Seattle Genetics (SGEN) reported earnings on Tuesday. Despite the solid growth in sales, shares opened down today, possibly due to conservative guidance for the year ahead.

Seattle Genetics results: The raw numbers


Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)


$93.5 million

$74.3 million


(Loss) from Operations

$(24.8 million)

$(27.7 million)


(Loss) Per Share




What happened with Seattle Genetics this quarter?

  • Adcetris sales in the U.S. and Canada increased 35% in the fourth quarter.
  • Royalties, which mainly come from Takeda on sales where the Japanese pharma is responsible for selling Adcetris increased 5.9%. While not part of the fourth-quarter numbers, Seattle Genetics earned a $20 million milestone payment because sales of Adcetris exceeded $200 million in Takeda's territories during 2015. The payment will be recognized in the first quarter of 2016.
  • The rest of the revenue came from amortized up-front and milestone payments from Takeda and other collaborators that have licensed Seattle Genetics antibody-drug conjugate technology. Revenue in the category increased by $1.9 million year over year.
  • Seattle Genetics posted a loss for the quarter, but that's to be expected as the company continues to invest in clinical trials to expand sales of Adcetris and get its other drugs approved. Most importantly, the biotech ended the year with a solid $712.7 million in cash.

What management had to say
In August, the Food and Drug Administration approved an expanded label for Adcetris for its use in high-risk Hodgkin lymphoma patients after undergoing a transplant, called a consolidation therapy. As Darren Cline, SVP of commercial, said about the launch into the new indication: "Awareness and knowledge of the data are very high, and consolidation has been integrated into the NCCN guidelines and treatment plans for many top transplant centers."

In addition to getting a one-time milestone payment for exceeding $200 million in sales of Adcetris by Takeda, the higher sales each year also come with a higher royalty rate. "The royalty rate on the first $100 million in net sales is in the mid-teens, increases to the high-teens between $100 million and $200 million, and increases again to the low-20s above $200 million," said Seattle Genetics' CFO Todd Simpson.


Looking forward
Management is guiding for 2016 revenue in the range of $390 million to $430 million, including Adcetris sales of $255 million to $275 million. At the midpoint, the latter would be a 17% increase from 2015 Adcetris sales of $226 million.

Keep in mind that management tends to be conservative with their guidance. This time last year, management was guiding for Adcetris sales in the range of $200 million to $210 million, which it blew past.

Expanding sales of Adcetris much further is going to require additional approvals to treat more patients. In the second half of this year, we'll get a readout from the ALCANZA trial in patients with relapsed cutaneous T-cell lymphoma. Two other trials testing Adcetris as a first-line therapy in combination with chemotherapy will read out in the 2017 through mid-2018 time frame.

Further back, Seattle Genetics is running two early-stage clinical trials testing Adcetris in combination with Bristol-Myers Squibb's (BMY 0.53%) Opdivo. The partnership with Bristol-Myers Squibb makes a potential competitor into an ally since Opdivo is approved for a few solid tumors, but it seems likely that Bristol-Myers Squibb would have tried to move it into blood cancers on its own if Seattle Genetics didn't partner up.

Beyond Adcetris, Seattle Genetics is advancing its next drug, vadastuximab talirine, which used to be called SGN-CD33A, into phase 3 development that should start in the third quarter of the year.