IGMS - IGM Biosciences: What Causes The Very High Short Interest In This Ticker

2023-10-01 06:44:10 ET

Summary

• IGM Biosciences stock has experienced a significant decline, indicating an overall bearish sentiment in the market.
• The company's high expenses and poor financial management have devalued the company.
• IGM-2323, now called imvotamab, has shifted its focus from cancer to autoimmune diseases due to underwhelming data in NHL.

Last year, after I covered IGM Biosciences ( IGMS ) in a rather lukewarm article, the stock went up 40%. Since earlier this year, after I wrote about it more positively, the stock is down 60%. IGMS may be playing hard to get with me, but consistency is important; and this analyst has been consistently wrong about IGMS. So you know what to do with whatever I say in today's coverage.

Self-deprecating humor apart, IGM's fall has not been sudden, indicating that there isn't a single catalytic event, but rather an overall bearish "feeling" that has led to its fall.

One of IGM's key problems is that, for a small company in the early stages, IGM is a monster cash guzzler. Last year, the company spent $179.3 million on whatever R&D they have been doing, and a whopping $49.7 million on G&A. This smallcap, early stage company has nearly 300 employees, has been in existence for 30 years, and has little to show for its decades long existence except a few early to middling stage trials. I think this sort of financial management is a major de-valuer for the company.

The company has a very decent cash balance for an emerging biopharma - $387mn. On top of that, they raised $45mn in a public offering and concurrent private placement in July. However, they estimate full year 2023 GAAP operating expenses to be between $290 million and $300 million. That is very large for a small company with early to mid-stage trials. At the end of the year, they will be left with just around $200mn in cash. If this cash reserve was better managed, they could probably have extended their cash runway well into 2025. As it is right now, they estimate that runway to taper off by mid-2024. Barring exceptional and catalytic data, what happens then? Dilution.

Speaking of data, in my last article , I discussed IgM and its importance in cancer immunotherapeutics. In that last article, I said that the company's lead product candidate IGM-2323 is a bispecific T cell engaging IgM antibody targeting indolent NHL, DLBCL and other cancers. However, two changes have now happened. One, IGM-2323 is no longer their lead candidate. Second, IGM-2323 is now called imvotamab and it is no longer targeting cancer. Instead, it is running trials in autoimmune diseases like SLE and RA. Now, what brought about these quiet changes in the last few months?

Looking through their earnings press release from March 30, we get the answer. They tell us:

In light of its plans for the extensive clinical development of imvotamab in autoimmune diseases and the limited commercial opportunities in monotherapy treatment of NHL, the Company announced today that it has decided to cease further monotherapy clinical development efforts for imvotamab in NHL. The Company continues to believe that the safety and efficacy profile of imvotamab positions it well as a combination partner for the treatment of NHL, and it plans to focus its future efforts in NHL on evaluating combination opportunities and partnerships for imvotamab.

What is left unsaid is that this change of mind was brought about by underwhelming data in iNHL, a notoriously difficult to treat - or identify - disease. I discussed some of this data in March. Interestingly, there has been no new data; this change of mind was the result of deliberation on existing data, it seems, rather than any new revelation. Markets don't take kindly to such sudden realizations.

By May, the switch between the lead candidates was complete, and the company's earnings release led with the news that "randomized clinical trial of IGM-8444 plus FOLFIRI and bevacizumab in second line metastatic colorectal cancer underway." IGM-8444 is aplitabart; it has multiple combo trials running in solid tumors and AML. In June, early data from a phase 1 trial in third-line metastatic colorectal cancer was presented, which showed :

In these predominantly third-line metastatic colorectal cancer patients, the combination of IGM-8444 dosed at 3 mg/kg and FOLFIRI without bevacizumab showed promising activity. This is the group of patients which had the longest treatment follow up. In this 24 patient group, the median progression-free survival ((PFS)) in the 24 patients was 5.6 months as of the data cut-off date of April 12, 2023, which is higher than the historical median progression-free survival of approximately 2 months with standard of care third-line colorectal cancer treatment without bevacizumab. The longest observed progression-free survival in this group has extended beyond 16 months and 11 of these 24 patients remained on treatment as of the data cut-off. Importantly, multiple patients showed longer durations of treatment with IGM-8444 and FOLFIRI than they had with their previous FOLFIRI regimens.

Despite this promising sounding data, IGMS has a short interest of nearly 40%. Those are gamestopping figures. It is obvious that the market has little faith in IGMS. And I think the answers lie in what I discussed - their high expense figures, and that they quietly abandoned their lead program on the basis of no new data.

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