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Background

Seattle Genetics (NASDAQ:SGEN), based outside of Seattle, WA, focuses on the development and commercialization of antibody-drug-conjugates, or ADCs, for the treatment of cancer. The idea behind these ADC therapies is simple: combine the strength of monoclonal antibodies (selective targeting) with the toxic, cell killing strength of a small molecule. By attaching the toxic compound monomethyl auristatin E to an anti-CD30 antibody, SGEN’s goal is to selectively bring the toxic payload to the desired cancer cell, whereby the whole ADC is internalized and the linker cleaved releasing the drug and killing the cancerous cell all while leaving healthy cells unharmed. A great animation from Genentech illustrates this fantastic process.

As usual, the devil is in the details. To the best of my knowledge, the stability of the linker has been the thorny issue. Balancing the need for ADC stability in the bloodstream with the goal of cleavage in the desired cell is the scientific equivalent of a tight-rope act. The first ADC on the market, Wyeth/Pfizer’s (NYSE:PFE) Mylotarg, appears to have suffered from early cleavage and released its toxin too soon. This led to significantly increased side effects with no evidence of efficacy and ultimately led to its withdrawal from the market.

To the best of my knowledge, SGEN is the first biotech to have solved this problem and brought a drug to market. Highlighting the power of this technology, SGEN’s recent investor presentation compares SGEN’s new anti-CD30 ADC (Adcetris) and its 73% objective response rate (ORR, defined as partial or complete response) to the anti-CD30 antibody alone (from ASCO 2005) and its unimpressive 0% ORR in refractory Hogkin Lymphoma. Clearly, the linker and toxin make a huge difference.

Adcetris

SGEN received accelerated approval for Adcetris earlier this year based on tremendous efficacy (73% ORR, in refractory Hogkin’s Lymphoma (HL) and an 86% ORR in systemic anaplastic large cell lymphoma (ALCL) with manageable side effects. Considering these patients were out of options, this is very impressive data, albeit surrogate endpoints. Sales of the drug reached $10 MM in the third quarter of 2011; impressive for only 6 weeks on the market. SGEN is attempting to move up the ladder to front-line therapy for HL, and here some uncertainty arises. Recent presentations from ASH and press releases showed that Adcetris in combination with AVD in newly diagnosed HL (eliminating the known pulmonary toxicity causing bleomycin, or “B” component of standard ABVD therapy, 19 patients) or in combination with ABVD (25 patients). For an interesting journal publication on whether or not “B” is required, see here.

No pulmonary toxicity was reported in the Adcetris+AVD arm, whereas significant (and expected) toxicity was observed in the Adcetrs+ABVD arm, albeit far higher than expected. This high level of pulmonary toxicity and adverse events in the Adcetris+ABVD arm caused 7 out of the 10 patients experiencing these events to switch arms (to Adcetris+AVD) during the course of the trial. Response data in the Adcetris+ABVD indicated that 100% of the 15 patients who completed treatment achieved a complete response. Data from Adcetris+AVD was not available at the time, and PET scan data was promising for both cohorts. As more data becomes available from this small, phase 1 trial, SGEN will most likely run a larger, phase 3 trial in an attempt to expand the label for first line therapy with Adcetris+AVD vs. ABVD.

One of the issues here will be trial design and powering of the study. Overall, patients recently diagnosed with HL (a rare cancer with an incidence in the US of ~8000-9000 patients/year) who are treated with the current standard of care, ABVD, have an expected 10 year survival rate of 90% or more for any stage of disease (HL has a bi-model distribution, patients are generally 18-40 or 55+). However, the cancer is refractory in ~20-30% of patients and SGEN here is filling an unmet need. However, in order to move up the ladder it may prove difficult to power a trial showing a large benefit to ABVD, given the already high survival rates. What endpoints to use? Will non-inferiority with improved side effect profile be enough for a ~100k a year treatment (ABVD is generic)?

In addition to these issues, we still await the results of the AETHERA trial, which is monitoring the safety and efficacy of Adcetris as a maintenance therapy vs. placebo (and best supportive care) in patients treating residual HL following autologous stem cell transplant (ASCT). Endpoints now include progression-free survival (primary), and overall survival (secondary) along with safety and tolerability. Since Adcetris was granted accelerated approval based on the surrogate endpoint of ORR, it is possible that this trial may not show improved survival outcomes, similar to Avastin in breast cancer recently.

However, I believe these issues are mitigated by the fact that SGEN has already ramped sales up and initiated clinical trials (indicative of physician and payor acceptance) and that this drug truly provides meaningful benefit to patients. In addition, there are additional CD30 positive malignancies where Adcetris may benefit patients, which potentially allow SGEN to build a broader Adcetris franchise.

Competition

While not competition in the traditional sense of targeting the exact same patients, rival Immunogen (NASDAQ:IMGN) also possesses a clinically validated ADC platform. IMGN’s collaboration with Genentech/Roche to bring a “super Herceptin” to market is currently in Phase 3 trials, and demonstrated very impressive results in its phase 2 study in patients who have failed many rounds of treatment (similar to SGEN). While utilizing a different linker and toxin, the idea is the same, and these firms will all be competing for collaboration and/or buyout dollars. In addition to IMGN, there are numerous other companies (big pharma, private biotechs, etc.) pursuing ADCs. However, IMGN has an impressive $885 MM market cap, but only stands to gain a mid-single digit royalty from sales of “super-Herceptin.”

Conclusions and Future Directions

While some uncertainty remains with the ongoing and upcoming trials with Adcetris for the treatment in HL, additional uncertainty emerges in the pipeline with ADCs targeting various solid tumors. Traditionally and broadly speaking, solid tumors represent tougher indications for biologics and small molecules due to poor pharmaco-kinetics. However, I believe this is offset by the numerous partnerships (12 active ADC collaborations!) and the depth of clinical and preclinical pipeline. Moreover, I believe the efficacy and accelerated approval of Adcetris is a validation for the broader ADC platform technology and a significant revenue source supporting the pipeline.

Although the currently approved indications are small, the treatment is efficacious and may contribute $50-100 MM in sales for 2012. While “platform technology” is generally an overused term in the industry, it is my opinion that this designation is warranted with SGEN. Seattle Genetics is at the vanguard of the hot new field (albeit, an increasingly crowded field) of ADCs and with clinical validation and impressive third quarter sales, investors may wish to consider SGEN as a speculative stock in their portfolios.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SGEN over the next 72 hours.

Source: Seattle Genetics: Innovative Biotech, Speculative Stock