By Adam Feuerstein, who covers biotech for The Street:
Alex C. asks, "Adam, Seattle Genetics (SGEN) has been on a tear in recent trading sessions and as a shareholder I'm not complaining, but I don't understand this move in the stock at all. A cursory look around the Internet makes me think it's one of the most un-followed biotech stocks of its size on Wall Street. Adcetris sales aren't spectacular, very limited data are available for the rest of its pipeline and what's supposed to be coming out won't for a long time. Can you shed some light on this a bit and if you can, offer your opinion of their pipeline, particularly ASG-5ME?"
Seattle Genetics shares rose 53% in the first quarter and 25% in March alone. The performance is nothing short of phenomenal. The stock is expensive. At $34 per share and a $4 billion enterprise value, Seattle Genetics trades at 18 and 14 times 2013/2014 revenue estimates, respectively. That's a significant premium to its peers given Adcetris market share for its approved indications is nearing the peak and sales won't grow much over the next two years.
The stock's EV/sales multiple is still high even if you believe Adcetris will grow more than expected due to European royalties and U.S. compendia listings this year and next.
Seattle Genetics is pricey but buyers keep piling in and the stock marches higher (much to the chagrin of short sellers.) How is this possible? Credit CEO Clay Siegall for attracting a core group of committed, long-term shareholders (the large health care fund Baker Brothers plus most of the mutual fund giants) who do not care about the short term. These investors own Seattle Genetics because they believe, like Siegall does, that expanded indications -- particularly front-line Hodgkin's lymphoma -- will eventually transform Adcetris into a billion-dollar plus drug. Throw in the pipeline (both internal and partnered) and the scarcity value of a proven antibody drug conjugate technology platform and Seattle Genetics is a core biotechnology holding with a stock that defies gravity. Siegall should bottle his secret sauce and sell it because whatever he's doing is clearly working.