Is It Time to Buy These 2 Cancer-Fighting Companies?

Seattle Genetics' (SGEN) and Pharmacyclics' (PCYC) shares are tumbling, despite promising cancer drugs that could see significant sales growth.

Mar 27, 2014 at 5:41PM

Investors shouldn't buy and sell shares on market whims and whispers. After all, markets can jump up and down when we least expect it, and that means the chances for predicting its direction over a short period of time is a coin flip, at best.

Instead, investors should take a long-term view when evaluating companies, and consider whether these companies have a competitive advantage that can be leveraged for market share and shareholder-friendly profit.

Using that approach can turn investors on to exciting new companies that are innovating, and give investors a chance to take advantage of the market's inevitable drops to buy for the long haul. Given that backdrop, investors may want to turn their attention to Seattle Genetics (NASDAQ:SGEN) and Phamacyclics (NASDAQ:PCYC), two biotechnology companies with impressive cancer-fighting therapies.

SGEN Chart

SGEN data by YCharts

1. Seattle Genetics
Seattle Genetics has one currently marketed drug: Adcetris. Adcetris is a treatment for lymphoma that won FDA approval in 2011, and generated nearly $145 million in sales last year. Normally, a drug with $145 million in sales wouldn't be overly exciting. However, it's Adcetris' potential for label expansion that makes it so intriguing.

Adcetris is currently approved as a treatment for relapsing, post chemotherapy Hodgkin's lymphoma, or HL, patients. It's also approved as a second-line treatment for anaplastic large-cell lymphoma, or ALCL. The drug has already captured 70% of those markets, but expanding its use in Hodgkins' from a third-line therapy to second-line one would significantly boost its addressable market.

In addition to the opportunity to expand Adcetris' use in HL, Seattle is also studying Adcetris in large B-cell lymphoma, or DLBCL, for which the company received FDA orphan designation last year, as a frontline drug for mature T-cell lymphoma, or MTCL, and relapsed cutaneous T-cell lymphoma, or CTCL. Across its various potential indications, Seattle estimates Adcetris could be a $1 billion-a-year drug.

That alone could make for a compelling argument for owning Seattle's shares, but a much larger market may exist in leveraging the company's antibody drug conjugate, or ADC, technology that delivers Adcetris to its target.

AbbVie has already expanded its agreement with Seattle for use of that ADC technology twice since 2011, including in January when it agreed to pay Seattle up to $255 million per research target for therapies successfully incorporating it. Last summer, Bayer inked a similar deal with Seattle, agreeing to pay up to $500 million in milestones for treatments using Seattle's ADCs.

2. Pharmacyclics
Much like Seattle, Pharmacyclics has an impressive cancer-fighting drug in Imbruvica that has big time potential to treat a variety of indications. The company co-developed Imbruvica with Johnson & Johnson (NYSE:JNJ), and Johnson has been so convinced by Imbruvica's potential that it's already handed over $385 million in milestone payments to Pharmacyclics, including $110 million in the fourth quarter alone.

Currently, Imbruvica is approved as a second line therapy to treat mantle cell leukemia, or MCL, and chronic lymphocytic leukemia, or CLL. The standard of care for CLL patients is chemotherapy and immunotherapy. However, studies suggest Imbruvica could someday replace side-affect laden chemotherapy in those patients.

In addition to its potential in CLL, Pharmacyclics and Johnson are also studying Imbruvica's use in large B-cell lymphoma, multiple myeloma, follicular lymphoma, which is a common form of intolerant non-Hodgkins, and Waldenstrom's, which is a less common non-Hodgkin's lymphoma. That potential to significantly expand Imbruvica's label has Industry analysts thinking the drug could someday hit peak annual sales of $6 billion.

Fool-worthy final thoughts
It's hard to make an argument that shares in either company are inexpensive, given that Adcetris is Seattle's only marketed drug, and the company's current $5.6 billion market cap dwarfs Adcetris' current sales. Similarly, Pharmacyclics' $7.9 billion market cap is pretty heady if you're only looking at the $410 million Wall Street currently expects in revenue this year.

That said, both of these companies have irons in the fire and competitive advantages that may warrant a premium valuation, because they may drive sales significantly higher. That potential for growth is a key reason why shares in both companies were hitting new highs at the end of February. Shares in Seattle have dropped 13% and Pharmacyclics' shares have slumped more than 20% since then. That may suggest it's a good time for speculative growth investors to consider these two for the long term.

Here's one more stock you really ought to know about
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free, and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.


Todd Campbell is long Seattle Genetics. Todd owns institutional research firm E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd also owns Gundalow Advisors, LLC. Gundalow's clients do not own shares in the companies mentioned. The Motley Fool recommends Johnson & Johnson and Seattle Genetics. The Motley Fool owns shares of Johnson & Johnson. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers