A number of analysts believe the stock of the biotech company Seattle Genetics (SGEN) has risen too high too quickly to support its current price, and have issued much lower target prices on the stocks than where it currently sits. On Thursday August 1st, Analysts at Cantor Fitzgerald issued a target price of $24 a share with a "sell" recommendation as they see the potential downside of the stock could drop 40.77% from its July 31st close. Previously, on June 10th, Zacks downgraded the stock and placed a price target of $41.20 per share. In May, analysts at UBS AG issued a price target from $30.00 to $36.00 giving the stock a "neutral" rating, while analysts at Leerink Swann issued a price target of $42.00. So far, the analysts have been wrong as Seattle Genetics has blown past their price targets, and as of August 2nd, the stock continued to rise, closing at $43.28 per share.
Recently, however, some analysts have raised their price target for Seattle Genetics as the company posted higher-than-expected second quarter earnings. On Aug 2nd, analysts at RBC Capital raised its price target from $40.00 to $44.00 per share. Separately, analysts at Jefferies Group raised its price target from $41.00 to $45.00 per share and have issued a "buy" rating on the stock.
Seattle Genetics develops its own drug pipeline as well as a large number of collaborations with other pharmaceutical companies based mainly on its antibody-drug conjugates (ADC). The lead program that the company developed with its ADC technology is the cancer drug, Adcetris (brentuximab vedotin) currently approved in the U.S., Canada, and the 27 member states of the European Union as well as Norway, Liechtenstein and Iceland for the treatment of Hodgkin's lymphoma (HL). In addition, under a collaboration with Millennium: The Takeda Oncology Company, Adcetris received conditional approval from the European Commission and orphan drug status in the U.S. for treatment of mycosis fungoides, a type of T-cell lymphoma. Millennium additionally received approval for Adcetris and continues to pursue regulatory approvals in other countries, including Japan. Thus far, Adcetris has been approved in 35 countries.
The Adcetris drug program focuses on a broad clinical development program to investigate its use in earlier lines of therapy for HL and mature T-cell lymphomas and in other CD30-positive diseases, including cutaneous T-cell lymphoma and diffused large B-cell lymphoma. The primary growth driver for Adcetris in the U.S. in the second quarter was an increase in market share across multiple lines of therapy in HL and ALCL. According to the company's recent market data, the penetration rates in all of the on-label indications exceed 70%, meaning that Adcetris has become the standard of care in its approved settings, and Physician interest in Adcetris continues to be strong.
Seattle Genetics is also evaluating Adcetris in multiple types of T- and B-cell non-Hodgkin lymphoma, most notably, diffused large B-cell lymphoma, and have been very encouraged by interim DLBCL data from its ongoing Phase II trial, which showed a 44% response rate and 81% of patients achieving tumor reduction. The company has added 2 additional arms to the trial that are enrolling relapsed DLBCL patients. One arm is assessing activity and safety of the combination of Adcetris and Rituxan. Another arm is evaluating single-agent Adcetris in patients whose tumors do not express detectable CD30, using standard immunohistochemistry methods.
Seattle Genetics is also working on a second technology, a Sugar Engineered Antibody (SEA) which the company is evaluating in its internal early-stage pipeline. SEA is a novel approach to increasing the potency of monoclonal antibodies through enhanced effector function. Monoclonal antibodies drugs are so specific, and unlike numerous other cancer treatments, they generally have only mild side effects. This technology comprises modified sugars that inhibit the incorporation of fucose into the carbohydrate chains of monoclonal antibodies, resulting in an enhanced antibody-dependent cellular cytotoxicity (ADCC), one of the critical mechanisms underlying the clinical efficacy of therapeutic antibodies. Seattle Genetics sees the SEA technology as a simpler and more cost effective compared to existing technologies for enhancing antibody effector function because it can be applied to existing cell lines without cell line re-engineering, and can be applied across a range of antibodies and antibody-producing cell lines.
Brentuximab vedotin currently is in 6 different clinical trials, four in phase 3, four in phase 2, and one in phase 1. The company also has 6 other ADC drugs in its pipeline in early stages of testing including the drug SGN-CD33A targeting CD33, a protein that is expressed on most acute myeloid leukemia (AML) cells. Also submitted for an investigational new drug (IND) application to the FDA is the breast cancer drug SGN-LIV1A where a phase 1 trial is expected to begin sometime in 2013.
ADC Collaborations Pipeline
Seattle Genetic is currently collaborating on 22 different ADC drug trials in various stages of testing with twelve different pharmaceutical companies, including nine with Genentech (RHHBY.OB), two with AbbVie (ABBV), two with Agensys (ALPMY.PK), and one with Pfizer (PFE). To date, these ADC collaborations have generated more than $225 million for Seattle Genetics and have the potential to generate more than $3.5 billion in milestone payments plus royalties.
In June, Seattle Genetics announced it entered into a collaboration with Bayer HealthCare (BAYRY.PK) for access to its Seattle Genetics' auristatin-based ADC technology to create cancer drugs that home in on tumors and then deliver a toxic dose to their cells. The collaboration will generate upfront and option exercise fees of up to $20 million. Seattle Genetics is also eligible to receive up to approximately $500 million in potential milestone payments, as well as royalties on worldwide net sales of any resulting products under the multi-target collaboration.
For the second quarter of 2013, Seattle Genetics reported a net loss of $6.9 million or 6 cents per share, far better than the $17.2 million loss or 15 cents per share the same quarter the previous year. The company also trounced Zacks consensus estimate of a loss of 18 cents per share. Total revenues for the second quarter came in at $73.6 million, while year-to-date total revenues were $130.9 million. Net sales of Adcetris increased to $35.7 million reflecting a growth of 3% in vials sold, and for the year, Adcetris net sales climbed to $69.7 million. The company's second quarter collaboration revenue totaled $34.3 million including $12 million in revenue related to the initial payment received under its new ADC collaboration with Bayer, and the company has increased its collaboration revenue guidance for 2013 from $85 million to $95 million. Royalty revenue came in at the second quarter at $3.5 million and $5.9 million for the year-to-date from international sales of Adcetris by Takeda/Millennium. Seattle Genetics currently has reserves of $338 million in cash and investments.
However, R&D expenses rose in the second quarter to $52.3 million, an increase from $42.8 million the same period the previous year. The company says the rise was due to increased spending for Adcetris development activities and other ADC programs.
Though Seattle Genetics does have its detractors, the company and the stock continues to roll. Seattle Genetics has positioned itself strongly with its collaboration deals and with its own pipeline of drugs in various stages of testing. The company's ADC technology program continues to grow, and if its SEA technology proves to be successful, it will have a second solid drug line for the market. Though the stock has risen significantly, 86% YTD, given the positive direction of its ADC technology and the potential of its SEA technology, I think the stock has additional growth potential.