Why Shares of Seattle Genetics, Inc. Got Whacked Today

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What happened

Seattle Genetics (NASDAQ: SGEN) stock is down 8.7% as of 1:02 p.m. after the company announced positive phase 3 data from its ECHELON-1 trial testing Adcetris as a first-line treatment for Hodgkin lymphoma.

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So what

You read that right: Shares are down on positive clinical trial results. Unfortunately, in biotech, sometimes it's the magnitude of the win that counts.

Seattle Genetics' ECHELON-1 trial tested Adcetris, which is already approved as a treatment for Hodgkin lymphoma after stem cell transplantation, in combination with older chemotherapy drugs -- adriamycin, vinblastine, dacarbazine (AVD) -- compared to the standard of care that includes those three drugs plus bleomycin (AVBD). The group that got Adcetris+AVD had a 23% reduction in the risk of modified progression-free survival -- defined as progression, death, or patients getting an additional anticancer therapy because they didn't have a complete response -- compared to the patients that got AVBD. Looking specifically two years after the start of treatment, 82.1% of patients that got Adcetris+AVD hadn't triggered the modified progression-free survival criteria compared to 77.2% in the control arm.

While there's a clear benefit from Adcetris+AVD over AVBD, the benefit isn't particularly large, with just an additional 5% of patients doing better after two years. That might cause pushback from insurers, as Adcetris is significantly more expensive than bleomycin, which is available as a generic. Keep in mind, though, that bleomycin is quite toxic and treating the side effects has costs associated with it, which insurers should take into account in their cost-benefit analysis.

Now what

Investors will have to wait for until December at the American Society of Hematology meeting to see the full results from ECHELON-1, but the top-line data looks good enough for Seattle Genetics to be able to gain regulatory approval in the U.S. and elsewhere by its partner Takeda. The bigger question now is how much additional drug the duo can sell, but we won't know the answer to that until Adcetris starts getting expanded regulatory approvals in a year or so.

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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.