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THE REAL VALUE OF SEATTLE GENETICS

Prohost Biotech - Wednesday, May 08, 2013

We don’t know who are those who have problems with Seattle Genetics (SGEN). All we know is that we personally have none and we feel extremely comfortable being shareholders in this firm. Seattle Genetics reported its financial results for the first quarter ended March 31, 2013. Nothing is negative with this firm’s managerial decisions, pipeline products, sales of its approved breakthrough drug Adcetris, or with its ongoing clinical trial decisions or clinical trials in general. The incurred quarter losses do not and should not raise any eyebrows, as the expenses are legitimate for a firm that has a rich pipeline of products in development and only one approved product that started generating revenues.    

Nothing, however, seems to be good for the game players professional sell-side analysts and investors. They have nothing to do other than keep trying to convince shareholders to sell their excellent firms’ shares. It does not matter for them if they fail to convince us because their pipeline of followers beats by far Seattle Genetics’ pipeline of breakthrough drugs.

Having said that, Adcetris (brentuximab vedotin) is indeed progressing, not only on the market, but also in many other positive activities. Seattle Genetics antibody-drug conjugate (ADC) pipeline and technology are advancing nicely with no cited problems other than those that encounter all investigational drugs. 

Seattle Genetic goals are ambitious. Its ambitious vision is not a dream, but it worked hard and intelligently to try to reach the lofty goals and it will succeed in its endeavor. This is the least of what the goals have to be when a breakthrough technology such as ADC exist with a unique capability of putting safer and much more effective drugs in the firm’s pipeline. As a matter of fact Seattle Genetics pipeline has become extremely rich and valuable with a long list of products that promise the lot, not the least. 

Adcetris: SGEN and its collaborator, Millennium are bringing the first approved ADC drug to more patients around the world through more approvals and through getting more clinical trials and agencies’ facilitations for developing the drug for other diseases and for diseases with limited populations. In this respect the following has been accomplished: 

- Initiation by millennium of the ECHELON-2 global, randomized phase 3 trial comparing Adcetris in combination with chemotherapy to standard chemotherapy for frontline CD30-expressing mature T-cell lymphomas.

- Submission a supplement to the biologics license application for Adcetris to the FDA for the   retreatment of patients and for extended duration of use beyond 16 cycles of therapy.

- Approval of Adcetris in Switzerland for patients with relapsed or refractory CD30 positive HL after autologous stem cell transplant or after a minimum of two previous treatments if a stem cell transplantation is not a treatment option, and for relapsed or refractory sALCL.

- Submission of new drug application for Acetris by millennium/Takeda in Japan for the treatment of relapsed or refractory HL and sALCL.

- Approval with conditions of Adcetris for relapsed or refractory Hodgkin lymphoma (HL) and systemic anaplastic large cell lymphoma (sALCL) by Health Canada.   

- Granting Adcetris orphan drug designation by the FDA for peripheral T-cell lymphoma not otherwise specified (PTCL- NOS), providing various benefits including potential waiver of the FDA's application user fee.

- Granting Adcetris a fast track designation by the FDA for the frontline treatment of CD30-positive mature T-cell lymphomas.    

P.S. There are more than 20 ongoing Adcetris clinical trials, which comprise four phase 3 studies, two programs planned for phase 1 trial initiations during 2013 and a dozen ADCs in clinical development by collaborators.

We do not believe that the above can be translated into bad news. Also, we cannot imagine that the following news could be negative anyway, especially the news announcing that:

Based on a slower-than-expected rate of progressions in pooled blinded data from the ongoing AETHERA clinical trial, the company’s expectation of reaching the pre-specified number of progression-free survival events needed for unblinding the trial will likely extend into 2015.  

Other News include:

SGN-CD19AInitiation of two phase 1 trials. This drug is a CD19-targeted ADC. One trial is in B-cell acute lymphoblastic leukemia and one is in B-cell non-Hodgkin lymphomas.

SGN-CD33A and SGN-LIV1A: Preclinical data highlighted at the Annual Meeting of the American Association for Cancer Research (AACR). The highlighted programs demonstrates the advances  made in research to develop highly stable linkers and more potent cell-killing agents. SGN-CD33A is a CD33-targeted ADC utilizing the company’s pyrrolobenzodiazepine (PBD) dimer-based ADC technology. A phase 1 trial in acute myeloid leukemia (AML) is expected to begin during 2013.

ASG-5ME: Completed enrollment in phase 1 trials for prostate and gastric cancer.

Payments From Collaborators

SGEN reported fees from ongoing ADC collaboration with Genentech upon its extension of the research term and renewal of exclusive licenses to specific ADC targets.

The firm received milestone payments under ADC collaborations with Daiichi-Sankyo and GlaxoSmithKline triggered by preclinical progress with ADCs utilizing Seattle Genetics’ technology. It received fees from Agensys, an affiliate of Astellas, upon its option exercise for an additional exclusive antigen license under the companies’ ongoing ADC collaboration.

Upcoming Events:

Mid-2013: Initiation of the phase 1/2 clinical trial of Adcetris in combination with bendamustine for second-line HL patients.   

Second Half 2013: The initiation of the phase 2 frontline trial of Adcetris + Rituxan + standard chemotherapy (R-CHOP) for diffuse large B-cell lymphoma.   .

During 2013The initiation of Phase 1 trial of SGN-CD33A for AML.  

During 2013: Submission of IND application to the FDA for SGN-LIV1A, a LIV-1-targeted ADC. During 2013:   A phase 1 trial in breast cancer.   

First Quarter Financial Results:

Total revenues $57.3 million, compared to $48.2 million in the first quarter 2012.

Adcetris net sales in Q1:   $33.9 million.  

Royalty in Q1: $2.4 million.

Revenues From Collaborations: $21.0 million.   

R&D expenses for Q1: $47.7 million, compared to $38.5 million Year before

R&D expenses also include increased investment in the company’s ADC pipeline programs.

Net loss for Q1: of 2013: $16.3 million, or $0.14 per share, compared to a net loss of $12.3 million, or $0.11 per share, for the first quarter of 2012.

Cash: As of March 31, 2013, Seattle Genetics had $344.1 million in cash, cash equivalents and investments, compared to $364.3 million as of December 31, 2012.

Market Cap: $4.30 Billion.

Prohost word: The stock has outperformed in the previous six months. Still, the current market cap is not fair for a lot of highly advanced, very promising products treating various cancers. Indeed, $4.30 B value for SGEN is reflecting nothing of the firm’s future revenue expectations out of the long list of the very promising products. It gives a zero value for the technology, a zero value to the investigational products and a zero value for the intellectual properties that encompass by far the value of the current products’ patents, including the advancements made in the firm’s ADC technology, especially the improved proprietary linkers and toxic loads. Finally, SGEN’s market cap does not comprise the growing sales.   

We Are Long On SGEN

FORWARD-LOOKING: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

 

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