Is Immunomedics Worth 50% More?

Dr. Francois Wilhelm took over the role of CMO for Immunomedics after previously serving as the CMO and senior vice president at Onconova Therapeutics. Prior to this Wilhelm led clinical development programs at Fujisawa, Pfizer, Procter & Gamble, Akros Pharma, and Johnson & Johnson.

Wells Fargo initiated coverage of Immunomedics with an Outperform rating and a valuation range of $7.00 to $7.50. The high end of the range implies an upside of 59%. Although, it is worth noting that the stock does have a consensus analyst price target above this range at $7.67, with an implied upside of 63%.

Wells Fargo expects that 2015 could be a transformative year for Immunomedics, with positive Phase 3 epratuzumab data in systemic lupus erythematosus (SLE) and an IMMU-132 partnership.

Epratuzumab in SLE is seen as a key driver, but investors have a healthy skepticism of SLE based on an underwhelming Benlysta launch and challenges in conducting SLE studies. However, Wells Fargo is encouraged by epratuzumab’s Phase 2 profile considering: rapidity of response in a short, 12-week blinded study; signals of statistical significance on a novel composite responder index, dose response; and decrease in corticosteroid use in the long-term extension.

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During its Phase 1 and Phase 2 trials in 2014, IMMU-132 demonstrated broad activity in six tumor types and a favorable safety profile. Early triple-negative breast cancer (TNBC) data appears promising, and a broad global partnership in the first half of 2015 could offer additional near-term upside with the potential for a partner to advance into a pivotal program later in 2015.

Key risks to the upside include clinical trial failures, a poor epratuzumab launch and a financing concern risk.

Wells Fargo describes its valuation method:

Our valuation is based on a blend of sum-of-parts, price-to-sales, and price-to-earnings methods using sales and earnings per share multiples adjusted for probabilities of success in SLE (75%), TNBC (50%), and pancreatic cancer (50%). We estimate fiscal years 2015 and 2016 earnings per share of -$0.50 and $0.34, respectively.

In the second half of the trading day, shares of Immunomedics were up about 4% at $4.89, in a 52-week trading range of $3.04 to $6.17. The market cap is roughly $457 million.