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Is Seattle Genetics Stock a Buy?

By Adria Cimino – Feb 17, 2020 at 8:00AM

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With a new drug on the market and another being reviewed by the FDA, Seattle Genetics’ revenue potential is climbing.

Seattle Genetics (SGEN -1.12%) started last year with one product on the market -- Adcetris for Hodgkin lymphoma -- but it is quickly transforming into a multi-product oncology company. The U.S. Food and Drug Administration (FDA) approved a second drug, Padcev for locally advanced or metastatic urothelial cancer, in December, and days later, Seattle Genetics submitted breast cancer drug tucatinib for regulatory approval.

This week brought another reason for optimism: The company said the FDA accepted tucatinib for priority review and set an action date for Aug. 20.

A researcher studies samples using a microscope.

Image source: Getty Images.

Though the stock doubled last year, shares are only up about 5% so far this year. And the stock fell as much as 6.4% in the trading session following Seattle Genetics' recent earnings report.

Fourth-quarter earnings of $0.14 a share surged past analysts' expectations for a $0.45 loss per share. For the full year, Adcetris' net sales in the U.S. and Canada climbed 32% to $627.7 million, but the company predicted a slower rate of growth in 2020, with expectations for an 8% to 12% increase.

A potential slowdown in Adcetris' sales may have damped the market's sentiment, but Seattle Genetics is counting on ongoing trials to expand the drug's uses and win over doctors and patients. The company will report five-year data later this year from a trial combining Adcetris and chemotherapy as it works to establish the treatment as the standard of care for Hodgkin lymphoma.

Most common bladder cancer

As we wait to see how far Adcetris can go, the approval of Padcev should offer a boost to Seattle Genetics' revenue this year. As mentioned above, Padcev is approved for locally advanced or metastatic urothelial cancer, which is the most common kind of bladder cancer. The approval pertains to adult patients who have previously been treated with platinum-based chemotherapy and inhibitors of proteins that help cancer cells survive. What is significant is Padcev is the only FDA-approved drug for this patient set.

In the latest earnings call, the company estimates that, from a sales perspective, there are 3,200 U.S. accounts that may order Padcev for patients. The company wouldn't offer sales guidance but said it was optimistic after the drug's first full month (January) in the marketplace.

And product No. 3 may be on the horizon: Seattle Genetics and its investors are now awaiting the FDA's decision on tucatinib, its investigational treatment for locally advanced or metastatic HER2-positive breast cancer. In HER2-positive breast cancer, high levels of the HER2 protein within tumors lead to the spread of cancer cells. Tucatinib inhibits enzymes that activate this type of protein. The FDA had already granted tucatinib breakthrough status, meant to expedite review and approval for drugs addressing life-threatening illnesses, and this week's announcement of priority review is more good news for Seattle Genetics because it means the FDA aims to issue a decision on the drug within six months instead of 10.

Addressing significant markets

Seattle Genetics' drugs each address significant markets, giving investors reason to believe in future revenue as long as the company is able to bring physicians and patients on board. A Technavio report shows the Hodgkin lymphoma drug market is expected to grow by $1.24 billion during the period from last year through 2023. According to Grand View Research, the global urothelial cancer drug market will reach $3.6 billion by 2023, with a compound annual growth rate of 23%. And finally, the market for HER2-positive breast cancer is set to increase 54% to $9.89 billion by 2025 from 2015, according to GlobalData.

In addition to these markets, Seattle Genetics is also testing molecules to treat cancers including cervical, colorectal, and metastatic solid tumors. Those particular indications are in phase 2 studies.

Considering Seattle Genetics' share gain last year, and the fact that the stock is now trading near a record high, investors may be worried about buying the stock right now. It's worth bearing in mind that the company produced those sorts of gains with only one product on the market. Now with two -- and possibly soon a third -- the potential for revenue and earnings is much stronger. And that should lead to further share gains in the long term. Upcoming catalysts will be the next quarterly earnings report, which will show Padcev's first quarter on the market and the FDA decision on tucatinib, so investors might want to hop on board ahead of time. Days of weakness as we've seen recently offer a buying opportunity.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Seattle Genetics. The Motley Fool has a disclosure policy.

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