shareholders” I can see there is now plenty of food to go around from the IMU table. If you aren’t into your standard three meat and veg there are plenty of sides on their menu, not to mention the opportunity for some dessert down the track. Don’t leave it too late though, the Convention is filling up, and last time I checked JP Morgan were a force to be reckoned with.
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