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Roche's (OTCQX:RHHBY) investor day, held last week, gave Seattle Genetics' (NASDAQ:SGEN) investors reasons for optimism. Roche has 9 antibody drug conjugates (NYSE:ADC) in clinical testing: T-DM1, powered by Immunogen's (NASDAQ:IMGN) technology and 8 additional ADCs (in phase I) that are based on Seattle-Genetics' technology. These ADC programs are expected to have data readouts in the coming year, making them Seattle Genetics' major near-term growth opportunity. Following last week's event, it is now clear that at least 5 of the 8 ADCs are active in cancer patients.

5 patients, 5 programs

At the R&D day, speakers from Roche and Genentech were very excited with their ADC pipeline. Although no data was officially published for any of the ADCs, the company presented anecdotal cases that were quite encouraging. Examples included what looks like a complete response in an aggressive lymphoma patient who was treated with an anti-CD22 ADC. Another case was for an elderly lymphoma patient with another ADC for hematologic tumors (probably anti-CD79b ADC). Additional cases were 2 patients with ovarian cancer (each received a different ADC) and a patient with lung cancer.

Altogether, the presentation included 5 examples of patients who achieved objective responses following treatment with 5 different ADCs. The confirmed responses in patients with ovarian and lung cancers are particularly encouraging, as responses in solid tumors are less common than in blood cancers.

It is important to note that these are only anecdotal cases that do not necessarily reflect the overall clinical profile of the ADCs. Theoretically, the activity mentioned at the R&D day might be the exception rather than the rule, but this seems unlikely given the excitement around the programs.

Below are Roche's ADC pipeline and scans depicting the 5 responses:

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A new growth engine

Seattle Genetics derives most of its market cap ($3.4B) from Adcetris, which is approved for the treatment of 2 types of blood cancer. Using Adcetris as a proof of concept, Seattle Genetics was very successful at monetizing its ADC technology via lucrative licensing deals. The company was not as successful at advancing its pipeline (proprietary and partnered) and has had little to show to the market besides Adcetris. The only program to which the market ascribes value is Celldex's (NASDAQ:CLDX)CDX-011, which entered the clinic in 2006.

Between 2008 to 2010 the company and its partners advanced 7 ADCs to phase I, all were subsequently discontinued or demonstrated disappointing activity in patients. 4 programs with Genentech (anti-MUC-16), Medimmune (anti-EphA2), Bayer (anti-CA-IX) and Agensys (anti-AGS16) are no longer active. 2 additional programs with Progenics (anti-PSMA) and Agensys (anti- SLC44A4) are active, but so far results are disappointing. Seattle Genetics' wholly owned SGN-75 started phase I in 2009 but it was not potent enough as a single agent, which led the company to start a combination trial recently.

After 2010, 10 additional partnered ADCs started clinical testing. These include 8 programs developed by Genentech, a program with Agensys and a program with Takeda. These 10 programs represent Seattle Genetics' growth opportunity, as Adcetris' success is already priced in.

Ideally, Seattle Genetics needs ADCs with single agent response rate of at least 20% in heavily pretreated patients and a reasonable safety profile. This clinical profile could justify accelerated approval with phase II data. Roche stated 5 ADC programs will start phase II by year-end 2013, so there is a fair chance for 1 or 2 of Roche's ADC programs to fall into this category already next year.

Biotech portfolio update

We are adding a second position in YM Biosciences (YMI) and selling our position in Progenics (NASDAQ:PGNX).

Portfolio holdings as of Sep 9th, 2012

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Source: Seattle Genetics: Positive Read-Through From Roche's Investor Day