Imugene ()IMU ASX - Watch this space
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IMU and those quarterly cash results
Friday brought with it the news many detractors of Imugene did not want to hear, let alone see, that Imugene has years and years of funding available to continue developing their broadening and strong immunotherapy pipeline. Market analysts, institutions, stock brokers and fund managers all love companies with cash, and Imugene clearly has this in spades. To make matters worse for detractors, Imugene has a relatively low cash burn, with outgoings positioned at much less than $10m AUD per quarter, a well managed position given the company obtains incoming revenue from government tax benefits, R&D Grants and the exercising of existing options. The relatively low cash burn is remarkable when one considers the recent appointments Imugene has made. In October for example the company appointed Dr Giovanni Selvaggi a pulmonologist, trained in thoracic malignancies management with a focus on lung cancers and mesothelioma. According to Imugene’s website he brings more than a decade of experience in the pharmaceutical industry which has seen him in clinical development focused roles of increasing responsibility with GlaxoSmithKline (GSK), Novartis Oncology and Bristol Myers Squibb.
The cash position effectively de risks Imugene, as for years to come investors can place their money into a stock knowing there is sufficient cash on hand to extend and maintain up to 10 clinical trials in any given year, with some of these trials working toward or already in the Phase 2 stage of their life, that being the time when they are most likely to be snapped up and acquired by Big Pharma. Many institutions were not at full capacity on Friday last and as a consequence there was little trading in IMU, though as this quarterly data is analysed in the coming week I am confident some more buy indications shall ensue for the stock. With news inflation is cooling in the US fund managers are slowly putting their toes back in the water in search of smaller companies, for as they say, “Little fish are sweet”. There is always a lag between the time when inflation cools, rates come off and investment resumes in growth stocks. Big name growth stocks are sought first, before US fund and growth managers turn their attention to the smaller, emerging and overseas markets for potential returns. During the last quarter US fund managers exited their positions in this sector, leading to falls in stocks such as IMU, now as rebalancing starts to take effect in the ensuing quarter one would expect an uptick in stocks such as IMU to eventuate as a result.
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MU de risks even further with their B cell platform
Just as the bolstering of the company's net cash position is de risking IMU, Imugene’s trial data is as well. The Imugene B cell platform, highlighted in a number of scientific conferences recently, is exhibiting signs of success on many levels including efficacy, safety and durability, not to mention a relatively low cost of production. It would appear both Her Vaxx and PD1 Vaxx, the leaders in the Imugene B cell stable lend themselves well to combinations with existing cancer drugs hampered by side effects, high costs of production and dwindling shelf lives. Her Vaxx has now been shown to increase human antibody counts and fight off cancer, reducing the risk of death in gastric cancer patients and extending their length of life by up to 6 months over the standard of care, chemotherapy. These results place the vaccine in the upper echelon of upcoming immunotherapy drug candidates, and given current sales of similar vaccines, either as a solo vaccine or in combination with MAB’s, Her Vaxx could potentially accrue annual sales of anywhere between 1bn USD and 20bn USD per annum in years to come. When one considers IMU is currently worth less than 1bn USD all up at present, you can start to see how derisked the company is. Keep in mind Her Vaxx is already in combination with Big Pharma Merck’s (Keytruda) and Pfizer Merck Germany’s (Avelumab), so it’s not like the vaccine is flying under the radar. The scientific community and Big Pharma are now more than aware of the potential benefits associated with Her Vaxx. Similarly Imugene’s PD1 Vaxx is starting to gain exposure worldwide. With a lung cancer patient in complete remission years down the track of taking the vaccine, and many others having had their disease stabilised, PD1 Vaxx is a worthy addition to the IMU stable of B cell candidates. Soon to enter a clinical trial in combination with Roche’s lucrative Tecentriq vaccine, the vaccine represents an encouraging prospect for Big Pharma company’s in need of innovative new immunotherapy cash cows.
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Where to now - development, expansion, growth and potential commercial outcomes
So where to now for Imugene in terms of development, expansion, growth and potential commercial outcomes. When it comes to development attention turns to the company's novel oncolytic viral platform, designed by the world renowned award winning surgeon and cancer researcher Professor Yuman Fong. The platform is set to release results in not one but two clinical trials in coming weeks. Firstly a clinical trial involving Triple Negative Breast Cancer patients at the City of Hope Cancer Research Facility in the US, and secondly watershed results for another US trial involving solid tumour patients, currently being treated both intra tumourally and intravenously with Fongs oncolytic virus. If the results of the second trial known as Vaxinia are safe and therefore successful, as they have been to date, the drug can then move into combination with Merck’s Keytruda, offering solid tumour patients another treatment arm in their fight against cancer. From all reports Professor Yuman Fong’s oncolytic viruses are “behaving as they should," replicating within patients and moving from one infected tumour to another, at the same time bypassing the healthier cells in the patients body. The insertion of a transgene into the patients is enabling trial supervisors to monitor the virus progression visually, therein providing researchers with a clear indication of how the drug is performing within the human body.
The immunotherapy market is of itself forecast to grow rapidly. Research house Insight Partners based noted in 2022 that based on clinical indications, the global immunotherapy drugs market is segmented into cancer, inflammatory diseases, autoimmune diseases, infectious diseases, and others. The cancer segment accounted for the largest market share in 2021, and it is expected to retain its dominance during the forecast period. According to the National Cancer Institute, there were 1,806,590 new cancer cases in the US, and 606,520 associated deaths (mortalities) were registered in 2020. Moreover, according to the National Cancer Institute, the number of cancer survivors is expected to increase from 16.9 million in January 2019 to 22.2 million by 2030.When we consider Imugene’s expansion and growth in this market segment our attention turns to their Oncarlytics platform, soon to be infused into patients, if the company (as anticipated) obtains a successful IND from the FDA in the US. In November last IMU investors learned of this platforms success in significantly reducing an array of solid tumors within patients, from colon, colorectal, pancreatic to lung cancer. This is definitely at the expansion end of Imugene’s growth equation as their Oncarlytics platform potentially lends itself to hundreds of CAR T drug suppliers, who without Imugene’s innovative technology, are currently unable to access the large and lucrative solid tumour cancer market. Incyte Corporation; Pfizer Inc.; Juno Therapeutics; Novartis AG; Celldex Therapeutics; Tesaro, Inc; Amgen Inc; F. Hoffmann-La Roche Ltd; and Merck&Co. are a few of the key players set to potentially benefit from teaming up with the Imugene Oncarlytics platform and it’s head Saul “cancer ass kicker” MD’s band of collaborators in this space. Or should I say, “Watch this space”.
Photo Courtesy of the American Cancer Society
Following on from Imugene’s development, growth and expansion plans that leaves a discussion surrounding commercial outcomes for the stock. This facet of the equation has proven to be a bone of contention for many IMU investors of late, who would ideally like to have seen a deal finalised for the company’s B cell platform by now. As a consequence the clock is definitely ticking when it comes to the company’s Chief Business Officer, Monil Shah, and his team of financial analysts. They now have a much stronger value proposition than they had twelve or even six months ago, and a much larger pool of potential acquirers for their suite of products. In particular Her Vaxx, already shown to have produced the goods in late stage cancer patients at relatively dosage rates, is ripe for the picking by Big Pharma predators. But is Shah waiting to see the results of the drugs current combination trial with Merck’s Keytruda at twice the initial dosage rate before he out licenses the vaccine? Has he behind closed doors entered into an NDA and mutual understanding with Merck to that effect? Likewise has he entered into a non binding agreement with Roche pertaining to PD1 vaxx, before agreeing to the five year supply agreement between both companies? We may never know, and it is all purely speculation, however the prospect does wet the appetite of IMU investors themselves in search of a pay day in 2023. Big Pharma supposedly has up to 1.7 trillion in their war chest on tap for future mergers and acquisitions, what better place to start than safe and efficacious vaccines such as Her Vaxx and PD1 Vaxx. No doubt this is a competitive space, and the recent trial results of competitor Enhertu have significantly raised the bar, though the ability of Imugene’s B cell vaccines to combine with and in doing so add value to Merck’s Keytruda, or Pfizer/Merck Germanys Avelumab or for that matter Roche's Tercentriq, is something Big Pharma can perhaps not ignore.
IMU in 2022
In June the price of IMU rose to approximately 30 cents following the initial announcement of Overall Survival Rates for Imugene’s first drug, Her Vaxx. As was the situation in late 2021 when Her Vaxx was set to combine with Merck, Merck Germany and Pfizer, investors may have anticipated a license deal due to the drugs strong efficacy and exemplary safety profile. When it was not to be they became somewhat lethargic and chose to exit IMU and employ their capital in other resources with more immediate prospects, such as lithium or ancillary mining stocks within the ASX. Meanwhile many investors following the Imugene CF33 Science Series and as late as December 2021 had believed results of the CF33 trial into Triple Negative Breast Cancer patients would be forthcoming much sooner than they have. Whilst there has been no bad news, investors realised they had to wait even longer than expected to see potential CF33 efficacy and chose once again to employ their capital elsewhere. Keep in mind these are speculative or growth investors, looking for capital gains not income. Growth and speculative stocks tend to have less demand than many equities on the major indices as without income, revenue of dividends, they are precluded from many prospective investors such as retirees, income and superannuation funds, who require cash flow to finance dividend, income and pension payments.
What’s IMU really worth in 2023
Any simulations and opinions presented in the Information are of a general nature and for commentary purposes only and result from analysis carried out by WMHB at a particular point in time and are no indication whatsoever of future results. The Information does not take into account any investor’s personal, financial or tax objectives, situations or needs and is subject to change according to market conditions.
In essence a stock is only worth what someone is prepared to pay for it. Supply and demand ultimately determine the price of equities. IMU has been worth anything from close to 14 cents all the way up to approximately 60 cents in the past 18 months. But how do we value it and make a calculated decision as to its real worth? Imugene Chairman Paul Hopper in a recent letter to shareholders of IMU noted that markets price stocks, but rarely value them. So how do we value IMU?
When I was in my early 30’s I sold my original business to two advisory firms in the late 90’s for approximately $3.2 million AUD or 3.2 times earnings. The earnings were predominantly from management fees or Funds Under Management (FUM) with the income passive. As such the business was relatively easy to value. Valuing businesses without earnings, only prospective earnings, is much harder. Yet there are tools myself and other investors utilise in assessing the value of a company. I shall use some of these here as an example only for you to consider with respect to IMU. Please note there are a million permutations, combinations and variables we as investors are not privy to as we are neither employed by the company, or on the inside as it were.
To ascertain the intrinsic value of a non revenue earning stock such as IMU analysts employ one of two main methods, either a discounted cash rate wherein they include a risk premium to adequately discount future cash flows, or a certainty factor, using a factor on a scale of 0-100% certainty of the cash flows in the forecast materialising (see corporatefinanceinstitute.com for further details). In doing so analysts have recently attributed 12 month price targets for IMU, including Roth Capital (71 cents AUD) and Diamond Equity Research (48 cents AUD). Roth Capital as an example base their valuation on a 5x multiple of their projected FY2031 operating income of about AUD $1.4 billion. Roth state in their DCF analysis that a 10% discount rate is applied to all cash flows and the terminal value. This research takes into consideration where the existing Imugene trials are at, as well forecast earnings from CF33 Check Vacc, Her Vaxx and PD1 Vaxx).
Imugene today - Her Vaxx, the competitors and the book value
With all this in mind where does the value of Imugene (IMU - ASX ) sit today? The recent Her Vaxx results significantly increase the value of IMU, as they place Her Vaxx ahead of much of the industry competition. Most immunotherapy drugs have been shown to extend life by only a few months if at all, whilst many bring with them either side effects or toxicity related issues for patients. The reason the Her Vaxx (and PD1 Vaxx) results are important is that many analysts and investors assess not only the market value of a stock (i.e., the value of a company according to the markets based on the current stock price and the number of outstanding shares), they choose to assess the book value of a stock when making the decision to invest. Warren Buffet a renowned US investor has been known to employ such investment strategies. Investopedia notes that when using book value and market value to evaluate companies against each other, it's important to compare companies within the same industry.
So let’s evaluate the book value of Her Vaxx against some of it competitors. In doing so keep in mind Her Vaxx has only been trialled on late stage cancer patients. Similar drugs in the immunotherapy space have had most success in treating early stage patients, i.e., Roche’s Perjeta and Herceptin, two like minded drugs blocking the action of a protein called HER2, which spurs the growth of some tumours (e.g., breast tumours). Initially patients who received Perjeta had a median survival time nearly 16 months longer than those in the control group. At the time the nytimes.com noted that was the longest amount of time for a drug used as an initial treatment of metastic breast cancer. The researchers then said it may be the longest for the treatment of any cancer. fiercepharma.com notes that when Roche’s Perjeta first launched in 2012, the jury was out as to whether the med would grow quickly enough to compensate for the expected decline in its $7 billion a year stablemate Herceptin once biosimilar competition gathered pace. Four years later, those doubts were largely laid to rest with Perjeta sales annualising $4.73 US billion in 2022, more than offsetting the expected $2.8 US billion decline in Herceptin sales at the time. Despite the initial Perjeta trial results it should be noted Perjeta’ hazard ratio was somewhat less than that of Her Vaxx’s initial trial results. At the time Perjeta was found to reduce the risk of dying by 32%, whereas patients dosed with Her Vaxx showed a reduced risk of death of 41.5% in the HER-Vaxx plus chemotherapy group compared to chemotherapy alone. Perjeta was shown to delay the progression or worsening of the cancer by only about six months in the trial, with experts saying it was not clear why the drug extended lives so much longer than that. The Perjeta trial consisted of 808 patients around the world with previously untreated HER2-positive metastatic breast cancer. To the contrary Her Vaxx’s Phase 2 trial was conducted on late stage cancer patients who had failed on other treatment arms prior to enrolling in the Her Vaxx trial.
Warren Buffet - Photo Courtesy of Forbes.com
As you are no doubt aware Her 2 positive related tumours are not restricted to breast cancer. According to data from a ToGA study presented at the American Society for Clinical Oncology (ASCO) back in 2008 Herceptin was shown to extend the lives of patients with aggressive stomach cancer by up to 2.7 months over and above the standard of care, equating to a 24% increase in survival. As investors in Imugene are aware Her Vaxx has been trialled on not breast or stomach cancer patients, but on late stage gastric patients. As outlined by Imugene CEO and MD Leslie Chong some gastric cancer patients have been shown to exhibit signs of antibody production up to 3 years after first being dosed with Her Vaxx. At present Imugene is keen to see how patients react to the optimal biological dose of Her Vaxx in the company’s combination trial with Merck’s Keytruda. Although the trial is ostensibly on late stage patients there are some earlier stage cancer patient participants expected to enrol in the trial. The higher dosage rate brings with it the potential to increase antibody production within patients even further therein increasing their chances of fighting off cancer and extending their life expectancy beyond the 6 months realised in the initial Her Vaxx Phase 2 trial.
Imugene’s intrinsic value (AHypothetical example)
But what does this all mean for the value of IMU? And what is the intrinsic value of the IMU stock based on these results? Given the initial Her Vaxx Phase 2 trial and OSR results, and now the fact the current Her Vaxx trial is administered at twice the dosage rate into earlier stage gastric cancer patients, one would have to assume with a 90% certainty rate antibody production shall be even higher and therefore the patients life expectancy extended even further. When one considers Her Vaxx comes with little or no side effects at a fraction of the Perjeta and Herceptin cost, surely the value of future cash flows need not be discounted immeasurably. That said for the sake of expediency in our calculations lets assume from a discounted cash flow perspective Her Vaxx earns only half or 50% the median income of Herceptin and/or Perjeta’s 2022 sales. This could be seen as a relatively conservative figure given the fact Her Vaxx’s strong safety profile and relatively low cost of production lends itself to potentially multiple combination partners. With Perjeta earning $4.73 billion in 2022 and Herceptin earning $3.98 billion USD in the same year, even excluding peak sales figures (i.e., of up to $7 bn USD p.a.), that would result in annual sales of approximately $2bn USD p.a. for Her Vaxx. Then to be even more conservative let’s assume Her Vaxx has only a 50% certainty of achieving half or 50% of the median sales achieved by Perjeta and Herceptin in 2022. That would give us a projected annual sales figure for Her Vaxx of approximately $1bn USD per annum.
At a sales figure of US $1bn per annum Her Vaxx should realise a sale value to Big Pharma of approximately $4bn to $5bn USD. This is again taking a conservative approach as recent Big Pharma sales have been struck at closer to 4 to 5 times annual peak sales of the respective cancer drugs in question. Therefore at the lower figure of $4bn USD Her Vaxx would still attribute a value to the IMU book value of close to $5.59 bn AUD. Given IMU has 6.471 bn shares on offer that would equate to a share price of approximately 88 cents per share.
Nb. Keep in mind though that the initial Phase 2 trial was conducted on less than 100 patients and when a larger pool of participants are assembled and dosed results may well vary.
The existing value attributable to IMU from Her Vaxx must therefore rest somewhere close to or above 88 cents per share. Do we attribute a value to Imugene’s PD1 Vaxx, as a consequence of the drugs Phase 1 Trial results? Perhaps we should. What is PD1 Vaxx, soon to be in combination with Roche’s Tecentriq, worth? Tecentriq is currently annualising sales of $5.5 bn USD. What is PD1 Vaxx going to be worth to Roche if the combination trial is successful? For the sake of this valuation, given PD1 Vaxx’s initial success in a Phase 1 trial I would attribute a value of close to $1 billion USD to the stock in terms of book value, and in doing so assume annual sales of close to $200 or $250 US bn per annum. At a 50% discounted cash rate and a 50% certainty rate of success in forthcoming clinical trials the value would therein be reduced to close to $250 million USD, adding a further 5.5 cents AUD to the IMU share price.
Given the company has $160 million AUD cash in the bank that must add a further to 2.5 cents to the IMU share price valuation.
Do we attribute a value to CF33, Vaxinia and Oncarlytics? With respect to book value, as efficacy results for these assets are not available at the time of writing only a fire sale value could be attributed to them for the purposes of this example. That said with November 2022 poster presentations revealing success in respective pre clinical trial collaborations with Celularity and Eureka Therapeutics, not to mention Amgen, a value of $250 million AUD or approximately 4 cents per share for such potentially profitable assets is definitely well within reason
So where do we stand on our hypothetical intrinsic IMU share price valuation?
Her Vaxx 88 cents
PD1 Vaxx 5.5 cents
Cash on hand 2.5 cents
CF33/Vaxinia/Oncarlytics 4 cents
IMU Book Value = $1.00
Investments in equities are traditionally viewed by advisors as a 3 to 5 year investment. I would be looking to achieve the book value return of an equity as a minimum based on my analysis within that time frame.
Imugene, Monil Shah and 2023
Monil Shah - Photo courtesy of Imugene.com
As stated previously all shall be revealed in the fullness of time. The pieces of the IMU puzzle are coming together, the foundations laid and the cash on hand to expedite the development, growth and expansion plans outlined in this post. As much as clinical trials are critical to the future success of Imugene, so too are results attributed to the personnel appointed by Chairman Paul Hopper and CEO and Managing Director Leslie Chong. Hopper and Chong’s innovative medical technology has opened the doors, but can Shah and his team close them? Sometimes it simply comes back to asking for the cheque when it comes to business transactions. But it’s not that easy for everyone to do. I know myself when dealing with large commercial entities in the UK, including Lloyds of London, The Royal Bank of Scotland and the like, you need to bring your A Grade game to town, to avoid being swallowed up for a song as it were, at prices much less than you were asking for. You need to be supremely confident of your product and its capabilities, firmly on the front foot in negotiations and prepared to stick to your guns when it comes to achieving the financial outcome you desire. Are Shah and his team up to the task? Time shall tell. Shah’s resume points to over 20 years of pharmaceutical and biotechnology industry experience in oncology drug development. Imugene investors are no doubt hoping he converts much of this experience into a sound commercial development for IMU in 2023. Based upon my simulations and the hypothetical intrinsic value I afforded to the IMU share price from a potential sale of Her Vaxx or an out licensing agreement, I would be asking for $1bn USD up front as a minimum and then either $3 to $4bn USD based on the achievement of clinical trial milestones in future years. Alternatively a $500 million USD sign on fee for Her Vaxx and 50% of future earnings after tax, expenses and ancillary costs could potentially be a more profitable outcome for the financial team at Imugene.
WMHB - A personal opinion
For those looking to invest in companies the existing management and advisory boards are crucial. Experience, runs on the board and industry knowledge are key when assessing company personnel. With this in mind I am literally amazed at the outstanding personnel Chairman Paul Hopper and CEO and MD Leslie Chong have amassed on their journey with Imugene. Most recently Ursula McCurry, the Head of Clinical Trial development is but one example of an exceptional posting. Once again Imugene’s website notes early in 2022 McCurry was appointed the Senior Vice President of Clinical Operations last year. The site notes Ursula is a seasoned clinical operations leader with over 20 years of global clinical development experience across a number of established and emerging biotech and pharmaceutical companies including Genentech, Exelixis, Astex, QLT Inc and Amunix. She has led global clinical operations programs spanning a variety of therapeutic areas and all phases of clinical development, contributing to over 20 programs and subsequent multiple regulatory approvals at both small and large biotech companies. She also brings significant partnership and alliance management experience. Prior to joining Imugene, Ursula served as the VP of Clinical Operations at Amunix Pharmaceuticals and prior to that was a Clinical Program. McCurry was a Director at Genentech, leading multiple programs from entry into the clinic to phase three development, including taselisib and GDC-9545. She has also led the Drug Safety teams, ensuring quality, compliance, pharmacovigilance, and safety reporting.
Ursula McCurry - Photo courtesy of Imugene.com
But it doesn’t stop there. Closer scrutiny of the Imugene scientific advisory is a “who’s who” of cancer research innovators, leaders and mentors for those throughout the industry. Dr Adusimilli, a world-renowned thoracic surgeon with expertise in the diagnosis and treatment of cancers in the chest, Dr Fong (mentioned above) a world-renowned cancer researcher, physician and surgeon whose clinical work has focused on OV for over 30 years and Dr Pravin Kaumaya an internationally recognized expert in the fields of vaccine research with emphasis on peptide vaccines for cancer, viral diseases as well as peptide therapy for autoimmune diseases, who has lectured worldwide and has published over 130 peer-reviewed articles in major scientific journals, to name but a few. These advisors, leaders in the field of cancer research are perhaps my main reason for investing in Imugene. Through them, and others on the Scientific Advisory Board including Dr Ursula Wiedermann (Her Vaxx) and Saul Priceman, MDOncarlytics), Imugene are in my opinion are paving their way into history. The ability to harness ones own immune system to fight against cancer and potentially destroy and eliminate cancer from reoccurring in the future is both innovative and pure genius in my view.
Best of luck to all in the week ahead. It looks from where I sit as if failing a clinical trial calamity, which is always a possibility, or news out of left field, the IMU train is set to continue rolling on. With a plethora of news on the horizon the forthcoming weeks and months should prove prosperous for Imugene, a predominantly derisked asset with ample cash in the bank to furnish their ongoing development, growth and expansion plans.
Best of Luck to ALTH’s
This post is a relatively lengthy discussion of the company Imugene in early 2023 produced for long term holders of IMU as a reference point at this point in time. The post provides a positive outlook for the IMU stock and is no way a recommendation constituting advice in any way shape or form.
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