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Seattle Genetics (SGEN) Q1 Loss Narrows, Revenues Top Mark

Zacks Equity Research

Seattle Genetics, Inc. SGEN incurred adjusted loss of 32 cents per share in the first quarter of 2019, narrower than the Zacks Consensus Estimate of 33 cents and also the year-ago quarter’s loss of 61 cents.

Adjusted loss in the quarter included a market-to-market net investment gain related to Seattle Genetics’ common stock holdings in Immunomedics, Inc. IMMU.

Revenues came in at $195.2 million in the reported quarter, up 38.8% year over year, primarily driven by strong sales and the recent label expansion of Adcetris (brentuximab vedotin) for frontline stage III/IV Hodgkin lymphoma as well as the frontline CD30-expressing peripheral T-cell lymphomas (PTCL). The top line comprehensively beat the Zacks Consensus Estimate of $184.07 million.

Shares of Seattle Genetics have rallied 25.5% so far this year, outperforming the industry’s increase of 3.3%.

 

Quarter in Detail

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

The company’s only marketed product, Adcetris, generated net sales of $135 million in the United States and Canada, up 42% year over year. The improved sales of the drug were owing to its recent label expansions for frontline CD30-expressing PTCL and the frontline Hodgkin's lymphoma, leading to higher patient population.

Collaboration and license agreement revenues soared 50.6% year over year to $44.6 million. This included the amounts earned under the ADC collaboration in the ex-U.S. markets and a $30-million milestone payment from Takeda on the approval of Adcetris for frontline Hodgkin lymphoma in Europe.

Royalty revenues were $15.6 million as compared to the year-ago quarter’s $15.7 million. On the investor call, the company stated that royalty revenues in the first quarter of 2018 included additional amounts, attributable to Takeda Pharmaceutical’s TAK portion of third-party royalty obligations, some of which expired at the end of 2018. As a result, royalty revenues in the first quarter of 2019 were comparable and the cost of royalty revenues decreased.

Research and development (R&D) expenses were $158.3 million, up 3.8% year over year, primarily driven by higher investment in the late-stage pipeline consisting of the enfortumab vedotin (EV), tucatinib and tisotumab vedotin (TV) programs.

Selling, general and administrative (SG&A) expenses rose 21.3% year over year to $80.3 million, mainly on costs pertaining to the launch of Adcetris in frontline setting and other infrastructure costs.

2019 Outlook

Seattle Genetics projects Adcetris’ full-year net sales in the range of $610-$640 million.

The company expects collaboration and license revenues in the band of $95-$110 million, backed by milestones received from Takeda. Royalty revenues are anticipated within $85-$90 million.

Seattle Genetics lifted its guidance for R&D and SG&A expenses. The company now expects R&D expenses in the range of $650-$700 million and SG&A expenses within $300-$335 million.

Pipeline Update

Last March, the FDA approved Adcetris in combination with chemotherapy for treating the stage III or IV classical Hodgkin's lymphoma (cHL) in patients with no previous treatment history while last November, the FDA approved Adcetris for the frontline treatment of PTCL regarding patients with previously untreated systemic anaplastic large cell lymphoma or other CD30-expressing peripheral T-cell lymphomas (PTCL) including angioimmunoblastic T-cell lymphoma and PTCL not otherwise specified in combination with CHP (cyclophosphamide, doxorubicin and prednisone).

This is the sixth FDA approved indication for Adcetris and the first FDA approved regimen for frontline PTCL.

In March this year, the company along with Japanese partner Astellas Pharma announced positive top-line results from the first cohort of the phase II EV-201 study on enfortumab vedotin. The candidate is being evaluated in the pivotal analysis for treating patients with advanced/metastatic urothelial cancer, previously treated with both a checkpoint inhibitor (PD-1/PD-L1) and platinum-based chemotherapy.

Both companies plan to submit a biologics license application (BLA) for enfortumab vedotin to the FDA later this year.

Also, during the same month, Seattle Genetics completed enrollment in the phase II innovaTV 204 probe on tisotumab vedotin. The candidate is being evaluated as a monotherapy for the treatment of patients with advanced/metastatic cervical cancer, whose disease relapsed or progressed after the standard of care treatment.

Meanwhile, Seattle Genetics is assessing Tucatinib in a late-stage study. In April this year, the company completed the enrollment in phase III HER2CLIMB study and remains on course to analyze the primary endpoint of progression-free survival (PFS) with the top-line data expected any time this year. The study will also investigate the key secondary endpoints including the overall survival and PFS in patients with brain metastases.

Seattle Genetics, Inc. Price, Consensus and EPS Surprise

Seattle Genetics, Inc. Price, Consensus and EPS Surprise | Seattle Genetics, Inc. Quote

Zacks Rank & Key Pick

Seattle Genetics currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the healthcare sector is PDL BioPharma, Inc. PDLI, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PDL BioPharma’s earnings estimates have been revised 100% upward for 2019 and 30% for 2020 over the past 60 days. The stock has gained 16.5% year to date.

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