Seattle Genetics' Bright Future - Part I

| About: Seattle Genetics, (SGEN)

The market of monoclonal antibodies for cancer is one of the fastest growing segments in the pharmaceutical industry, with several blockbuster drugs such as Rituxan and Herceptin. Although over a year has passed since the FDA last approved an antibody for the treatment of cancer, the extensive activity in the field will surely lead to a substantial addition of antibodies in the coming years.

In parallel to this progress we believe that the industry is on the verge of a widespread adoption of the next generation of antibody–based platforms. These platforms, generally referred to as immunoconjugates, comprise of an antibody linked to an effector molecule, such as a chemotherapy drug or a radioactive isotope. As hybrid agents, immunoconjugates benefit from the advantages of the two moieties: The antibody moiety makes them very selective against cancer cells while the effector moiety confers strong potency.

Seattle Genetics (NASDAQ:SGEN), one of the pioneers in the field of immunoconjugates, is shaping up to be a very important player in this field, thanks to its proprietary technology and extensive experience. The company uses its unique platform for coupling antibodies to chemo drugs, which result in very specific yet powerful Antibody-drug-conjugates [ADCs].

The market for ADCs is still in its infancy, which means that ADC development bears a higher risk compared to "naked" antibodies development. However, history has taught us that early entrance into a new disruptive market may be very rewarding, despite the obvious challenges. For the past several years, Seattle Genetics experimented with various types of immunoconjugate platforms that consumed a lot of time and money but failed to generate successful drug candidates. Today, after 2 ADCs powered by its technology showed impressive activity in phase I clinical trials, the company is better positioned than ever to lead the antibody industry's migration from naked antibodies to immunoconjugates.

Obviously, Seattle Genetics is not the only ADC player in town, and there are also efforts among companies such as Wyeth (WYE) and Medarex (MEDX) to develop ADCs in-house. Nevertheless, being an ADC specialist may pay off in the coming years, as it will probably bring many companies, who would like to gain access to this lucrative market, to Seattle Genetics' doorstep.

Seattle Genetics is a product-oriented as well as technology-oriented company. On the one hand, it develops its own antibody-based candidates while on the other, it licenses its products and ADC technology to 3rd parties such as Genentech (Private:DNA) and Curagen (CRGN). In most cases, the partner has an antibody that can target cancer cells, but does not have sufficient clinical effect. Seattle Genetics can potentially boost an antibody's activity by linking it to a potent drug.

Such licensing deals typically involve an upfront payment, milestone payments and royalties from future sales, in addition to the partner's obligation to fully finance development costs. This strategy has become widespread among small and medium biotech companies, as it enables their involvement in a relatively large amount of projects, while keeping expenses low.

Ironically, most of the interest in the company revolves around a lucrative partnership it has with Genentech for one of its naked antibodies, and not because of the company's promising ADC technology. However, a gradual shift in Seattle Genetics' pipeline towards ADCs is likely to occur, with several candidates that are either independently developed or co-developed with its partners expected to be promoted into the clinic as soon as next year. In this article, we will review Seattle Genetics' unique ADC technology and its lead candidate – SGN-40, with the other 4 candidates (SGN-30, SGN-33, SGN-35 & CR011-vcMMAE) to be covered in a follow-up article.

The Arms Merchant

The capability of developing antibodies for cancer can be found at most pharma companies' R&D centers, either as a result of internal R&D efforts or M&A activity, such as the acquisitions of Cambridge Antibody Technology and Abgenix by AstraZeneca (NYSE:AZN) and Amgen (NASDAQ:AMGN), respectively. Therefore, there is nothing unique about a company that can develop cancer antibodies, even though there are many other differentiating factors between the companies. The crucial element in developing an ADC is linking the antibody to the drug payload. As simple as this concept may sound, its realization is highly complex and challenging, and in our opinion represents the main entry barrier to the field.

As ADCs are also termed "armed antibodies", companies like Seattle Genetics can be viewed as the arms merchants of the antibody industry. Being an arms merchant, the company focuses on two areas: Technologies for conjugating antibodies to toxic drugs and potent toxic compounds that will be attached to the antibodies. The ability to develop highly potent drugs and conjugation technologies is Seattle Genetics' main asset, since this is the ideal way to differentiate itself and to broaden the company's pipeline through partnership deals.

In an industry where the vast majority of candidates fail, it is imperative for companies like Seattle Genetics to have as many candidates as possible, even if eventually most of the revenues go to the partners. At this stage, with the limited resources Seattle Genetics has, betting on few wholly owned candidates is statistically unfeasible.

Although the company has had its share of failures over the years, we believe the advances made both in terms of linkers and drugs will finally enable it to generate a constant flow of candidates into the clinic, whether independently or in collaboration with partners. In order to look at the progress that has been made so far, the best place to start is the failure of Seattle Genetics' flagship product, SGN-15, an antibody linked to the chemo agent Doxorubicin, whose development was discontinued in mid 2005 after a series of discouraging clinical trials. On top of the usual uncertainties related to drug development, there were probably two main factors that severely sabotaged this candidate's prospects.

The first factor was the use of an approved chemotherapy drug such as Doxorubicin as the conjugated drug. Chemotherapy agents that are conventionally administered to patients are distributed across the body and affect healthy cells as well as cancer cells, leading to the so typical side effects of chemo. Consequently, approved chemo drugs represent a fine balance between two needs: They must be strong enough in order to kill cancer cells, but not too strong, so the damage caused to normal tissues is acceptable.

In contrast, when chemo drugs are linked to an antibody, they can be targeted to tumors specifically, since the antibody guides them. This enables the use of much more potent drugs, otherwise impossible to use in conventional administration. Furthermore, since only a small fraction of the administered antibodies eventually accumulate in cancer cells, it is critical that the few antibodies that do reach the tumors carry a very potent payload. This can be accomplished by two approaches: The antibody must either be loaded with a large amount of drug molecules or a small amount of very potent drug molecules. Although there are efforts on both fronts, the latter approach is more practical, at least for now.

Bottom line, in order to have an effective ADC, drug developers should use chemo drugs that are too toxic to be generally administered. This approach was validated by the only FDA-approved ADC, Mylotarg, which utilizes Calicheamicin, a drug that is too toxic on a stand alone basis. Both Seattle Genetics and Immunogen (NASDAQ:IMGN) are currently using such compounds as the basis for their ADC platforms: Seattle Genetics picked auristatin, while Immunogen focuses on maytansine.

The second disadvantage in SGN-15 is linker instability. An ideal linker should be very stable in the bloodstream but also readily degradable once inside cancer cells, so it would release the free drug only inside target cells. For SGN-15, Seattle Genetics uses an acid-labile linker, which is relatively stable in neutral environment (bloodstream) and very unstable in acidic environment (present in certain compartments inside cells). This kind of linker is used very successfully in Mylotarg for the treatment of acute myelogenous leukemia [AML], making Seattle Genetics' pick very reasonable at the time.

However, SGN-15's stability in patients proved to be pretty low, mainly as a result of premature linker degradation in the bloodstream, before reaching the tumors. Mylotarg had a great success despite being based on an acid-labile linker because it attacks a blood-borne malignancy and the antibody can find its target quickly, before linker degradation and drug release. In contrast, the dense mass of solid tumors makes them far less accessible compared to blood cancers. Therefore, the ADC must be present in the bloodstream for longer periods at higher concentrations, necessitating highly stable linkers.

By the time SGN-15 was scrapped, Seattle Genetics already had its next generation of ADC technology up and running. On the drug front, the company licensed a potent drug called auristatin E from Arizona State University, which was found to be almost 200-fold more potent than Doxorubicin, and used it as a basis for its own proprietary drug, MMAE. This drug is a very potent anti-tubulin inhibitor that can be synthesized cheaply in very large quantities and subsequently be conjugated to a virtually unlimited number of different antibodies. Another appealing attribute of Seattle Genetics' conjugation technology is the highly homogeneous population of ADCs, as oppose to other methods, including that of Immunogen.

On the linker front, Seattle Genetics chose a peptide-based linker which is cleaved by enzymes that are present inside cells but not in the bloodstream. Upon cancer cell binding, ADCs are trafficked to a special compartment called lysosome, where there is an abundance of enzymes that cleave the linker and release the drug inside the cell. Seattle Genetics' peptide linker has demonstrated an increase of more than 3-fold in stability in the bloodstream, which, combined with the high potency of MMAE, puts the company's candidates in a better starting point.

It is crucial to understand that ADCs are not commodity products, but highly complex systems that require a great deal of customization and optimization. Multiple factors, including (but not limited to) cancer type, the target on cancer cells, exact binding site, type of linker, efficiency of drug release, mechanism of conjugation, type of drug and amount of drug payload affect the performance of each candidate.

The number of variations for each ADC is high but it is impossible to predict the optimal combination in advance. Thus, the exact antibody-linker-drug combination should be tailored specifically for each ADC candidate, perhaps even for each condition the candidate is aimed at treating. In order to stay relevant, Seattle Genetics must constantly develop new linkers and drugs, in addition to developing antibodies and identifying attractive cancer related targets. It is not surprising though, that the company is currently developing next generation linkers and drugs that will possibly be employed in future projects.

SGN-40 – The big comeback

Seattle Genetics' lead product is SGN-40, an antibody targeting CD40 which is a very common receptor expressed on various hematological malignancies such as non-Hodgkin lymphoma [NHL], chronic lymphoid leukemia [CLL] and Multiple myeloma [MM]. Surprisingly, CD40 is also expressed on solid tumors such as breast and ovarian cancers, which may broaden SGN-40's spectrum of application. Although everybody is smiling at the moment, the company has undergone quite a rollercoaster with this candidate, lasting more than 8 years and involving 3 different names for the same antibody.

In June 1998, Seattle Genetics licensed an antibody that targets CD40 from the Swedish company, Mabtech. It received worldwide exclusive rights in return to milestone payments and royalties from future sales of the antibody, that was designated SGN-14. The company developed SGN-14 independently for exactly one year, at the end of which, in June 1999 it licensed SGN-14 to Genentech, who renamed SGN-14 with the "catchy" name PRO64553.

The deal with Genentech included $41.0 million in potential milestone payments and also provided for milestone payments of up to $20.0 million and future royalties on net sales of each additional product Genentech would license. In January 2002, the company announced that PRO64553 has entered Genentech's clinical development portfolio with a clinical trial expected to start later in 2002. However, in October 2002 Genentech informed Seattle Genetics it abandoned plans to further develop the antibody. Seattle Genetics decided to independently develop the "abandoned" antibody, renaming it again to SGN-40 and launched 2 clinical trials in 2004.

The first phase I trial evaluated SGN-40 in multiple myeloma [MM] patients. This trial did not produce objective responses at doses up to 8 mg/kg, although some minor antitumor activities were observed.

The second phase I trial, which was reported in December 2006 was the turning point for SGN-40. The study evaluated SGN-40 among 31 heavily pre-treated non-Hodgkin's lymphoma [NHL] patients. These patients had been treated with a variety of agents, including Rituxan, but their cancer eventually relapsed.

One patient had a complete response and 4 others had partial response, which implies an objective response rate of 16%, quite encouraging for a phase I dose escalation trial, where the first enrolled patients receive very low doses of the drug. Interestingly, of the five objective responses, 4 were in aggressive NHL, 3 of which were in Diffuse Large B-Cell Lymphomas (DLBCL) patients, the most common subtype of aggressive NHL.

Based on these findings and other pre-clinical results which implied SGN-40 might have synergies with conventional NHL treatments, Genentech decided to re-partner with Seattle Genetics for the development of SGN-40, however, this time, it cost Genentech much more than the previous deal. The impressive clinical results gave Seattle Genetics much better negotiation leverage, as it was clear to both sides that SGN-40 has a huge potential. The new agreement includes a $60 mil upfront payment, more than 800$M in potential milestones and double-digit escalating royalties of future sales of SGN-40. In addition, Genentech is obliged to finance all costs of R&D, manufacturing and commercialization related to SGN-40.

It is clear that Genentech has extremely high hopes for SGN-40 as an important candidate in its pipeline, with possible synergies with its current NHL antibody - Rituxan. The market for NHL is huge, with over 63,000 cases expected to be diagnosed in 2007 in the US alone, over 40% of which will be diagnosed with aggressive disease. Rituxan proved to be highly efficient in treating NHL as a single agent or in combination with chemotherapy.

It is also effective to a lesser degree in patients with relapsed NHL who had previously received Rituxan, but ultimately many patients relapse or become resistant to available treatments and are left without a viable option. Thus, new treatments are urgently needed in order to increase the efficacy of current treatments, extend disease-free intervals and serve as an additional option for relapsed patients.

Rituxan is the best selling monoclonal antibody in history (almost $4 billion in annual sales in 2006), largely due to its use in NHL and CLL. This success has made NHL and more specifically, Rituxan's target, the CD20 receptor, a very attractive target for other companies who develop monoclonal antibodies.

Unfortunately for Genentech, it could not patent the actual targeting of CD20 by monoclonal antibodies in order to fend off competition. This is in contrast to the situation with Herceptin, where Genentech had patented Herceptin's target (her2) in a way that no one can sell anti-her2 antibodies, without getting Genentech's permission. The two primary anti-CD20 antibodies currently in development are Genamb's ofatumumab and Immunomedics' (NASDAQ:IMMU) veltuzumab, both might have certain advantages over Rituxan.

In order to tighten its grip on the NHL market, Genentech is currently developing several antibodies for the treatment of NHL, one of which targets CD20 while 3 others (Avastin, Apomab and SGN-40) do not target CD20. These antibodies are currently evaluated in combination with Rituxan, and if proven effective, may help Genentech maintain its dominant position in the NHL market.

Genentech and Seattle Genetics are not wasting any time and already announced what seems to be an extremely broad and ambitious clinical program for such an early stage candidate. In addition to two ongoing clinical trials, the companies expect to have 4 additional clinical trials by the end of Q1 of 2008. Altogether, these trials encompass a wide spectrum of potential use, from early stage to relapsed disease and from indolent to aggressive NHL, as well as two multiple myeloma evaluations.

An ongoing phase II study, which was initiated by Seattle Genetics before the agreement with Genentech, evaluates SGN-40 as a single agent in DLBCL patients. Considering the promising activity SGN-40 showed in the phase I trial specifically in that subset of patients and the fact that DLBCL represent the most common type of aggressive NHL, this trial looked like the obvious next step. This trial has chances of showing very impressive results due to the homogenous patient population and the high dose utilized in this trial (8 mg/kg/week). The companies expect to have data from this study next year.

A second phase II trial will evaluate SGN-40 in combination with Rituxan and the chemotherapy regimen- ICE, following promising preclinical results of this combination. This trial will be a double blind, randomized, which means that it is aimed at showing that SGN-40 has an additive effect to standard therapy. Rituxan+ICE are often used as 2nd line therapy for DLBCL in order to enable patients to undergo bone marrow transplant, so the ultimate goal here is to ameliorate the success rate of this procedure.

A third phase I trial is planned to start already in 2007 in England. This trial will evaluate the combination of SGN-40 with Rituxan in non-aggressive (indolent) NHL patients.

A fourth trial will evaluate the combination of SGN-40 with Rituxan and Eli Lilly's (NYSE:LLY) Gemzar in DLBCL patients. Rituxan + Gemzar are often used to treat patients with relapsed disease who cannot tolerate Rituxan+ICE.

Since SGN-40 didn't prove to be highly effective in MM patients as a single agent, the companies decided to combine it with 2 of the most dominant drugs in the MM market. An ongoing trial was initiated this month, evaluating SGN-40 and Celgene's (NASDAQ:CELG) Revlimid. A second trial, expected to be launched in Q108, will evaluate SGN-40 in combination with Millennium's (MLNM) VELCADE.

Although outcomes of clinical trials are unpredictable, the promising results in highly pretreated NHL patients, the aggressive clinical program and the strong presence of Genentech substantially improve success rates of SGN-40 when compared to the average candidate in the same clinical stage. Even if SGN-40 is not eventually approved for the treatment of every indication for which it is being evaluated, Seattle Genetics is still looking at a constant flow of several tens of millions of $ worth of milestones payments from Genentech over the next several years. As previously stated, all the costs related to the SGN-40 clinical development are paid by Genentech so Seattle Genetics can safely allocate resources to other clinical programs, which will be discussed in our next article.