Shares of ImmunoGen (IMGN) are dropping after the company disclosed what some investors see as disappointing royalty terms for a promising new cancer drug.

ImmunoGen is partnered with Swiss pharmaceutical giant Roche (RHHBY) in a licensing agreement for the development of a breast cancer treatment that the Food and Drug Administration is considering for approval.

The drug, trastuzumab emtansine, or T-DM1, combines ImmunoGen's chemotherapy with Roche's Herceptin to better target cancer. Roche's Genentech subsidiary applied for FDA approval in August. Roche also applied for approval in Europe. Analysts expect the drug will be approved based on positive results from clinical studies.

Some analysts estimated earlier that ImmunoGen would earn 5% royalties on sales of the cancer drug -- assuming that it gets approved. In a securities filing Friday, ImmunoGen disclosed that its royalty payments in the U.S. and outside the country begin at 3% of sales and only reach the 5% level if revenue jumps above $700 million in a given year.

The disclosure has analysts like Joel Sendek of Stifel Nicolaus revising his revenue estimates for ImmunoGen. After initially predicting annual royalty revenue of $2.4 million to $176 million between 2013 and 2018, Sendek now estimates ImmunoGen will receive $300,000 beginning in 2013 up to $126 million in 2018. Again, these figures are based on the drug actually get approved. Sendek has a hold rating on ImmunoGen’s stock.  

Shares of ImmunoGen fell more than 14% to $11.83 in midday trading Friday. The stock is up 2% on the year. It traded to almost $18 per share in July.

Herceptin targets a protein known as HER2 that promotes cancer growth. The combination therapy of T-DM1 is designed to deliver the chemo directly into cancer cells.

"We believe T-DM1 has the potential to rapidly become a highly successful product that makes a real difference," ImmunoGen CEO Daniel Junius said as the company released its quarterly results Friday.

In its fiscal first quarter, ImmunoGen lost more than $25 million, or 30 cents per share, on $4 million in revenue. In addition to its Roche partnership, ImmunoGen has collaborations and license agreements with Sanofi (SNY), Amgen (AMGN), Novartis (NVS), Eli Lilly (LLY) and Bayer (BAYRY).

More from Minyanville

• The 10 Corporate Criminals With The Longest Prison Sentences
• Human Rights Campaign Announces LGBT-Friendly Prudential As Next Gala Honoree
• Random Thoughts: Frankenstorm, GDP, Apple, and Amazon