I-Mab Gets New CEO After Long Search. Sale Of The Company Coming Next?

Key Takeaways:

• I-Mab has appointed Raj Kannan as its new CEO, filling its top position 18 months after its last top executive quit
• The new CEO is an industry veteran who engineered sales of his previous two companies after bringing their first drugs to market, hinting that I-Mab could follow a similar path

By Warren Yang

After 18 months without a chief executive, innovative drug maker I-Mab IMAB could finally be getting just the medicine it needs with a newly named CEO. And if Raj Kannan’s past record is any guide, a sale of the company may be in the cards.

I-Mab announced the new appointment of Kannan last Thursday, settling on an industry veteran with more than 30 years of experience at global companies. He joined I-Mab from U.S.-based Aerie Pharmaceuticals, a clinical-stage pharmaceutical company like I-Mab.

The appointment capped I-Mab’s prolonged search for a CEO, after the last person to hold that position on a permanent basis, Joan Shen, quit at the end of 2021. Following her departure, founder and Chairman Zang Jingwu took over as acting CEO. Andrew Zhu became the company’s acting CEO last September as it continued to look for someone to fill the job on a permanent basis.

With Kannan now on board, Zhu, who joined the company as part of a management reshuffle in December 2021 to lead R&D, will solely focus on his original job.

Kannan joins at a crunch time for I-Mab as it races to bring its first products to market since its founding in 2016. The company is one of dozens of publicly listed, cutting-edge Chinese drug makers to spring up in recent years, all hoping to bring their own self-developed and licensed products to both the China and global markets.

Nearly all are losing money, which is typical for early-stage drug companies. But unlike in the past, when investors were happy to provide fresh funds for these cash-burning machines, funding for them has largely dried up in the current choppy market. That’s put pressure on companies like I-Mab to bring their products to market as quickly as possible and show they can someday be profitable.

I-Mab is hoping to submit biologics license applications (BLA) for its Eftansomatropin alfa drug in China as early as this year, and for its Felzartamab sometime later as it moves ahead with its commercialization efforts for the products.

Eftansomatropin alfa, developed using South Korea-based Genexine’s (095700.KS) patented hyFc, is used to treat growth hormone deficiency. Felzartamab, an investigational human monoclonal antibody derived from German-based MorphoSys’ (MOR.DE) HuCAL, is for treatment of multiple myeloma and autoimmune diseases.

Securing regulatory approval and revenue that would follow for these two most advanced products in I-Mab’s pipeline is critical for the company to help slow its cash burn. I-Mab currently generates some revenue from a 2020 licensing deal that gave exclusive rights to develop and commercialize its cancer drug Lemzoparlimab worldwide, except in mainland China, Macau and Hong Kong, to U.S. drug giant AbbVie ABBV.

In 2020, I-Mab received a $180 million up-front payment as part of the agreement, which helped it turn a net profit that year. Since receiving that big initial paycheck, I-Mab has also gotten some milestone payments as AbbVie’s development of the product moves forward. The Chinese company also earns money by supplying new products it’s working on to AbbVie.

Paltry Payments

But following the initial big payout, I-Mab’s subsequent payments from the AbbVie deal have so far been marginal. They totaled just 88 million yuan ($12.2 million) in 2021, which was easily dwarfed by I-Mab’s 2 billion yuan in operating expenses that year.

Even worse, I-Mab booked negative revenue last year because AbbVie stopped two Lemzoparlimab global studies. That lowered the probability of receiving a key milestone payment that was booked in revenue the prior year, even though the actual money had yet to be received. So, I-Mab had to deduct that figure from its other revenue for last year.

Despite its top-line revenue falling into the red, I-Mab’s net loss increased just 3% last year largely due to slashed spending on R&D and other areas to slow its cash burning. Such cuts may be necessary, but certainly aren’t encouraging for this kind of growth company’s longer-term prospects.

And the cash burning continues. I-Mab’s cash and cash equivalents decreased about 9% to 3.2 billion yuan at the end of 2022 from a year earlier. This may seem like a large amount, but it’s actually relatively small when one considers the company had a negative net cash flow of 1.1 billion yuan from operations last year. At that rate of cash burn, I-Mab will only be able to operate a few more years without borrowing or raising more equity capital.

That’s where a potential sale of the company comes into play, which would instantly solve all of I-Mab’s money problems. And deal-making seems to be one of new CEO Kannan’s strong suits. When he ran Aerie, he sold the company to Switzerland-based Alcon. And before that, he oversaw a sale of Chiasma Inc. to Amryt Pharma Plc., also while acting as CEO of the former.

Such sales are relatively common in the west, often occurring when a startup is close to bringing its first products to market. But they are still relatively rare among Chinese companies.

Kannan didn’t stay long at either of his previous two employers, which suggests that his interest — and specialty — is producing quick results and then moving on. 

Perhaps I-Mab shareholders are already quite jaded, since the company’s stock has lost nearly 80% of its value since its 2020 IPO. Its shares currently trade at a price-to-book (P/B) ratio of just 0.6, well below about 4 for WuXi Biologics (2269.HK) and Innovent Biologics (1801.HK). That means investors might not be pleased with any sale before the company significantly boosts its valuation, most likely by winning regulatory approval for its key products.

Investors weren’t too enthused about the new CEO, given that I-Mab shares actually fell more than 3% in two days after the announcement of Kannan’s appointment.

Such caution may be warranted as setbacks in drug commercialization aren’t uncommon for developers. Also, it’s far from certain whether I-Mab can roll out its first products for sale as planned under Kannan’s reign, which presumably will be short, regardless of whether or not he engineers a sale of the company.

If I-Mab Chairman Zang’s intent is to test the waters for a sale of his company, then Kannan may only have a small window of time to bring results that investors can appreciate. Kannan is probably well aware of that fact, meaning the CEO position could become vacant yet again in just a year or two if I-Mab continues as a standalone company.