Seattle Genetics' (NASDAQ: SGEN) deal to license Immunomedics' (NASDAQ: IMMU) sacituzumab govitecan, a breast cancer drug, was shelved earlier this year when activist investor venBio Select Advisors, LLC objected, claiming Immunomedics' board of directors was "giving away its crown jewel."
Continue Reading Below
Losing out on its opportunity to market sacituzumab govitecan is especially disappointing to Seattle Genetics, following positive mid-stage trial results that sent Immunomedics shares soaring recently. However, Seattle Genetics won't miss out entirely if sacituzumab govitecan is a success. That's because it still owns a lot of Immunomedics stock that it acquired before its licensing deal fell apart.
Here's what's going on
Sacituzumab govitecan is an anti-TROP-2 antibody that can target multiple tumor types, including breast cancer, lung cancer, and colorectal cancers, all of which overexpress the TROP-2 protein.
Immunomedics' evaluation of sacituzumab govitecan is furthest along in advanced triple-negative breast cancer, a tough-to-treat indication with limited treatment options. Triple-negative breast cancer represents 15% of breast cancer cases, and the National Cancer Institute says there are 246,660 new cases of breast cancer diagnosed annually in the U.S., resulting in 40,450 deaths per year.
According to a new central review of Immunomedics' midstage study data, sacituzumab govitecan could offer newfound hope to pretreated breast cancer patients. In trials, the objective response rate to sacituzumab govitecan was 31% or about double the historical rate for the standard of care in these patients. The median duration of response was 9.1 months, which is also a substantial improvement from what we've seen historically in this indication.
Continue Reading Below
Given the big need for new treatment options for these patients and the positive trial results, Immunomedics plans to file for an accelerated FDA approval early next year for sacituzumab govitecan's use as a third-line treatment.
What it means to Seattle Genetics
Investors flocked to Immunomedics on the news, causing shares in the company to soar, but Immunomedics investors aren't the only ones who are cheering the company's success.
When Seattle Genetics tried to license the drug, it acquired 3 million shares of Immunomedics at $4.90 per share. It also secured three-year warrants allowing it to acquire an additional 8,655,804 shares at $4.90 each.
On Dec. 5, Seattle Genetics reported to the SEC that it forked out $42.4 million to fully execute those warrants, increasing its stake in Immunomedics to 11,655,804 shares, or 7.3% of the company, and making it the second largest owner of Immunomedics behind venBio.
Seattle Genetics hasn't said if it will sell its shares and record a big gain or hold on to them. If they sell, it will certainly provide a nice boost to Seattle Genetics' cash position, but it's not like the company has to sell its shares.
Unlike Immunomedics, Seattle Genetics is already a commercial-stage company. It markets the lymphoma drug Adcetris, which is FDA approved for treating Hodgkin lymphoma patients whose disease has progressed after autologous stem-cell transplant or after two prior chemotherapy treatments, if ineligible for transplant.
Adcetris is also used to treat patients with systemic anaplastic large-cell lymphoma whose disease has progressed after one prior chemotherapy treatment, and in November, the FDA approved it for use in primary cutaneous anaplastic large cell lymphoma and CD30-expressing mycosis fungoides.
The company is presenting additional data at the American Society of Hematology conference this weekend that may lend support to the thinking that Adcetris will win FDA approval next year for use as a front-line drug in Hodgkin lymphoma patients, too.
Adcetris' growing addressable market and six-figure price tag have turned it into a nine-figure drug, and a front-line approval could put it on a path to blockbuster status. That gives Seattle Genetics a little financial wiggle room to consider holding on to its Immunomedics stake.
It might want to keep its shares, given that industry watchers have rosy expectations for sacituzumab govitecan. Last year, Immunomedics commissioned an independent analysis of sacituzumab govitecan's market potential, and that study estimates it could produce $3 billion in annual sales in 2025, if it gets approvals in triple-negative breast cancer, urothelial cancer, and lung cancer.
Sacituzumab govitecan's opportunity is intriguing, but there's no guarantee that it will win FDA approval and go on to achieve that lofty sales target, so there's still enough risk associated with owning Immunomedics shares that Seattle Genetics might decide to sell. Regardless of what it decides to do with its shares, Seattle Genetics appears to be in an enviable position because of them.
10 stocks we like better than Seattle Genetics
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Seattle Genetics wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of December 4, 2017
Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool recommends Seattle Genetics. The Motley Fool has a disclosure policy.