The Biotech Industry Is recovering, but Today Investors Are More Aware of the Risks Inherent in Many Players
Driven by the US stock markets’ increased confidence in the US Federal Reserve [FED]’s aggressive anti-inflationary policy, the biotech sector has also been in recovery mode for a few months.
As the chart below shows, the biotech sector managed to limit the loss that would otherwise have been much larger than the -14.31% of the iShares Biotechnology ETF (IBB) and the -31.31% of the XBI SPDR S&P Biotech ETF (XBI), so far.
But because the Fed’s tightening policy implies a lower present value of expected future cash flows now that an elevated interest rate is used as the discount factor, many investors in small-cap biotech stocks soon became more aware of this risk and the vulnerability of their portfolios due to the presence of assets they could be worth far less than the market once assumed. This led to such pessimism that even prompted traders to temporarily forget about the biotech sector.
On the other hand, an overly cautious attitude or total risk aversion can’t be good either. Because if so, quality companies with excellent growth prospects will be overlooked and opportunities to speculate on volatile biotech stocks with unclear prospects will be missed.
However, a better understanding of what’s going on in small-cap biotech stocks and where their research and development efforts are heading could be very helpful in deciding whether to invest in these stocks or engage in purely speculative trading.
Immatics N.V. Draws Attention from Traders Trying to Monetize the Ups and Downs
In the case of Immatics N.V. (NASDAQ:IMTX), the existence of a pipeline of solid tumor treatment candidates that currently lacks momentum is a risk that retail investors should not take, assuming they are looking for stocks with a solid future or a very high probability to have one.
But for the experienced trader who knows how to take advantage of large swings in the stock price, Immatics N.V. is likely to continue to make a good case.
While the company struggles to update the market with tangible progress in the pipeline, the stock price fluctuates very dynamically compared to the share price performance of the SPDR S&P 500 Trust ETF (SPY), a benchmark for the US stock market.
Immatics N.V. in the Biotechnology Industry
Immatics N.V., headquartered in Tübingen, Germany, is a clinical-stage biopharmaceutical discoverer and developer of T cell receptor [TCR]-based technology for use in immunotherapies to treat cancer patients in the United States.
Immunotherapies are carried out through the administration of drugs (or biological products such as cultures of non-pathogenic microorganisms or interferon or interleukins) aimed at counteracting tumors (but also other diseases such as infections and immunodeficiency states) by stimulating the immune system.
TCR refers to a group of proteins found in T cells (or T lymphocytes). These are a type of immune cells whose job is to recognize and attach to foreign substances, called antigens in immunology. When an antigen (bacterium or virus or enzyme or therapy) enters the animal’s organism, it induces the production of antibodies which, by selectively binding to the harmful antigen, inactivate or destroy it. Thus, TCR helps the body fight infection or cancer or other diseases.
Immatics N.V.’s immunotherapies target solid tumors and aim to treat these diseases through two distinct treatment modalities: adoptive cell therapies [ACT] and antibody-like TCR Bispecifics.
ACT is a form of immunotherapy in which a patient is given T cells to help the patient’s body fight cancers and other diseases.
A Bispecific TCR corresponds to antibodies and is a molecule that is capable of managing the body’s immune system to redirect and enhance the T-cell response to cancer cells in certain tumors that are targeted by immunotherapy.
Immatics N.V.’s Pipeline of Products Under Development According to Treatment Modality
Adoptive cell therapies [ACT] are being evaluated through clinical trials that are in phase 1. These types of studies, which are initial human tests, are conducted to evaluate the safety of the treatment. The individuals subjected to this phase of the experiment are people in good health whose condition is closely monitored during and after the test.
Tests to evaluate the effectiveness of the treatments in humans will begin in Phase 2 of the trials, but this is just one of a series that will be conducted before filing with regulators for marketing approval.
This does not exclude the possibility that either Immatics N.V. or its pipeline of treatments in development could be targeted by a drug giant well before the company approaches commercialization. If a major pharmaceutical company expresses interest, it could positively impact Immatics’ stock price or the balance sheet of Immatics shareholders if shares are purchased by the drug giant at a price that represents a significant premium over the market price.
It is also possible that a potentially successful product will be identified in the early stages of the treatment effectiveness evaluation.
But objectively for Immatics, the road to any of the above milestones seems uphill and very long. And until at least one of the above events occurs, the stock will face severe market volatility, as well as headwinds and tailwinds that may arise from news of advances or a mishap during treatment development.
Among the most relevant ACTengine product candidates, Immatics N.V. currently has a treatment called IMA203. This treatment targets specific antigens that are expressed in melanoma but are not or only weakly expressed in normal tissues. Tests are being conducted because the idea of the project is to develop a treatment for adult patients whose solid tumor has gotten worse or is showing resistance to medical therapies.
Solid tumors are abnormal masses of tissue that usually do not consist of cysts or areas of fluid. If they are cancerous, they can be of different types depending on the type of cells that make up the abnormal mass. Solid tumors include, to name a few, sarcomas, carcinomas and lymphomas.
In addition, Immatics is developing a treatment called IMA204 for tumor stromal cells. The project is currently undergoing some preclinical studies.
The stroma is the tissue-forming cells that support and protect tumor cells and feed them as cancer develops. Stromal cells are normal cells, but they transmit signals that help cancer cells to multiply and survive.
With regard to antibody-like TCR Bispecifics, these are in preclinical studies.
Among the most relevant TCR Bispecifics product candidates, Immatics N.V. is developing IMA401 and IMA402.
IMA401 targets specific antigens normally expressed in male germ cells of individuals with testicular cancer [solid] tumors.
IMA402 is being developed for solid tumors and has the potential to treat a broad range of cancer indications, the company said.
Financial Condition
According to financial results for the third quarter of 2022, the company generated $14.7 million in revenue primarily from collaborations.
Research and development expenses, along with general and administrative expenses, were $37 million on the income statement.
Thus, Immatics suffered a net loss of $20.4 million.
As of September 30, 2020, the balance sheet reported cash and short-term investments totaling $301.5 million, plus $110 million in gross proceeds raised through a public offering last October. The company believes that operations can continue into 2025 with current treasury levels.
The Stock Valuation
The shares of Immatics N.V. were trading at $9.04 per unit at the time of this writing, giving a market cap of $686.81 million and a 52-week range of $5.75 to $14.
After falling almost 30% over the past year, shares are back below the long-term trend of the 200-moving average line of $9.52 and below the median of $9.875 of the 52-week range.
Current market valuations could prompt a buy and build a position to take advantage of the next stock price rally.
There is a risk that shares will continue to fall significantly from current levels. However, the 14-day RSI of 31.99 means that shares are not far from oversold levels, indicating the potential for a stock price recovery.
This doesn’t mean there will be a rebound in the stock price any time soon, but based on recent patterns, there seems to be a good chance that the stock price is close to a V-shaped rebound again.
Conclusion
Immatics is a small-cap biotech stock with a portfolio of treatment candidates for various solid tumors that currently lack momentum.
This doesn’t seem like a stock for investors looking for opportunities in biotech pipelines with clear growth prospects.
The stock will likely continue to experience large swings in its share price, drawing the attention of traders trying to monetize the ups and downs.
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