ABBV - I-Mab: Trading With A Big 'China' Discount

2023-04-24 09:36:47 ET

Summary

• Today, we take our first look at I-Mab which has three late stage drug candidates in development.
• The company has a significant potential collaboration deal with AbbVie and the stock trades significantly below net discount.
• Is this large 'Chinese' discount warranted? An investment analysis follows in the paragraphs below.

I have a theory that the truth is never told during the nine-to-five hours ."? Hunter S. Thompson

Today, we put I-Mab ( IMAB ) in the spotlight for the first time. The company reprioritized the candidates within its pipeline and restructured its workforce in late 2022. This should result in a significant reduction in its cash burn rate in the quarters ahead.

The company is headquartered in China so it most likely deserves a discount in the U.S. market. However, the shares trade substantially below the net cash on I-Mab's balance sheet. Investment opportunity or value trap? An analysis follows below.

Company Overview:

I-Mab Biopharma is based in Shanghai, China. The company is focused on developing biologics to treat cancer and autoimmune disorders. The stock currently trades for just under $3.50 a share and sports an approximately market capitalization of $280 million.

Pipeline:

After the pipeline reprioritization, the company has five key assets in development. One of these is in Phase 1 development and another one is in Phase 2 development. We will focus on the three compounds in Phase 3 development for the purposes of this analysis.

The company's focus on novel or highly differentiated biologics has resulted in several late-stage compounds. Felzartamab is a differentiated CD38 antibody that has completed a pivotal trial to treat third-line multiple myeloma ((MM)). The study met both primary and secondary endpoints. According to the company's last earnings press release :

The clinical data confirmed the clinical advantages of felzartamab in terms of lower infusion-related reaction rate and shorter infusion time, which has made it feasible and practical for its use in an outpatient clinic setting ."

There also is an ongoing registrational trial evaluating felzartamab as party of a combination therapy with lenalidomide and dexamethasone as a second-line treatment for MM. Currently, I-Mab is working through details of its manufacturing plan before its BLA submission. If approved, felzartamab would become the first locally manufactured CD38 antibody for the Chinese market. I-Mab is evaluating potential commercial partnerships for this compound.

The company is also pursuing development of its compound Lemzoparlimab in combination with AZA in patients with newly diagnosed higher-risk myelodysplastic syndrome (HR-MDS). Phase 2 study data was encouraging in regards to overall response rate ((ORR)) and complete response rate ((CRR)) within the just over 50 patient trial. I-Mab has gotten the green light from Chinese authorities to initiate a Phase 3 registrational trial evaluating this combination as a first-line treatment for patients with newly diagnosed HR-MDS. It is the first anti-CD47 therapy to get the go ahead for a registrational study in China, and I-Mab hopes this combination can become a first-in-class treatment in the country. An article in September highlighted that the global HR-MDS market is north of $3 billion and growing.

CD47 is a protein found on the surface of a range of cancer cells that enable them to avoid attack from immune system cells called macrophages. Blocking the protein enables the immune cells to engulf and kill the cancer cells.

The company has a collaboration deal with AbbVie ( ABBV ) for the development anti-CD47 therapies reached in September of 2020. In August of last year, the companies announced they will be discontinuing some effort within this agreement which lower potential milestone/regulatory payouts down to just under $1.3 billion.

The final late-stage compound in development is called eftansomatropin alfa. This candidate is currently being evaluated in a 168 person study called TALLER as a weekly treatment for pediatric growth hormone deficiency or PGHD. The final data set from this trial is due to be out sometime in the second half of this year. If the study meets its endpoints, I-MAB plans to file a Biologic License Application or BLA in China sometime late this year or early 2024.

I-Mab has a commercial partnership with Jumpcan around this compound. Jumpan is a leading Chinese pharmaceutical company specializing in pediatric medicines and will be responsible for marketing eftansomatropin alfa for PGHD and any other approved indications. As part of this arrangement, I-Mab received just over $32 million upfront and is eligible for nearly $260 million of potential regulatory/milestone payouts. Both companies will share profits generated from the commercialization of the product in mainland China on a 50/50 basis. Pursuant to which I-Mab will be entitled to receive tiered low double-digit royalties on net sales.

Analyst Commentary & Balance Sheet:

Earlier this month, H.C. Wainwright reissued their Buy rating and $25 price target on IMAB earlier this week. That was the first analyst firm activity around this name since last summer when four analyst firms including Piper Sandler and Needham reiterate Buy/Outperform ratings on the stock. Price targets proffered at the time ranged from $30 to $64 a share.

Approximately five percent of the outstanding float in the shares are currently held short. The company ended FY2022 with just over $500 million in cash and marketable securities which management states is ' sufficient to fund key business operations for the next three years. ' The company had just over $250 million in overall expenses in FY2022.

Verdict:

If this was a U.S. headquartered company, IMAB would easily merit at least a small ' watch item ' holding. The stock sells for under cash value (even as cash burn is still prodigious), has three late-stage compounds in development, several others in earlier stage evaluation, a significant potential partnership with AbbVie and some catalysts on the horizon (trial results, BLA submission, etc.).

However, the company being based in China, brings some additional uncertainty and risk into the equation. As such, only aggressive investors with well diversified biotech portfolios should consider IMAB for investment.

There is nothing that is going to make people hate you more, and love you more, than telling the truth ."? Stefan Molyneux

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