Seattle Genetics: Good Time To Buy Based On Adcetris Label Expansion

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About: Seattle Genetics, Inc. (SGEN)
by: Avisol Capital Partners
Summary

Seattle Genetics recently reported halt of its trials for vadastuximab.

The company awaits some key FDA decisions for expanding the addressable market for Adcetris.

The stock is attractively valued for medium- to long-term investment at current price level.

By Dr. Udaya Maiya, MBBS, MD, DNB, DCCF-Paris

Seattle Genetics (SGEN) is a midsized company with outsized dreams. Those dreams, thus far, were mostly centered around revenues it made from its one big show - Adcetris - in one small market, 2nd line classical Hodgkins lymphoma, and in another even smaller market, 2nd line Systemic anaplastic large cell lymphoma (sALCL), a very rare type of non-Hodgkin lymphoma. The company tried to expand the scope of its ADC (antibody-drug conjugate) platform but there were failures, which, in effect, took it back to that one wonderful drug in those two small markets.

However, recently, there has been some very good news, some of which has suddenly broadened the scope of Adcetris to include 1st line classical HL, which is a market thrice as large as 2nd line. More good news is new collaborations with Danish company Genmab and another with Genentech. Then there is the upcoming PDUFA on December 16th for its sBLA for Adcetris in patients with cutaneous T-cell lymphoma. Finally, the company did report some very positive earnings data. All these things together, coupled with the company’s quite depressed price point at the time of writing, makes it an interesting, if cautious, buy at this point.

Seattle Genetics announced positive data from its Echelon-1 trial in Hodgkin Lymphoma. The trial was conducted in collaboration with partner Takeda (TKPYY) and is expected to provide broader market for the company’s key drug Adcetris. The study showed that it reduced the risk of disease progression by 23 percent. The drug is expected to be priced between $100,000 and $120,000 for first-line Hodgkin patients, and is likely to be a lucrative market for the company. The total Hodgkin lymphoma treatment market is estimated to touch $1.4 billion by 2024. The current market is dominated by Seattle Genetics’ Adcetris; however, there are only around 3000 2nd line patients in the US every year, compared to 10,000 1st line patients. With ECHELON-1, the drug proved its superiority over chemotherapy, although on a slim margin. The trial was conducted under a Special Protocol Assessment (SPA) agreement with the FDA; however, that should not be a hindrance to approval.

Seattle Genetics is looking to diversify its product portfolio which currently has only Adcetris in it. With a long-term horizon in mind, the company has some interesting drug candidates such as Tisotumab Vedotin. Seattle Genetics recently reported that it plans to collaborate with Genmab for the purpose of co-developing the drug for treating solid tumors. The drug is currently being studied for treating recurrent cervical cancer. The new 50:50 basis cost/profit collaboration may help the company in significantly augmenting the potential addressable market. The deal with Genmab will also allow Seattle Genetics to diversify its resources in a more efficient manner as both the companies will have equal share in the future costs of development.

Despite its various problems, Seattle Genetics still presented better-than-expected results for the second quarter. The company still relies on Adcetris for its revenue as it reported $74.3 million worth of sales in the second quarter for the drug, while its total revenue stood at $108.2 million. Adcetris revenue grew 12 percent on a year-over-year basis while overall revenue showed 13 percent growth. The net loss for the quarter stood at $56.4 million or $0.39 per share, up from $56.4 million or $0.23 per share for the corresponding quarter of the previous year.

The increase in net loss is mainly on account of increase in the total cost and expenses for the company, which is expected as Seattle Genetics goes ahead with trials and studies for its several drug candidates. However, the results also highlight the urgency for the company to reduce its dependence on Adcetris and to augment its revenue resources to wipe out recurring losses. The company seems to be on the right path as it reported a number of such developments in the recent months. Seattle Genetics is growing its collaborations with other pharma companies to speed up the development process. In addition to its deal with Genmab, it has also struck a new alliance with Genentech to evaluate its SGN-LIV1A in combination with atezolizumab (TECENTRIQ) in patients with metastatic triple-negative breast cancer. TNBC is a pretty large market, and Genentech is by far the most important oncology research outfit out there. So, this deal has some promise.

On the flipside to the SGEN story are a few issues. One, Opdivo and its foray in classical HL. Opdivo is already approved here, but currently it is a post-Adcetris option; note its indication - “for the treatment of patients with classical Hodgkin lymphoma [CHL] that has relapsed or progressed after autologous hematopoietic stem cell transplantation (HSCT) and post-transplantation brentuximab vedotin (Adcetris).” However, SGEN is playing this smart by teaming up with Bristol Myers (BMY) to study a combination of Adcetris and Opdivo in relapsed classical HL. The other issue is the failure of vadastuximab talirine in acute myeloid leukemia in terms of safety, where it received a CRL after a number of patient deaths as a possible result of hepatotoxicity.

Apart from a number of drug candidates in early and middle stage studies, the company also has a couple of interesting developments coming up in the near future. The company plans to submit its supplemental Biologics License Application or sBLA for approval of Adcetris in frontline advanced classical Hodgkin lymphoma by the end of this year. It has already submitted its sBLA for Adcetris in patients with cutaneous T-cell lymphoma and is expected to receive the FDA decision by December 16th. These upcoming FDA decisions will likely boost the company’s revenue stream and consequently the stock price. The current beaten-down price, despite being a tad higher than its 52-week lows we saw recently, still provides opportunity for a mid-term focused entry based on the December catalysts, and a broader, longer-term focus based on Adcetris’s potential in 1st line HL and the company’s other developing candidates.

Disclosure: I am/we are long SGEN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.