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Immunogen's (NASDAQ:IMGN) current valuation is based on analysts' projected T-DM1 sales in the near future. T-DM1 has a FDA PDUFA data of February 26, 2013. The FDA approval is very likely since in the EMILIA trial, T-DM1 treated patients showed a significant improvement in survival compared to patients treated with standard therapies for advanced breast cancer. Furthermore, T-DM1 had much lower side effects.

Although T-DM1 filing is for second line treatment indication, with a significant survival rate data, I suspect physicians will prescribe T-DM1 as a first line agent rather than waiting for patients to fail on Herceptin. Furthermore, since T-DM1 and Herceptin are both marketed by Roche (OTCPK:RHHBF), I suspect Roche will more likely be promoting T-DM1 than Herceptin especially given that Herceptin's patent will expire in 2015.

Given this scenario, T-DM1 will capture the entire Herceptin market-share much more quicker than most analysts' predictions. With a Herceptin annual sale of $5.6BB, Immunogen have the potential of earning $272MM under the current royalty agreement with Roche. This is 800% over the analyst's 2013 projected T-DM1 earnings.

A validated TAP technology with FDA's approval of T-DM1 will also increase the value of all of Immunogen's 11 products currently under development. Immunogen have negotiated a potential $845MM in milestone payments with its partners for licensing Immunogen's TAP technology. T-DM1's approval will serve as a guideline for Immunogen to achieve milestones faster and more efficiently. The bulk of Immunogen's earnings lies not in milestone payments but on royalties for product sales. With FDA's approval of T-DM1, it will validate all of Immunogen's TAP technology based products for commercialization.

The current Immunogen's price of $11.40 reflects analyst's under estimated earnings, Immunogen low earnings due to no current product on the market, and the effects of a recent stock dilution. Prior to Immunogen's stock dilution and analyst's revised low earning estimates, Immunogen was trading at $16.

Disclosure: I am long IMGN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Why Immunogen Is Undervalued