This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Seattle Genetics: A Short Thesis That's Been Right And Wrong

NEW YORK (TheStreet) -- Seattle Genetics (SGEN) shares have risen nearly 28% since I first wrote about the company in March, even as tepid third-quarter sales of the cancer drug Adcetris -- down sequentially despite a 3.5% midsummer price hike -- forced management to cut guidance for the rest of the year. Last week, my colleague Adam Feuerstein tweeted a brutally apt synopsis of Seattle Genetics: "Seems like bears have been right about Adcetris market being small, wrong on the stock."

Ouch. The truth hurts.

Seattle Genetics at $23.11 and a $2.74 billion market cap is almost comically overvalued -- more than 20 times this year's revised Adcetris sales guidance. Management even concedes Adcetris sales will be essentially flat in 2013. Despite the lofty valuation, Seattle Genetic bulls have thus far clung with astonishing patience to the hope for eventual Adcetris sales growth following expansion of the drug's label. The problem is FDA label expansion, which would initially include retreatment and long-term use data, won't happen until late 2013 at the earliest.

Frankly, I'm not convinced there's a compelling investment case to be made either way at this point.

Adcetris is an anti-CD30 monoclonal antibody linked to the tumor-killing drug monomethyl auristatin E (MMAE). The "antibody-drug conjugate" received FDA approval in August 2011 for relapsed/refractory Hodgkin's lymphoma (HL) and systemic anaplastic large cell lymphoma (sALCL). Adcetris is an effective treatment option for these patients, but the company's third-quarter results confirmed my view that Wall Street estimates were too high and that the drug's current "on label" market is miniscule. Predictably, most sellside analysts either downgraded or lowered sales forecasts in frustration after last week's conference call.

Seattle Genetics' shares have declined sharply from early September highs, but with Adcetris sales expectations now lowered, further evidence of commercial stagnation isn't likely to be a catalyst for additional downside.

Let's take a closer look at the company's label expansion opportunities.

Seattle Genetics is conducting phase III trials of Adcetris in relapsed cutaneous T-cell lymphoma (CTCL), front-line HL, and will soon start a study in front-line mature T-cell lymphoma (MTCL). Even though Adcetris may prove effective in these studies, data are a long way off. Results from the phase III trial in CTCL won't be available until late 2014 or 2015, and readouts from the other two studies won't likely occur until at least 2017.

These new cancer indications are larger than those Adcetris is currently approved for but not enough to get excited about buying the stock now, particularly since the study results are so far off.

The company should receive FDA approval late next year for an expanded label that will include data for retreatment and long-term use of Adcetris in HL and sALCL. Bulls hope this expanded label will re-ignite sales growth in the drug's initial indications. I'm not convinced physicians will dramatically alter treatment patterns based on the company's data.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,982.59 +22.02 0.13%
S&P 500 1,978.91 +0.57 0.03%
NASDAQ 4,444.9090 -4.6550 -0.10%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs