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Two Small Great Biotechs Underestimated by the Market

Prohost Biotech - Tuesday, June 25, 2013

Seattle Genetics’ (SGEN) and ImmunoGen’s (IMGN) conjugated monoclonal antibody therapeutics for cancer are increasingly validating their superior safety and efficacy over other cancer products that are used without the antibody drug conjugates (ADC).

The most recent news is Bayer’s decision to use Seattle Genetics’ ADC technology, seeking more safety and efficacy of their cancer drugs.  For that reason, Bayer agreed to pay Seattle Genetics $20 million up-front fees plus about $500 million in development and commercialization milestones and royalties on any products that emerge from the collaboration.

Andreas Busch, head of Bayer’s global drug discovery, said in that the ADC technology is a focal point for Bayer. Indeed, using conjugated monoclonal antibody in developing some of the firm’s pipeline products will increase the products’ safety and improve their efficacy several folds. “We are looking forward to strengthening our portfolio,” Busch said.

Prohost Comments: Our subscribers know that Seattle Genetics’ drug, Adcetris® (brentuximab vedotin) has been granted accelerated approval by the FDA for Hodgkin lymphoma after failure of autologous stem cell transplant (ASCT) or after failure of at least two prior multi-agent chemotherapy regimens in patients who are not ASCT candidates. It has also been approved for systemic anaplastic large cell lymphoma (ALCL) after failure of at least one prior multi-agent chemotherapy regimen.

Seattle Genetics has more than 10 collaborator on its ADC programs in clinical development that utilize its ADC technology. The licensing agreements have generated more than $200 million to date, yet, more important is that the $200 million are nothing compared to the revenues Seattle Genetics is expected to generate when the partners’ ADC drugs will hit the market. The revenues are expected to be in the billions of dollars. Roche, through Genentech has around nine ADC products in development for various cancers, two of them, having different targets, are ending Phase 2 clinical trials on their way to beginning Phase 3.  

Under Seattle Genetics’ ADC license agreements with AbbVie (formerly Abbott), Agensys, Bayer, Celldex, Daiichi-Sankyo, Genentech, GlaxoSmithKline, Millennium, Pfizer and Progenics, Seattle Genetics is entitled to receive upfront payments, milestones and royalties on net sales of any resulting ADC products. These agreements promise Seattle Genetics more than $3 billion in future milestone payments. Important to note is that the licensees are responsible for the manufacturing and commercialization of the products.

ADC co-development partners

Seattle Genetics ADC co-development partners, which include Agensys and Genmab, provide opportunities to supplement Seattle Genetics’ pipeline through opt-in rights to 50:50 co-development and profit-sharing of the product candidates. Under the Agensys deal, Seattle Genetics is co-developing ASG-5ME for prostate, gastric and pancreatic cancers and ASG-22ME for solid tumors and has an opt-in right to one additional ADC program upon IND submission.

A strategic collaboration is also formed with Oxford BioTherapeutics (OBT) to jointly discover novel ADCs for cancer. Under the collaboration, Oxford BioTherapeutics will generate panels of monoclonal antibodies against novel tumor-specific antigens identified using its proprietary Oxford Genome Anatomy Project database. The antibodies generated by OBT will then be screened for activity using SGEN’S ADC technology. The resulting antibody drug conjugate therapeutics may be selected by each company for further development and commercialization.

Another conjugated monoclonal antibody developed by Roche has also hit the market – this time the technology licensed to Roche belongs to ImmunoGen (IMGN). Roche used its agreement to develop a treatment of HER2-positive breast cancer using its drug Trastuzumab (Herceptin) as the core antibody of the conjugated drug Trastuzumab emtansine T-DM1. The new drug sold under the trade name Kadcyla consists of Roche’s monoclonal antibody drug trastuzumab (Herceptin) linked to the cytotoxic agent mertansine. Herceptin stops the growth of cancer cells by binding to the HER2/neu receptor, whereas the cytotoxic agent mertansine is released inside the cancer cells and destroys them by binding to tubulin. Because HER2 is over-expressed in cancer cells, the conjugate, thanks to the linker, delivers the toxin specifically inside the tumor cells, sparing normal healthy cells, hence the better safety profile.

The approval of Kadcyla was based on the EMILIA phase 3 study that compared Kadcyla to capecitabine (Xeloda) plus lapatinib (Tykerb) in 991 people with unresectable, locally advanced or metastatic HER2-positive breast cancer. It is important noting that the patients in the trial had previously been treated with Herceptin and a taxane chemotherapeutic. The results of the EMILIA trials demonstrated that patients taking Kadcyla had improved progression-free survival and improved overall survival (OS) and safety over the other drugs.

The cost of treatment is a little less than $10,000 a month, or around $95,000, for a typical course of treatment.

Based on the above information, we believe the revenues of the ImmunoGen/Roche drug Kadcyla could easily reach over $6 billion/year. We arrived at this number by considering that Herceptin's average revenues were over $5 billion/year.

Final Word: Seattle Genetics’ and ImmunoGen’s successful development of conjugated monoclonal antibody therapeutics is a HUGE step forward in the treatment of advanced and metastatic cancers. The types of cancers treated depend on the antibodies’ targets. The technology can create drugs that treat a variety of cancers. It is sufficient to have a look at the two firms’ and their collaborators' pipelines to confirm this reality.

We believe both companies are way undervalued and we long both biotech firms mentioned in this article.

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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