Immunic (IMUX) Stock: Revisiting A ‘Lottery Ticket’

“I guess I think of lotteries as a tax on the mathematically challenged.” – Roger Jones

When we last looked in on a small-cap biotech company called Immunic, Inc. (NASDAQ:IMUX), the country was coming off the first series of Covid-related lockdowns. We concluded that article around Immunic by calling it a ‘lottery ticket‘ that was only worthy of a very small position and only for aggressive investors. Otherwise, it was not investment worthy at that time. We update our investment thesis given the events since that time via the analysis below.

Company Overview:

Immunic is based in New York City, and this clinical-stage development concern is focused on developing selective oral immunology therapies for the treatment of chronic inflammatory and autoimmune diseases. The stock currently trades at $1.30 a share and sports an approximate market capitalization of $60 million.

The company’s main asset is a drug candidate named IMU-838, also known as vidofludimus calcium. This is an orally administered small molecule selective inhibitor of dihydroorotate dehydrogenase (DHODH), a principal enzyme in the intracellular metabolism of immune cells in the body. The compound continues to be evaluated to treat multiple indications.

The company is also developing IMU-935. This compound has shown potent suppression of IL-17A and IL-17F. As a highly potent and selective inverse agonist of a transcription factor called RORγt, the company believes IMU-935 has the potential to serve as an oral alternative for injectables. It is in Phase 1 development for psoriasis and castration-resistant prostate cancer.

The last asset in the company’s pipeline is IMU-856. These efforts involve the development of a drug targeting the restoration of intestinal barrier function and regeneration of bowel epithelium. This compound is currently in Phase 1 development for Celiac Disease. The company acquired global rights to IMU-856 through a license agreement with Daiichi Sankyo.

Recent Developments

Unfortunately, the development of IMU-838 has hit several roadblocks and produced some disappointments since we last looked at Immunic in July 2020. In June of this year, the company announced that IMU-838 failed to produce positive results within a phase 2 trial targeting ulcerative colitis (UC). The company will not go into further development in UC without finding a development partner. This news triggered an approximate 60% sell-off in the shares.

Then, more recently, in late October, Immunic disclosed that a phase 1b trial around IMU-935 as a potential psoriasis treatment failed to separate from placebo, putting that program deep in doubt. That caused the stock to sink more than 70%. Despite this setback, management “retains a high degree of conviction that IMU-935 has the potential to be a safe, efficacious and important treatment option for patients with psoriasis and other chronic inflammatory and autoimmune diseases”.

The company has begun an open-label phase 1 dose-escalation trial of IMU-935 against castration-resistant prostate cancer to determine the optimum dose for a Phase 2 study.

The company has made some progress developing IMU-838 as a potential treatment for multiple sclerosis or MS, specifically relapsing-remitting multiple sclerosis or RRMS. Management believes IMU-838 has the potential to demonstrate medically important advantages compared with other treatments due to its safety profile and its robust anti-inflammatory and neuroprotective properties.

In August 2020, Immunic announced positive top-line data from its phase 2 EMPhASIS study for IMU-838 to treat RRMS. In mid-November of this year, the company provided additional and encouraging data from that study, which briefly bolstered its shares.

In July 2021, the FDA cleared the company’s Investigational New Drug or IND application for its Phase 3 ENSURE study for RRMS. This study is comprised of two Phase 3 trials designed to evaluate the efficacy, safety, and tolerability of IMU-838 vs. placebo in RRMS patients and will enroll approximately 1,050 adult patients in each part of the study. The primary endpoint for both trials is time to first relapse up to 72 weeks. Dosing began in the second half of last year. Key secondary endpoints will include volume of new T2-lesions, time to confirmed disability progression, time to sustained clinically relevant changes in cognition, and percentage of whole brain volume change, grey matter volume, and white matter volume.

At the same time, the FDA greenlighted the supportive Phase 2 ‘CALLIPER’ trial of IMU-838 in patients with progressive multiple sclerosis or PMS. This study will consist of approximately 450 patients, with the primary endpoint being the annualized rate of percent brain volume change up to 120 weeks. The CALLIPER trial is designed to corroborate the neuroprotective potential of IMU-838.

Analyst Commentary & Balance Sheet:

The CEO, CFO and a director purchased approximately $150,000 worth of shares in November and December. This follows smaller purchases in May and June of this year. There has been no insider selling in this equity so far in 2022. Approximately 18% of the outstanding float is currently held short. At the end of the third quarter, the company had just over $70 million in cash and marketable securities on its balance sheet. Immunic then raised approximately $60 million via a private placement in October. It was good timing, given the stock has sold off substantially since that capital raise. Funding in place is now expected to fund operating and capital expenditures into the fourth quarter of 2024.

Since those disappointing trial results were disclosed on October 20th, Wedbush has reiterated its Buy rating with $7 price target while SVB Securities has maintained its Hold rating on this equity. Prior to that, analyst firms like Piper Sandler and H.C. Wainwright were sanguine on the company’s prospects. Four analyst firms had reissued Buy ratings in 2022 prior to study results, with price targets ranging from $26 to $64 a share.

Verdict:

The company has seen some setbacks in the development of its pipeline and also seems to have abandoned its Covid-19 efforts. Immunic is seeing progress on the MS front. The current schedule is to report data from the interim analysis of the Phase 2 CALLIPER trial in the second half of 2023 and provide a topline data readout at the end of 2024. The first data from the Phase 3 ENSURE study is currently targeted for the end of 2025.

Obviously, the company is going to have to do another capital raise prior to getting a potential approval of IMU-838 for RRMS. Trial disappointments over the past two years certainly cloud whether these development efforts will eventually prove to be successful.

At this point in time, Immunic should be viewed as a very high risk/very high reward play. The company’s potential in MS was the key reason J.P. Morgan initiated the shares as an Outperform with a whopping $55 price target in March of last year. Investors should proceed accordingly.

“They say the lottery is a tax on people who can’t do the math. I would say arguing on the internet is a tax on people who don’t value their time.” – Sean Kernan

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.