What happened

Shares of Seattle Genetics (NASDAQ:SGEN) are down 19% at 11:40 a.m. EDT after the biotech reported third-quarter results that didn't live up to expectations. Sales of Seattle Genetics' only drug, Adcetris, were up 60% year over year, but the $127 million in sales was shy of management's guidance of $130 million to $135 million.

So what

Adcetris was approved by the FDA as a frontline treatment for stage III and IV Hodgkin lymphoma in the first quarter, which drove the year-over-year growth, but it appears the trajectory may have stalled, with a quarter-over-quarter sales increase of just 3.7%, which was largely due to a price increase taken at the end of the second quarter.

While it was a small miss of management's guidance, it seemed like management might be sandbagging its guidance a bit. The jump from the first quarter to the second quarter was the largest sequential quarter-over-quarter growth rate Adcetris had ever experienced.

In hindsight, that was wishful thinking, and investors should have heeded CEO Clay Siegall's cautious statements about how sales would be "stepwise moves."

Apparently they were baby steps.

Doctor talking to a patient in an exam room

Image source: Getty Images.

Now what

While Seattle Genetics is having trouble further breaking into a market where the standard of care hasn't grown in 40 years, it doesn't mean it can't eventually capture most of the front-line stage III and IV Hodgkin lymphoma patients. Doctors often try out a new treatment on a few patients to gain experience before prescribing it more broadly. The Adcetris cocktail has better efficacy than the cocktail of chemotherapy drugs that are currently used, so it should eventually become the new standard of care.

Equally important is the fact that front-line Hodgkin lymphoma isn't Seattle Genetics' only option to expand sales of Adcertis. The company and its partner, Takeda Pharmaceutical, recently announced that Adcetris helped patients with peripheral T-cell lymphoma live longer when used as a front-line treatment. Seattle Genetics plans to submit an application for that indication in November, putting a likely approval in mid to late 2019.

Brian Orelli has no position in any of the stocks mentioned. The Motley Fool recommends Seattle Genetics. The Motley Fool has a disclosure policy.