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Seattle Genetics (SGEN) Q2 Loss Narrows, Sales Top Estimates

Zacks Equity Research

Seattle Genetics, Inc. SGEN incurred adjusted loss of 24 cents per share in the second quarter of 2019, narrower than the Zacks Consensus Estimate of 39 cents but wider than the year-ago quarter’s loss of 18 cents.

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

Revenues came in at $218.4 million in the reported quarter, up 28.3% year over year, primarily driven by strong sales and the recent label expansion of Adcetris (brentuximab vedotin) for frontline stage III/IV Hodgkin lymphoma (HL) and frontline CD30-expressing peripheral T-cell lymphoma (PTCL). The top line comprehensively beat the Zacks Consensus Estimate of $191.2 million.

Shares of Seattle Genetics were up 7.7% in after-hours trading following the earnings announcement on Tuesday. In fact, the stock has rallied 11.5% so far this year, outperforming the industry’s rise of 0.8%.

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 $159 million in the United States and Canada, up 30% year over year. Improved sales of the drug were owing to its recent label expansions for frontline CD30-expressing PTCL and frontline HL, leading to higher patient population. In May this year, Health Canada approved the supplemental new drug submission to expand the label of Adcetris in combination with AVD (Adriamycin, vinblastine and dacarbazine) chemotherapy in patients with stage IV HL, who were previously untreated. The approval was based on positive data from the phase III ECHELON-1 study.

Collaboration and license agreement revenues surged 32.7% year over year to $36.1 million. This included the amounts earned under the ADC collaboration in the ex-U.S. markets and a $12.5-million milestone payment from Takeda Pharmaceutical TAK on the additional approval of Adcetris for frontline HL.

Royalty revenues were $23.3 million as compared to the year-ago quarter’s $20.6 million. On the investor call, the company stated that it expects royalties to increase throughout the year as Takeda sales growth triggered higher royalty rates. Royalty revenues in 2018 included additional amounts comprising Takeda's portion of third-party royalty obligations paid on Adcetris, some of which expired last year. As a result, in the second quarter of 2019, despite the ramped-up sales by Takeda, royalty revenues grew at a lower rate while cost of royalty revenues decreased.

Research and development (R&D) expenses were $163.9 million, up 33.4% year over year, primarily due to higher investment in the late-stage pipeline consisting of the enfortumab vedotin, tucatinib and tisotumab vedotin programs.

Selling, general and administrative (SG&A) expenses rose 41.2% year over year to $82.3 million, mainly on account of 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, which is unchanged from the previous quarter’s guidance.

The company expects collaboration and license revenues in the band of $110-$125 million, which increased from the past view of $95-$110 million, backed by milestones received from Takeda and Roche RHHBY following the accelerated approval of lymphoma drug Polivy (polatuzumab vedotin-piiq). Polivy, which received the FDA nod last month, is an antibody-drug conjugate (ADC) targeting CD79b that utilizes Seattle Genetics’ technology.

Royalty revenues are anticipated within $85-$90 million, which reiterated the earlier quarter’s projection.

Seattle Genetics lifted its guidance for SG&A expenses. The company now expects SG&A expenses within $335-$360 million. However, R&D is estimated in the $650-$700 million range, flat with the previous quarter’s forecast.

Submits BLA for Enfortumab Vedotin & Other Pipeline Updates

Seattle Genetics along with Japanese partner Astellas Pharma, Inc submitted a biologics license application (BLA) to the FDA for the accelerated approval of its investigational agent enfortumab vedotin (EV). The company is seeking an approval of the candidate for the treatment of patients with advanced/metastatic urothelial cancer, who had received treatment with both a checkpoint inhibitor (PD-1/PD-L1) and platinum-based chemotherapy. If approved, the candidate will reduce the company’s heavy dependence on its sole marketed drug Adcetris.

The BLA was based on data from the first cohort of the phase II EV-201 study, which was presented at the annual meeting of the American Society of Clinical Oncology held in June.

Notably, a phase III confirmatory EV-301 study is currently ongoing, which is likely to support global registrations of EV.

Another phase I EV-103 study is investigating EV for treating patients with locally advanced/metastatic urothelial cancer in earlier-line settings including a combination study with Merck’s MRK PD-1/L1 inhibitor Keytruda (pembrolizumab) and platinum chemotherapy in newly diagnosed patients besides those cancer patients, who progressed from the initial stage of the disease. Seattle Genetics plans to report top-line data from this study later in 2019.

Meanwhile, in April 2019, Seattle Genetics completed enrollment in the phase II innovaTV 204 study on tisotumab vedotin (TV). 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. Top-line results from the study are expected in the first half of 2020.

Seattle Genetics, Inc. Price, Consensus and EPS Surprise

Seattle Genetics, Inc. Price, Consensus and EPS Surprise

Seattle Genetics, Inc. price-consensus-eps-surprise-chart | Seattle Genetics, Inc. Quote

Zacks Rank

Seattle Genetics currently carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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