Seattle Genetics Has What Others Want

Few things are better in biotech than holding the rights to a sought-after technology. Earlier in the week, budding biopharma Seattle Genetics (Nasdaq: SGEN) inked a deal with Daiichi Sankyo giving the latter the rights to some of Seattle Genetics' technology in exchange for $4 million paid up front, potential milestone payments, and royalties from any drugs resulting from the out-licensing deal.

Seattle Genetics is letting Daiichi Sankyo take advantage of its antibody-drug conjugate technology, which is designed to help build more potent and focused anti-cancer compounds. Other drugmakers, like Progenics Pharmaceuticals (Nasdaq: PGNX) and AstraZeneca (NYSE: AZN), have also signed deals with Seattle Genetics to get access to this platform technology, although no drug candidates using this tech are near approval.

What's alluring about a platform technology in the biopharmaceutical space is that if it's effective, multiple drugmakers could sign partnership deals to get access to it. If everything works out and drugs using the platform technology gain approval, the technology developer can reap years and sometimes hundreds of millions of dollars' worth of royalties (before its patent on the technology expires, at least).

Drugmakers like PDL BioPharma (Nasdaq: PDLI), Medarex (Nasdaq: MEDX), Nektar Therapeutics (Nasdaq: NKTR), and Enzon (Nasdaq: ENZN) all hold the rights to platform technologies that have in most cases brought them significant amounts of cash, and become key assets of the companies. Even better, these drugmakers can use their platform technology to develop and keep in-house their most promising drug candidates (that's the idea, at least).

Considering that Seattle Genetics' compounds all have a lot of ripening to do in the pipeline (most of its drug candidates are in phase 2 testing), there are a lot of expectations built into its $650 million market cap. On the other hand, although there will surely be setbacks along the way, Seattle Genetics' shares also have a lot of appreciation potential if its platform tech works as designed.