ImmunoGen Inc (IMGN)

[TREND1]

Morgan Stanley $IMGN $3 full note:

Negative MARIANNE news likely to push IMGN toward our bear case of $3/shr.


We see greater risk for Kadcyla in the adjuvant setting.
Neither Kadcyla arm was superior to Herceptin alone: Recall that
MARIANNE investigated three arms: Herceptin alone, Kadcyla alone and
Kadcyla plus Perjeta. This morning Roche (covered by Vincent Meunier)
reported that while both Kadcyla containing arms were non-inferior to
Herceptin, neither arm was superior. Immunogen receives low-to-mid single
digit royalties from Roche on Kadcyla.
Worst outcome possible: We have previously discussed a few scenarios and
set the bar for this study as the Kadcyla plus Perjeta arm being 4+ months
ahead of the Herceptin plus Perjeta PFS delta over Herceptin alone in
CLEOPATRA. This clearly did not occur and in our view suggests that use of
Kadcyla in 1st line mBC is unlikely to be significant. Further, we believe that
today's results highlight the increasing risk of a positive Kadcyla outcome in
the adjuvant study due in 2018 - adjuvant represents the bulk of our Kadcyla
royalty valuation.
Expect sig. downside in IMGN: Given this negative outcome we would
expect the market to be concerned about the durability of the Kadcyla royalties
and their ability to fund the underlying proprietary pipeline. If we only value
the 2nd line and beyond mBC opportunity for Kadcyla our royalty valuation
falls to ~$3/shr. While we would expect some hope to remain on the adjuvant
opportunity given that we have yet to see the PFS curves and if Herceptin
alone outperformed its prior historic PFS. Nonetheless, we believe IMGN is
likely to trade closer to our bear case (~$3/shr) on the news.