ImmunoGen (NASDAQ: IMGN) stock jumped 135% during Wednesday's session - as it probably should have done. That we've got to say that there's a real reason for this stock price move shows how badly the meme stock foolishness is infecting the markets. This more than doubling was not a result of some Hodlers, or stonks to the Moon foolishness. There was a real result in the ImmunoGen business which markedly improves the prospects for the business. Of course, there's almost immediately a stock offering announced but that's also normal for this sort of pharma stock.
The news itself is that a drug candidate for ovarian cancer is showing that it might actually work. This is one of those valuation events that can happen in the lifetime of a pharma development company. Many things are tried, lines of research followed, most of which don't in fact work out. There are stages at which they don't work too. Phase I trials are largely to find out whether it poisons everyone - which is why healthy volunteers are used at this stage. Phase II is largely about whether it actually works in dealing with the problem. Phase III is then about efficiency and whether there are sufficiently bad side effects in a wider population. Passing each stage along the way is one of those valuation events - it does and it should increase the market capitalisation of the company owning the drug and running the trials. The results here are not wholly conclusive but they're good enough that the assumption is that the drug will receive FDA approval - akin to passing Phase III trials (it's all slightly different under the accelerated development program).
ImmunoGen stock price from NASDAQ
This is where we come to the next little bit about pharma development stocks. As each stage in the development process is a valuation event the companies are usually funded in stages. Of course, without a drug that is actually approved there are no assets, only hopes and dreams. So, debt finance isn't really available. That means everything must be financed with capital from stockholders. But that financing is usually only raised to get to the next valuation event.
The corollary of this is that when there is a test successfully passed, the corporate market capitalisation rises and then there's a stock issue - the next funding round. And, as with clock work, here it is: “ImmunoGen Inc. (Nasdaq: IMGN), a leader in the expanding field of antibody-drug conjugates (ADCs) for the treatment of cancer, today announced that it intends to offer and sell, subject to market and other conditions, $200 million of shares of its common stock in an underwritten public offering.” What we don't know is the terms on which that stock will be offered. Which provides us with the next valuation event of course. Too low a price would be dilutive of current interests, too high risks crashing the stock by not being able to get the funding round away.
So, that's the next big influence on ImmunoGen stock - what price is the new stock to be offered at?