Going Back for Drug Tech Seconds

Abbott Labs (NYSE: ABT  ) must be happy with Seattle Genetics' (Nasdaq: SGEN  ) antibody-drug conjugate technology that it licensed last year. The pharma has come back for seconds.

In the first deal, Abbott paid $8 million to utilize Seattle Genetics' technology that links a drug to an antibody that will target it to the specific place in the body. Seattle Genetics could also get about $200 million in milestone payments, as well as royalties for drugs developed for the unspecified oncology target.

The newest deal covers more ADC products with $25 million upfront and up to $220 million in potential development and sales milestone payments per target. The companies didn't say how many drug targets were covered under the program, but going off the first deal, we can assume it was at least three. More likely, Abbott got a four-or-five-for-the-price-of-three deal.

The press release also disclosed that there were "mid-to-high single-digit royalties" on the product. The tiered royalties are likely tied to either sales -- more sales get Seattle Genetics a higher royalty rate -- or to the patent life left on the drug -- the longer the patent life, the higher the royalty.

I like Seattle Genetics' ADCs and ImmunoGen's (Nasdaq: IMGN  ) related technology because the companies can continue to out-license the technology over and over again. There are an awful lot of potential targets, so its partners aren't necessarily stepping on each other's toes. In addition to Abbott, Seattle Genetics has partnerships with 10  other companies, including Genentech, Celldex Therapeutics (Nasdaq: CLDX  ) , and Pfizer (NYSE: PFE  ) .

Seattle Genetics even gets to collect a maintenance fee and reimbursement for research assistance from Abbott. Those payments will pale in comparison to the milestone payments, but they'll help reduce the cash that Seattle Genetics burns while it waits to collect additional payments. The biotech has a drug developed in-house already on the market but isn't profitable yet.

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Fool contributor Brian Orelli has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend ImmunoGen. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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