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IMMU AT A GLANCE

P/E ► 7.11 LOW EV/EBITDA ► -10.4   ROA ► 62% VERY HIGH ROE ► 227.6% HIGH Debt to Equity ► 0.393 AVG Current Ratio ► 1.97 LOW Interest Coverage Ratio ► 197 HIGH

 

 

 

 

 

 

Immunomedics, Inc. (NASDAQ:IMMU) is a small biopharmaceutical company that develops treatments for cancer, Lupus, and other autoimmune diseases. Its drugs are all in their development stages and the Company has yet to come up with a drug it can sell. Without drug sales, it had a negative net profit in 2007 due to spending $19,841,000 on research. ^[1] In 2006, Immunomedics (IMMU) and UCB (a large, Belgian pharmaceuticals firm) entered a collaboration to fund, produce, and market Immunomedics' lead product, Epratuzumab, a new drug for use in treating cancer and autoimmune diseases like Lupus. ^[2] Through the collaboration, UCB became the primary means of funding Immunomedics' research, giving UCB control over segments of IMMU's business, such as running trials. ^[3] The company faces the challenge of controlling its projects while appeasing fund-contributing companies.

Immunomedics has a smaller amount of capital, with less funding, less marketing, and less ability to obtain approval from the government for testing and manufacturing in comparison to other drug companies. ^[4] Before it starts selling drugs in the US, the Company has to find means of finishing research, getting approved by the FDA, and competing against more powerful pharmaceuticals. However, it claims to have the next generation of therapeutic drugs for cancer and lupus patients; once approved, the effectiveness of these drugs will be the primary factor driving sales.

Business Overview

Immunomedics' revenues mainly come from the License Fee department, but the company hopes to one day generate revenues from selling drugs ^[5]

Product Sales (35% of total revenue in 2007)

Immunomedics doesn’t yet have any drugs it can sell so this segment relies on two diagnostic imaging products for revenue in 15 countries. ^[7] The first product, CEA-Scan, is a used to detect cancerous lesions in patients and is sold only in Japan and Europe. Sales of the CEA-Scan increased by $737,000 in 2007, going from $2, 254,000 to $2,991,000, due to higher demand in Europe. ^[8] The LeukoScan is the second product available, which produces immediate quality images for patients with bone infections or with diabetic foot ulcers.<re>Immunomedics announces positive clinical results for LeukoScan </ref> On January 20, 2006 the device received approval from the European Regulatory Agency and has since been sold in Europe, as well as the U.S. ^[9] Due to increased sales, the first period of 2008 saw a 3% revenue increase, with a revenue of $860,000 compared to $839,000 for the same period in 2007. ^[10] The Company, however, wants to one day move from selling machinery to focusing on the sales of therapeutic drugs.

License fee (63% of total revenue in 2007)

Immunomedics has not yet had a profitable year and believes it will not have one until it can sell medication^[11]

The License Fee segment sells the Company’s research licenses and patents. It also obtains interest income from the Company’s investment. In 2007, the License Fee revenue was $5,335,000. ^[12] $1,520,000 came from the Company’s partnership with UCB on June 30, 2006. ^[13] UCB bought the license to produce Epratuzumab, Immunomedics' lead product in the approval process that targets cancers like lymphoma and autoimmune diseases like Lupus..

Research and development (2% of total revenue in 2007)

The final segment of Immunomedics, Research and Development, spent approximately $19,841,000 for its drug programs in 2007, $22,781,000 in 2006, and $27,028,000 in 2005. ^[14] The 13% decrease in spending from 2006 to 2007 comes from an agreement in March 2006 to transfer later phases of clinical trials to UCB. ^[15] To pay for the expenses of researching, the Company obtains payments through investors, partnerships with other companies, and grants. UCB is paying Immunomedics $31,145,000 and the Company has recorded this payment as deffered revenue. ^[16] Amgen paid $18,000,000 for five year, but the its last payment of $275,000 was received in 2003. ^[17] In early 2004, the Company had issues with the timing of grant programs, and lost $50,000 in revenue. ^[18] It is becoming harder for Immunomedics to get money from investments and grants, especially since the company has yet to come out with an approved, marketable drug. Thus, revenues for the three-month period in March 2008 decreased 30% from $67,000 for the same period in 2007 to $45,000.^[19]

Financial Performance and Growth

Immunomedics is not a profitable company because of high costs of research and development and low revenue from sales of its two imaging devices and its licenses:

Key Trends and Forces

Government regulations interfere with development of drugs

In June 2005, Immunomedics submitted its most recent drug for patients with systemic lupus erythematosus (SLE) to be approved by the U.S. Food and Drug Administration (FDA). ^[21] The drug, IMMU-103, has been in the process of approval since 2005. ^[22] According to the Company, following regulation and obtaining approval from the FDA is a timely and costly process. ^[23] In September of 2006, the FDA put a hold on the IMMU-103 project and stopped clinical trials because of a sterility issue in the final product. ^[24] After a legal battle, the hold was lifted at the end of November 2006. In order to become a profitable biopharmaceutical Company, Immunomedics needs FDA approval for its drugs so it can sell them and there is no guarantee the Company will get approval.

UCB becomes primary means of funding

Immunomedics' main costs come from research and trials. Additionally, the Company has added costs of dealing with the FDA, obtaining and protecting patents, and marketing. As of June 30, 2007, the Company had an accumulated deficit of approximately $219,000,000. ^[25] To obtain revenue and funding, the Company taps into its investments, uses grants, and obtains resources from investors and partners. Like most other industries, the Company is also not immune from economic problems because it uses public equity markets and its debt for some funding. ^[26] Its funding from equity decreased in 2007 and 2008 as the market took a bad turn. Along with losing $50,000 from grants, the only other mean of funding for the company has been its collaboration with UCB. UCB is paying $38 million, marked as deferred revenue by Immunomedics, for the license of Epratuzumab. ^[27] UCB funds and runs clinical trials and obtains the necessary regulatory approvals. Immunomedics says it is "dependent on UCB", especially since UCB has stopped IMMU-103’s clinical trials in order to conduct its own research. ^[28] Immunomedics is searching for supplementary means of funding in order to regain control of developing its products.

Legalities threaten success of drug sales

With 108 US patents and 285 patents worldwide, Immunomedics is in the business of developing new cancer and autoimmune disease treatment ideas. ^[29] The competitive biotechnology industry has biopharmaceutical companies like Genentech (DNA) and Biogen Idec (BIIB) that have a drug, Rituximab, in development quite similar to Immunomedics' Epratuzumab. ^[30] As all these similar products develop, get approved, and begin selling to the same consumer groups, legal issues are likely to arise regarding patent infringements and intellectual property rights. Immunomedics, being a smaller company, does not have the funding that large companies like Genentech have to fight legal battles.^[31] Along with external legal issues, Immumedics deals with internal legalities, as well. In October of 2006, former employees sued the Company for rights to three patents. ^[32] The employees are claiming the patented development ideas belong to them. The trial is still in process.

Competition and Market Share

Larger biopharmaceutical companies have the means to work with other biopharmaceutical companies to develope biotechnologies that directly compete with Immunomedics' products. By 2006, Genentech and Biogen Indec’s had created a drug that directly competed with Immunomedics' Epratuzumab. ^[33] These companies, as well as academic institutions, governmental agencies and private research organizations, have more outlets for funding, recruiting, and retaining highly qualified personnel. They also have other drugs they sell, helping them obtain revenues in the billions of dollars in order to fund more research:

The companies listed above are merely ones that compete with Immunomedics on its most advanced drugs, epratuzumab and IMMU-103. There are around 15 companies with billion dollar revenues that will compete with Immunomedics' other drugs including Eli Lilly and Wyeth. ^[35]

References

1. ↑ IMMU June 2007 10-K, Item 1: Research and Development Programs, page 8
2. ↑ UCB, Immunomedics enter collaboration
3. ↑ IMMU June 2007 10-K, Item 1: Research and Development Programs, page 8
4. ↑ IMMU June 2007 10-K, Item 1: Competition, page 16
5. ↑ IMMU March 2008 10-Q, Item 2: Results of Operations, page 24
6. ↑ IMMU March 2008 10-Q, Item 2: Results of Operations, page 24
7. ↑ Immunomedics, Inc. 424B3, General, page 3
8. ↑ IMMU March 2008 10-Q, Item 7: Results of Operations, page 44
9. ↑ IMMU March 2008 10-Q, Item 7: Results of Operations, page 44
10. ↑ IMMU March 2008 10-Q, Item 2: Results of Operations, page 24
11. ↑ Immunomedics, Inc.
12. ↑ IMMU March 2008 10-Q, Item 2: Results of Operations, page 24
13. ↑ IMMU June 2007 10-K, Item 10: License Agreement, page 10
14. ↑ IMMU June 2007, Item 1: Research and Development Programs, page 8
15. ↑ IMMU June 2007, Item 1: Research and Development Programs, page 8
16. ↑ IMMU June 2007, Item 1A: Risk Factors, page 21
17. ↑ IMMU June 2007, Item 1A: Risk Factors, page 22
18. ↑ IMMU November 5 2004 10-Q, Revenue: page17
19. ↑ IMMU March 2008 10-Q, Item 2: Results of Operations, page 24
20. ↑ Immunomedics, Inc.
21. ↑ IMMU June 2007 10-K, Item 1: Business, page 2
22. ↑ IMMU June 2007 10-K, Item 1: Business, page 2
23. ↑ IMMU June 2007 10-K, Item 1A: Risk Factors, page 21
24. ↑ IMMU June 2007 10-K, Item 1: Business, page 2
25. ↑ IMMU June 2007 10-K, Item 1: Research and Development Programs, page 8
26. ↑ Cancer Stocks Finish a Tough Quarter
27. ↑ IMMU June 2007, Item 10: License Agreement, page 10
28. ↑ IMMU June 2007, Item 1A: Risk Factors, page 23
29. ↑ IMMU June 2007, Item 1: Introduction, page 1
30. ↑ Immunomedics/UCB: looking to Lupus
31. ↑ IMMU June 2007, Item 1B: Legal Proceedings, page 31
32. ↑ IMMU June 2007, Item 1B: Legal Proceedings, page 31
33. ↑ Immunomedics/ UCB: looking to Lupus
34. ↑ Google Finance
35. ↑ IMMU June 2007 10-K, Item 1: Competition, page 16