Seattle Genetics Earnings: Waiting on ECHELON

Seattle Genetics (NASDAQ: SGEN) released fourth-quarter earnings on Thursday and gave investors a taste of what's to come later this year. With modest growth for Adcetris, its only drug on the market, investors should be focused on Seattle Genetics' pipeline and clinical trials that could further expand sales of Adcetris.

Seattle Genetics results: The raw numbers

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Revenue

$105 million

$93 million

12.6%

Income from operations

($55.8 million)

($25.1 million)

N/A

Earnings per share

($0.39)

($0.18)

N/A

Data source: Seattle Genetics.

Image source: Getty Images.

What happened with Seattle Genetics this quarter?

  • Sales of Adcetris increased 12% year over year in the fourth quarter. Royalty income, mostly from Takeda for international sales of Adcetris, increased 8.7%.
  • The larger loss for the quarter came mostly from increased research and development costs, an investment in the future.
  • Seattle Genetics plans to submit an application to market Adcetris for cutaneous T-cell lymphoma (CTCL) in "mid-2017." That's a slight delay from previous guidance of "first half of 2017," but the delay could pay off in the long run because the company will be able to include two investigator-sponsored trials of Adcetris in CTCL in addition to its own ALCANZA trial, which could result in a broader label and more Adcetris sales for CTCL patients.
  • The ECHELON-1 trial testing Adcetris in front-line Hodgkin lymphoma is still scheduled to read out during 2017, but management didn't narrow the timeline. It did, however, narrow the timeline for releasing data for ECHELON-2 testing Adcetris in patients with mature T-cell lymphoma from "2017 to 2018 timeframe" to just 2018.
  • The CASCADE phase 3 trial for vadastuximab talirine in patients with acute myeloid leukemia continues to enroll patients. The clinical hold for vadastuximab talirine in trials where patients could receive allogeneic stem cell transplants remains in place while Seattle Genetics and the Food and Drug Administration (FDA) try to figure out if the drug is causing the observed liver damage.
  • On Friday, the day after earnings were released, Seattle Genetics announced a deal with Immunomedics (NASDAQ: IMMU) to license Immunomedics' solid tumor drug candidate sacituzumab govitecan. The drug has only completed phase 2 trials, but the data were so promising that the companies think sacituzumab govitecan can gain accelerated FDA approval based on the limited data.

What management had to say

Clay Siegall, Seattle Genetics' president and CEO, asked investors to look past 2017 guidance and see the bigger picture: "What is really important with Adcetris is not the sales we have now. What's really important is going toward the big items of [ECHELON-1] and [ECHELON-2], and you can even include ALCANZA in there."

On the delay of submitting the application for CTCL patients, Siegall didn't even want to call it that. "To me it's not a delay. To me it's taking advantage of an opportunity," he said. "I think we have a really good opportunity to end up with a bigger market if we can get a bigger label."

Looking forward

Management guided for Adcetris sales of $280 million to $300 million this year, which is 5.3% to 12.9% higher than last year's sales. Royalty revenue is expected to be in the $50 million to $55 million range, down from the $67.5 million in 2016, but last year included a $20 million milestone payment.

The difference between the bottom and top of guidance likely has to do with how many doctors prescribe Adcetris for CTCL off-label ahead of the FDA approval. But capturing those patients now versus next year isn't particularly important for Seattle Genetics' long-term value.

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Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Seattle Genetics. The Motley Fool has a disclosure policy.