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How T-DM1 Can Serve As A Catalyst To Transform Immunogen Into A Billion Dollar Company

|About: ImmunoGen, Inc. (IMGN)

Immunogen's (NASDAQ:IMGN) Tap technology consists of a chemo agent attached to a linker. The chemo/linker compound can be attached to an antibody. The antibody acts as a "smart bomb" by carrying the chemo/linker to the cancer cell and releasing the chemo/linker payload. The cancer cell's growth is inhibited by the antibody and the cell's destruction is mediated by the linker and carried out by the chemo agent. Chemotherapy agents linked to an antibody can have less side effects and better efficacy since chemo agents are not released in the bloodstream but only on the cancer cell.

The chemo/linker technology belongs to Immunogen. The antibody portion belongs to Immunogen's partners'. Currently, Immunogen is working with eight different partners to develop products based on it's TAP technology.

T-DM1 is a product developed from Immunogen's partnership with Genentech (a subsidiary of Roche (OTCQX:RHHBF). Genentech owns the "T" antibody portion also known as Trazstuzumab (Herceptin). Immunogen owns the chemo /linker portion known as DM-1.

On August 2012, Genentech has submitted an application to the FDA for T-DM1 approval as a second-line therapy for patients with advanced metastatic breast cancer. If FDA approved, T-DM1 "an advanced version of Herceptin" can potentially replace Herceptin. Herceptin currently produces an annual sale of $5.6BB. Since Herceptin's patent expires in 2015, it would be in Roche's interest to replace Herceptin with T-DM1 as quickly as possible. For Immunogen, potential royalty payments on T-DM1 commercialization/Herceptin replacement can top $272.25MM.

The probability that the FDA will approve T-DM1 in 2012-2013 is very high. In the EMILIA trial, patients on T-DM1 were compared to two other groups of patients that were given the gold standard of drug treatment. Patients on T-DM1 have a cancer progression free survival of 9.6 months compared to 6.4 months for patients in the other groups. Furthermore, T-DM1 patients' quality of life improved. T-DM1 patients have fewer side effects and have an adverse event discontinuation rate half of that compared to patients in the other treatment groups. Given the fact that most of the advanced breast cancer patients studied have few treatment options left, it would be very difficult for the FDA not to approve T-DM1 given T-DM1's impressive survival and safety data.

The FDA's approval of T-DM1 does more than just unlocking royalty payments from Roche. The FDA approval validates Immunogen's Tap technology as being viable for commercialization. The validation of Immunogen's TAP technology paves the road for potentially unlocking $845MM in potential funding and milestone payments from Immunogen's partners. These partners include Sanofi (NYSE:SNY), Bayer (BAYRX.PK), Lilly (NYSE:LLY), Amgen (NASDAQ:AMGN), Novartis (NYSE:NVS), Biotest (OTC:BIESF) and Roche.

In addition to unlocking potential milestone payments, A validated TAP technology can also pave the way for a faster future approval and commercialization of TAP based products currently in development in Immunogen's pipeline. Currently, Immunogen has eighteen products or indications being developed in its pipeline. Immunogen 's potential royalty payments from their partners on commercialized of these products can be staggering. Analysts have yet to be able to calculate the potential royalty payments at this time.

In summary, the approval of T-DM1 by the FDA is more than just about receiving royalties from Roche. It's about validating TAP technology, unlocking Immunogen's products' potential, and transforming Immunogen into a billion dollar company with stock prices that will not be $11 anytime soon.

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.