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Seattle Genetics (SGEN) Loss Narrows in Q3, Revenues Beat

Zacks Equity Research

Seattle Genetics, Inc. SGEN reported a loss of 19 cents per share for the third quarter of 2017, significantly narrower than the Zacks Consensus Estimate of 40 cents and the year-ago quarter loss of 23 cents per share.

However, including a gain of $78.7 million from the exercise of the warrant granted during termination of license transaction with Immunomedics, the company reported earnings of 34 cents per share.

Revenues came in at $135.3 million, up 27.3% year over year, primarily on the back of strong sales of Adcetris. Revenues also beat the Zacks Consensus Estimate of $113 million.

Seattle Genetics’ shares were up 3.8% in after-market trading on Thursday. In fact the company’s share price has gained 15.9% year to date compared with the industry’s rise of 3.6% in the same period.

Quarter in Detail

Seattle Genetics’ top line comprises product revenues, collaboration and license agreement revenues and royalties.

The company’s only marketed product, Adcetris, generated product sales of $79.2 million, up 12.9% year over year.

Collaboration and license agreement revenues increased 64.5% to almost $39.4 million, mainly driven by strong demand for Adcetris in the international market. Collaboration revenues include fees earned from the company’s agreement with Takeda Pharmaceutical Company Ltd. for Adcetris and other ADC collaborations.

Royalty revenues increased 36.9% year over year to $16.7 million, attributable to international sales of Adcetris by Takeda Pharmaceutical Co.

Research and development (R&D) expenses were $113.6 million, up 22.5% year over year. Also, selling, general and administrative (SG&A) expenses increased 13.9% to $34.8 million. Costs were high primarily due to investment in vadastuximab talirine, enfortumab vedotin, Adcetris and other pipeline development.

2017 Outlook Update

The company raised its outlook for collaboration and license agreement revenues to the range of $90 million to $100 million (previously $75 million to $90 million). The royalties are expected in the range of $60 million to $65 million (previously $50 million to $55 million). Net sales of Adcetris are expected in the range of $290 million to $310 million.

The company lowered the upper limit of the expected R&D expense projection. It is currently expected to be $460 million to $480 million compared with the previous expectation of $460 million to $500 million.

Pipeline Update

Seattle Genetics continues to work on expanding Adcetris’ label further through three phase III studies. We note that the FDA has granted priority review for a supplemental Biologics License Application in August to include cutaneous T-cell lymphoma in its label. A decision is expected in December.

Meanwhile, the FDA has granted Breakthrough Therapy Designation to Adcetris based on data from the phase III ECHELON-1 study (frontline classical Hodgkin lymphoma) on Adcetris showing a statistically significant improvement in modified progression-free survival. Seattle Generics and Takeda are planning to submit applications for regulatory approval by the year end.

Moreover, top-line data from the ECHELON-2 study (frontline CD30-expressing mature T-cell lymphoma) should be out in 2018. The company is also evaluating Adcetris in combination with Bristol-Myers Squibb’s BMY Opdivo in relapsed/refractoryclassical Hodgkin lymphoma.

In addition, the company initiated a pivotal phase II study on enfortumab vedotin in patients with metastatic urothelial cancer patients in late 2017. Moreover, Seattle Genetics and Astellas Pharma are planning to initiate a phase Ib study to evaluate the candidate in combination with CPI therapies, including pembrolizumab, in patients with locally advanced or metastatic urothelial cancer.

In July, Seattle Genetics collaborated with Genentech, a member of Roche Holding AG RHHBY, to evaluate the combination of Roche’s immunotherapy Tecentriq and Seattle Genetics’ antibody-drug conjugate SGN-LIV1A in patients with metastatic triple-negative breast cancer.

Our Take

The company’s third-quarter loss was narrower than estimated and sales also beat expectations. Given the positive developments for Adcetris, investors should focus on updates of its label expansion. Approval for T-cell lymphoma indication will boost sales further.

Seattle Genetics currently carries a Zacks Rank #3 (Hold).

A better-ranked stocks in the health care sector includes Adaptimmune Therapeutics PLC ADAP which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Adaptimmune’s loss estimates narrowed from $1.03 to 95 cents for 2017 and from 95 cents to 90 for 2018 over the last 60 days. The company delivered positive earnings surprises in two of the four trailing quarters with an average beat of 2.56%. The company’s shares are up 72.1% so far this year.

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