Seattle Genetics, Inc. Posts Solid First-Quarter Revenue, Raises Expense Guidance

Investors got a beat and a raise of guidance from Seattle Genetics' conservative management, but not the kind they were looking for.

The company reported Adcetris sales of $48.9 million in the U.S. and Canada during the first quarter, a 5.2% quarter-over-quarter increase from the fourth quarter. At that rate of growth, the company would slightly exceed the top end of its Adcetris sales guidance of between $200 million and $210 million this year, but Seattle Genetics didn't raise its revenue guidance.

Instead the raise of guidance was for selling, general and administrative expenses, which Seattle Genetics now thinks will come in the range of $115 million to $125 million, slightly higher than previously anticipated. Management said the increase was partially attributable to the acceleration of commercial activities that were moved forward because the company received a priority review for its application to approve Adcetris as a post-transplant consolidation treatment for Hodgkin lymphoma patients at high risk of relapse or progression.

It's ironic that Seattle Genetics raised expense guidance but not revenue guidance, since an FDA approval for the expanded indication -- which seems highly likely -- will naturally accelerate Adcetris sales in the United States. The FDA gave Seattle Genetics a target review date of Aug. 18, but the oncology division has been making decisions well ahead of the target dates for drugs given priority reviews, so we could see acceleration of sales for most of the second half of the year, causing Seattle Genetics to blow through the top of its Adcetris guidance.

While the FDA hasn't approved the drug for the expanded indication, the National Comprehensive Cancer Network guidelines have included the use of Adcetris for up to one year afterautologous transplant in Hodgkin lymphoma patients who had primary refractory disease or who had relapsed less than 12 months following frontline therapy. The addition to the compendium could help with off-label reimbursement ahead of the expanded FDA approval, although Seattle Genetics wouldn't be able to market the drug for the expanded indication until the FDA gives its thumbs up.

Seattle Genetics' marketing partner, Takeda, has already submitted an application for expanded approval in the EU, but that approval will likely come after the FDA approval, and then Takeda will probably have to wait for reimbursement decisions in many of the EU countries before sales in the expanded indication can proceed.

Further expansionOn the conference call, Seattle Generics confirmed plans for data releases in three additional indications forAdcetris.

The Alcanza trial, which is testing Adcetris in patients with CD30-positive cutaneous t-cell lymphoma, should read out next year. And the biotech finalized plans for its Echelon-1 trial in frontline Hodgkin's lymphoma and the Echelon-2 trial in patients with CD30-positive mature t-cell lymphomas that will read out in the 2017 to 2018 timeframe.

Further back in development, Seattle Genetics is testing Adcetris in combination with Bristol-Myers Squibb's Obdivo in bothHodgkin lymphoma and non-Hodgkin lymphoma and as a treatment for lupus. The latter is an interesting choice since it's not an oncology indication, but the company believes that targeting CD30 positive immune cells could help the autoimmune disease, which makes sense biologically.

Assuming there aren't any hiccups, look for management to increase revenue guidance when it releases second-quarter guidance, although by that point, the expectation may already be priced into the stock.

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