Less than two years ago, Seattle Genetics (NASDAQ:SGEN) received a great deal of criticism for acquiring Cascadian Therapeutics to get its hands on an early clinical-stage cancer drug called tucatinib. Since then, the stock has climbed about 91% thanks to some impressive results from the experimental cancer tablet.

Biotech analysts derided the acquisition at the time because a similar treatment called Nerlynx from Puma Biotechnology (NASDAQ:PBYI) earned an approval around six months earlier. Since then, however, sales of Nerlynx have floundered and shares of Puma Biotechnology have lost around 90% of their value.

Prescription medicine bottles and lots of cash.

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Clearly Seattle Genetics saw something in tucatinib's early trial results that Wall Street missed. Nerlynx hasn't been nearly as successful as imagined, and it looks like Seattle Genetics' new star candidate will perform much better if it reaches the commercial stage.

Can tucatinib lead Seattle Genetics to market-beating gains? Here's what you need to know.

Shifting gears

Seattle Genetics is a pioneer of antibody-drug conjugates (ADCs), which are simply proteins that carry mini chemo-grenades that explode inside cancer cells after they bind to specific antigens on the cell's surface.

The company's first and only commercial-stage product, Adcetris, is an ADC that earned approval in 2011 and is currently a popular lymphoma treatment. In the first half of 2019, Adcetris sales rose 35% over the previous-year period, to $294 million.

There are two more ADCs in Seattle Genetics' late-stage pipeline, and in the first half of the year the company invested a combined $27.9 million developing them. Over the same period, Seattle Genetics plowed $43.8 million into the development of tucatinib, a small-molecule kinase inhibitor that's vastly different from the company's ADC programs.

An important difference

Nerlynx and tucatinib are both orally available kinase inhibitors meant to prevent tumor growth by shutting down overactive human epidermal growth factor receptor 2 (HER2). The main difference is tucatinib doesn't inhibit the first type of epidermal growth factor receptors (EGFR) the way Nerlynx does.

Generally speaking, inhibiting proteins that aren't overactive usually causes unintended side effects. Nerlynx's EGFR activity is thought responsible for a high rate of discontinuation caused by diarrhea. During the ExteNET study that led to the approval of Nerlynx to prevent recurrence of breast cancer, 95% of patients reported diarrhea, and altogether adverse reactions caused 28% of patients to quit early.

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Catching up fast

Around the time Seattle Genetics acquired Cascadia, Puma's Nerlynx was still expected to become a blockbuster drug because it significantly reduced the risk of recurrence for breast cancer patients with HER2-positive tumors. Analysts were taken by surprise when Seattle Genetics opted for Cascadia and tucatinib following a phase 1 trial when Puma Biotechnology had already started selling its HER2 inhibitor.

Compared to Nerlynx's ability to reduce the risk of invasive recurrences by 34% over the course of two years, tucatinib's in a different league altogether. During the HER2Climb study with HER2-positive breast cancer patients, adding tucatinib to standard care reduced the risk of disease progression by 46% compared to standard care itself. Around half of the patients had tumors that had already spread to their brains, and among this difficult-to-treat group, adding tucatinib to standard care reduced their risk of death by an eye-popping 52%.

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What's next?

In 2019, around 47,500 patients with HER2-positive tumors will receive their first breast cancer diagnosis. Seattle Genetics will probably submit a new drug application to the FDA in the first quarter of 2020 that could make tucatinib a lifesaver for members of this group. That isn't an enormous patient population, but it's more than enough to drive sales past $3 billion annually in 2025.

Roughly 5,800 people will be diagnosed with HER2-positive colon cancer this year, and results of a phase 2 trial suggest tucatinib could be an effective treatment for this group as well.

Seattle Genetics submitted an application in July for one of its late-stage ADCs called enfortumab vedotin. The Food and Drug Administration granted the application to treat bladder cancer a shortened review that should wrap up in January. That means the company could launch a new drug around the same time it sends the FDA tucatinib's first application.

A little over a year ago, the FDA expanded Adcetris' addressable patient population to include newly diagnosed patients with Hodgkin lymphoma. In the first half of 2019, Adcetris sales surged 35% to $294 million, and a recent label expansion will allow the company's only revenue stream at the moment to continue growing at a rapid rate.

A buy now?

Seattle Genetics' market cap has already risen to a whopping $17.1 billion at recent prices. That's a lot to pay for a company that generated only $758 million in top-line revenue over the past year. Operating expenses are still outrunning product sales and any hints of trouble for tucatinib, Adcetris, or enfortumab vedotin could lead to steep losses.

Continued success on all three fronts could lead to market-beating return gains from recent prices, but it's probably best to wait for a significant pullback from this biotech stock before making a purchase.