Can Immunomedics Double?

Wells Fargo reiterated an Outperform rating and the brokerage firm has a valuation range of $7.00 to $7.50. This is based on a sum-of-parts valuation, P/S and P/E methods applied to 2023E revenues of $315 million and earnings per share (EPS) of $1.02 discounted at 12% to 18%. Key risks to this valuation include clinical trial failures and financing/going concern risk.

Investors are eagerly awaiting the Phase 3 Embody-1 and 2 pooled, top-line results for epratuzumab in lupus expected by the end of the second quarter 2015. However there is a key near-term and underappreciated event for shares potentially prior to the Embody data.

This is the announcement of a global partnership with a major pharmaceutical company for sacituzumab govitecan (SG; formerly IMMU-132). SG is Immunomedic’s lead antibody drug conjugate in solid tumors. After last week’s Phase 1 and 2 update at the American Association for Cancer Research meeting, Wells Fargo completed a deeper dive on SG’s overall profile with a key focus on its lead indication, triple negative breast cancer (TNBC).

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Wells Fargo’s conclusion on TNBC:

While TNBC has historically been a very challenging disease to treat we believe SG could have a best-in-class profile, and importantly early efficacy results in non-small cell lung cancer (NSCLC) are in the vicinity of Merck and Bristol-Myers’ promising programmed death ligand 1 antibodies (PD-L1/PD-1) Keytruda and Opdivo, offering an attractive 2nd shot on goal for future development by a partner. Thus we believe enthusiasm around SG is justified and the asset could indeed warrant strong licensing interest due to its overall profile (responses in six tumor types and good tolerability), quicker to market indications (TNBC and small-cell lung cancer [SCLC]), larger (but more competitive) markets (NSCLC), and potential to move into earlier lines of therapy longer-term as monotherapy and in combinations.

The TNBC data suggests a potential best-in-class efficacy profile. SG’s largest data set is in TNBC with a 26% Objective Response Rate (ORR), 74% Disease Control Rate (DCR), 46% of patients have achieved stable disease [SD] or better for 6+ months, and maturing median progression-free survival (PFS) of 6 months. The PFS results are generally in-line with what will likely be needed to demonstrate a statistically significant difference over chemotherapy in a Ph. III program.

Wells Fargo concluded its report with its investment thesis:

2015 could be a transformative year and we see upside potential from current levels with positive Ph. III epratuzumab data and an IMMU-132 partnership.

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Midday Friday, shares of Immunomedics were up about 3% at $3.70, in a 52-week trading range of $3.04 to $5.48. The stock has a consensus analyst price target of $7.00, but note that only two analyst calls make up this consensus.