THE wild and irrational fluctuations of the biotechnology sector have the capacity to unhinge even the most even tempered investor.
For they bear little or no relation to the fundamentals of the industry or indeed the prospects of the individual companies that are listed on the stock market.
Take the example of ImmuPharma (LON:IMM). Last November the stock was riding high at 136p. Fast forward to July this year and the price had slumped to 64p.
So what happened? Well nothing other than an improvement in the group’s prospects.
The company’s main drug candidate Lupuzor, a treatment for Lupus, a potentially life threatening auto-immune disease, is progressing well.
Partner Cephalon has initiated a large phase IIb trial in the US and Europe, with the interim results from this study expected in the middle of next year.
There are no cash worries as the group has £20 million in the bank, which equates to funding for the next three-and-a-half years, while the product pipeline holds plenty of promise.
So it is hard to gauge why the share price reversed so dramatically – though in recent weeks it has recovered a little.
Patience is the key with biotechnology stocks and ImmuPharma in particular.
It will be at least another three years before Lupuzor is out on the market – and only then if it clears some fairly significant developmental milestones.
In the meantime GlaxoSmithKline and Human Genome Sciences have a competitor, called Benlysta, ready for launch as early as next year.
The influential Food & Drug Administration Advisory Committee begins its deliberations on November 16 to decide whether to give the product the final regulatory green light.
This of course would see the GSK/HGS product steal a big march on Lupuzor.
But there are several things to consider here even if this happened. The first is that phase III tests showed that Benlysta‘s effects began to wane slightly over time.
So if Cephalon can prove that Lupuzor is longer acting, or indeed more efficacious overall than Benlysta, then it will have the edge over the GSK-marketed product.
It is also worth remembering that the market for lupus is large with 1.5 million suffers in the US alone, and there is no cure for it. So there may inevitably be room for other treatments.
Unlike many of its peers, ImmuPharma is financially robust, thanks to its tie-up with Cephalon which last year shelled out US$30 million for the worldwide rights to develop Lupuzor.
Milestone payments from the partnership with the American specialty pharma group could bring in a further US$500 million, and ImmuPharma will receive royalties if the drug is successfully makes it to market.
However analysts point out it may actually be cheaper for Cephalon to simply buy ImmuPharma than fork out the huge sums just mentioned.
The last update from the company was the interim results statement last month, which was unremarkable. The operating loss for the six months to June 30 was £2.5m.
Research and development expenditure was £975,454 and administrative expenses were £1.5m.
The company said in its interim update: “With a strong cash position, the focus of the group is on continuing the development of our strong relationship with our license partner for Lupuzor, Cephalon, and the development of our other pipeline candidates, in particular our promising cancer compound, IPP-204106, and discovery pipeline.
“Furthermore, in an effort to maximise the value of our development pipeline, ImmuPharma continues to be in discussions with a number of pharmaceutical and biotech companies for potential collaborations.”
Key to maximising that value will be the aforementioned cancer compound also known as Nucant.
The group has begun a phase IIa trial, which has received investigational new drug approval from Agence Francaise de Securite Sanitaire des Produits de Sante.
In preclinical work, Nucant showed a dual mode of action: it arrested cancer cell growth and also attacked blood supply to the tumor. The latter opens up a US$6 billion a year market, according to the biotechnology team at City research firm Edison.
A deal to partner Nucant could happen as early as next year. In the meantime the market is yet to ascribe any value to it or any other part of the pipeline other than Lupuzor.
As I said earlier, the shares have recovered somewhat from their depressed state in the summer.
Today they are changing hands at 85p, giving ImmuPharma a market capitalisation of just shy £70 million, of which £20 million is held in cash.
Edison is bullish. Its risk-adjusted net present valuation of ImmuPharma is £190 million, or 230p a share.
The company’s broker Panmure Gordon has set a sum of the parts price target of 300p based on a 17.5 per cent discount rate for Lupuzor.
“Lupus is major market opportunity and remains uncharted territory, and the lack of a robust road map for the development of new products often results in pricing anomalies that we believe investors should take advantage of,” said analyst Savvas Neophytou in a recent research note.