When it comes to churning out medicines that fight cancer, Seagen (SGEN) is a heavyweight. The biotech's global footprint is expanding thanks to regulatory approvals in Europe, and its sales in the U.S. are gaining too.
Given the market's dour attitude toward growth stocks and pharmaceutical businesses recently, is Seagen a good stock to buy now, or is it not the right time? Let's investigate.
Why this stock might be an interesting purchase
Seagen's success is determined by how effectively it can develop and market therapies to treat cancer. Right now, the company has four oncology medicines on the market, which in 2021 brought in above $1.5 billion. Its biggest seller is the lymphoma therapy Adcetris, which was responsible for $202 million in sales during the second quarter of fiscal 2022. For the full fiscal year, management is predicting total revenue of between $1.7 billion and nearly $1.8 billion, driven by growing Adcetris sales.
Regarding its pipeline, the majority of the company's clinical-stage programs are concerned with expanding the indications of its already-marketed anti-cancer drugs. It has eight such programs in phase 3 of clinical trials and four ongoing mid-stage investigations that would be wholly new entities if they are eventually approved by regulators and commercialized. Furthermore, Seagen has 10 projects in phase 1, all of which are intended to treat solid tumors.
Seagen's pipeline is particularly promising because its existing therapies have already contributed to massive growth rates for the company; more treatments addressing a greater number of ailments are likely to spike that growth rate even further. In the last 10 years, Seagen's total annual revenue has increased by 646.8% to $1.57 billion, a significantly faster rate than many of Seagen's competitors in the same period, as shown in the chart below:
SGEN Revenue (Annual) data by YCharts
Still, it's important to note that other biotech leaders like Biogen and Vertex Pharmaceuticals are a bit bigger than Seagen, so we should expect their growth to be slower. Biogen's annual revenue is close to $11 billion, whereas Vertex made $7.5 billion. The trick for Seagen will be to maintain its pace of expansion as it catches up to the sizable top line figures of its competitors.
In terms of near-term catalysts, Seagen is currently in the first year of rolling out its drug Tukysa across the E.U. for certain types of breast cancer. That'll drive a bit more revenue growth over the next year and beyond, assuming that Tukysa can find a niche in its increasingly crowded market.
There are a few moderate risks in the present and on the horizon
There aren't any major red flags with Seagen, but there are a few minor issues that investors should know about.
One issue with Seagen is that it isn't consistently profitable, even with several medicines on the market. Over the last 10 years, it only had four profitable quarters, and they weren't consecutive. That didn't stop the biotech stock from beating the market handily in the same period, rising by more than 412% compared to the market's growth of around 208%. But it's still something that investors should be concerned about for the long term. Its trailing-12-month (TTM) net losses are $739.8 million, whereas its cash and short-term investments total more than $1.8 billion. So, the company might need to slash expenditures or take out new debt within the next two years.
Another problem is that Seagen's likely mid-term sources of revenue growth could face difficulties getting traction. Remember how Tukysa is launching in the E.U.? AstraZeneca launched a drug called Enhertu in mid-2022, targeting the same subset of breast cancer patients as Tukysa. Seagen expects Enhertu to cause a drag on the growth of its market share with Tukysa, so it remains to be seen how much its top line will be boosted by the new launches in Europe.
What's the right move?
Despite the competition-related headwinds to sales growth and a lack of profitability that's likely to stick around, it might seem like this growth stock is destined to slow down. But with a pipeline that's rich in late-stage projects and with new sales flowing in from the E.U. and elsewhere across multiple products, Seagen's future is likely very similar to its past, and it'll probably keep growing faster than its competitors, even if it does end up slowing down slightly.
Therefore, if you're in the market for a moderate-risk growth stock that you're interested in holding for at least a decade, Seagen is a decent option. That said, it's important to recognize that profitability isn't an issue that investors can ignore for too long. For people who want less exposure to the volatility of its stock, it's probably best to look elsewhere.
