I-Mab Shaken by Management Moves, Merger Talk and Delisting Threat

Cancer drug maker has been in a wide range of market-moving headlines lately, though its stock still trades near an all-time low

Key Takeaways:

  • I-Mab was placed on a list of stocks at danger of being delisted from the U.S., just a week after it announced two major new executive appointments
  • Company is reportedly exploring a potential sale to a western pharma giant, or a possible merger with a smaller peer

By Shirley Lau

There’s no shortage of market-moving news these days about up-and-coming cancer drug maker I-Mab (IMAB.US), whose stock is getting pulled every which way as a result.

One thing that’s clear is that I-Mab (IMAB.US) aspires to transition from a company that simply develops drugs to one that also sells and profits from them, as it moves closer to approval for its first cancer treatments. But recent instability in the company’s top echelons as it makes that transition is bringing uncertainty. A broader dispute between the U.S. and China over disclosure requirements for U.S.-listed Chinese companies isn’t helping. At the same time, talk of a potential merger or buyout is propping up the stock.

The U.S.-China dispute element was in the headlines this week, when I-Mab’s name was added to a U.S. Securities and Exchange Commission (SEC) list of 88 Chinese firms that could face potential delisting. The group, whose latest additions also include e-commerce giants JD.com (JD.US; 9618.HK) and Pinduoduo (PDD.US), risk being booted off U.S. stock exchanges in three years if they fail to provide regulators with access to their financial audits.

The news sent I-Mab’s stock down about 6%, closing at US$12.94 on Thursday. With delisting pressure growing on almost every New York-traded Chinese company, I-Mab’s shares have plummeted by about 76% over the past year, bringing the stock back to around its IPO level.

The delisting news came just a week after I-Mab announced some major management moves, the latest in a series of changes in its top ranks. While such moves seem to represent a rational step toward the big goal of commercializing its drugs that are still in development, they can also worry investors when too many changes occur in a short time. On April 28, the company announced two major executive appointments: Richard Yeh as its chief operating officer and John Hayslip as chief medical officer. According to chairman and acting CEO Zang Jingwu, the duo will help “facilitate the company’s growth to the next phase”.

Those changes come just months after the departure of the company’s CEO at the end of last year, and the arrival of a new CFO just before that. Amid all those changes, the company has repeatedly emphasized that it is moving to its next phase of commercializing its drugs. Yet the appointments could also be a prelude to something bigger. The company’s shares fell 2.4% last week after the latest executive appointment announcement, though they quickly rebounded after that.

The broader big declines for its stock seem incongruent with a young, dynamic biotech like I-Mab, which has presences in both the U.S. and China – the world’s largest and second largest pharmaceutical markets.

Founded in 2016, the company develops biologics to treat cancers and autoimmune disorders. It has yet to launch any products, though it has generated revenue through licensing deals for some of its most promising candidates. And with more than 10 biologics in clinical trials and another 10 in preclinical programs, it plans to evolve into an “innovative global specialty biopharmaceutical firm” that both develops and markets drugs by 2023.

Although the plan may sound a tad ambitious for a young member of the complex and highly competitive pharmaceutical industry, it is not infeasible, considering that I-Mab has been taking steps to advance clinical development of its pipeline. Its late-stage drug candidates include Felzartamab, a differentiated anti-CD38 antibody, and Lemzoparlimab, for hematologic malignancies, which may be launched in China between 2023 and 2025.

Merger afoot?

On April 20, a little more than a week before the latest announcement of the new executive appointments, Bloomberg reported that I-Mab was contemplating a number of options, including a potential sale of its business to a U.S. or European pharmaceutical giant looking to expand its cancer therapy business in China. Other alternatives could be a merger with another similar-sized company, or a stake sale tied to partnerships on specific drugs, the report said.

I-Mab has so far declined to comment on what it calls market speculation. But investors were apparently excited at the idea of I-Mab selling itself or its core assets, a common practice for young biotechs that have valuable intellectual property but are short on commercialization experience. After the news broke, the company’s American depositary shares (ADSs) jumped 18%, marking their biggest daily gain in a month.

Meantime, the company has previously disclosed it may seek a dual listing in Hong Kong – a step many U.S.-listed Chinese companies are now taking to lower the risk that their shares could be left stranded in the event of a forced delisting from New York. But that plan, which could have used a special purpose acquisition company (SPAC) to make a backdoor listing in Hong Kong, was reportedly put on hold in late April due to volatile market conditions.

All those options reflect the bigger reality that as a company without any approved drugs and stable revenue from such drug sales, I-Mab needs to think about securing the capital it needs to keep funding its research.

The company reported its first profits in 2020, but only thanks to significant revenue generated from out-licensing deals that are typically one-time and non-recurring. It reported a 470.9 million yuan ($71 million) net profit that year, but then slid back to a 2.33 billion yuan loss in 2021. According to its 2021 annual report, the company has enough capital to fund its operations through 2025, with $671 million in cash combined with expected milestone payments.

All along, I-Mab has been relying on financing by issuing new shares to keep itself going. It counts private equity firms CBC Group, Hillhouse and GIC as its biggest shareholders, and has managed to raise additional capital each year of its operations.

But such backing hasn’t been enough to boost the company’s value. The company’s shares initially soared to as high as $81.66 last July from their IPO price of $14 in January 2020. Since then, however, the stock has lost much of its luster and now trades below the IPO price.

In a bid to prop up the shares, the company’s key shareholders and senior management entered into lock-up period on March 31, agreeing not to sell any shares for at least 180 days. The stock rose 7.82% the next day, though the surge was short-lived.

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