Please ensure Javascript is enabled for purposes of website accessibility

Why Seattle Genetics, Inc. Stock Rose 10% in March

By Cory Renauer - Apr 12, 2016 at 8:41AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Some insider buying from the company's largest shareholders helped this burgeoning pioneer of targeted cancer therapies recover from this year's broad biotech selloff.

Image source: Seattle Genetics,

What: Shares of Seattle Genetics (SGEN 1.79%), a biotechnology company developing targeted cancer therapies, gained 9.83% in March, according to data from S&P Global Market Intelligence

SGEN Chart

The news flow last month was relatively minor and included a request for confidential treatment of its amended agreement with Bristol-Myers Squibb. Previously, the company disclosed a reduction to the already low-single-digit royalty rate it pays Bristol on net sales of Adcetris and noted that the two had specified the agreement's termination date.

While we won't know the secret agreement's details, there were hints of positivity in the form of moderate insider buying. Baker Bros. Advisors upped its stake, from 26.7% as of Feb, 16 to 31.1% as of March 24.

So what: There's an old saying when it comes to insider transactions: "There are a millions of reasons to sell, but only one to buy."

While insider buying is generally a positive signal, blindly following insider purchases is ill-advised. You should know that Felix Baker has served as a director since 2003, despite requiring reelection every three years. The second and third largest stakeholders each own about 12.2% of the company's shares. This may have been an attempt to consolidate control, or simply a larger investment in a company with bright-looking future.

Although undisclosed, the amendment to the Bristol-Myers agreement is probably also positive. However, I expect the company's burgeoning pipeline was a larger motivator of insider purchases, and the stock's gain.

Now what: Its lead product, Adcetris, for treatment of Hodgkin's lymphoma has been stuck in the second line setting since its approval in 2011. A recent expansion last year to post-stem-cell-transplant Hodgkin patients helped push the company's top line 17% higher last year to $336.8 million.

It's a good thing, too, because the company is also pushing hard to expand the Adcetris label to the front-line setting in Hodgkin's and other lymphomas with three phase 3 trials. The first two expected to finish could expand the Adcetris label somewhat. However, the largest expansion would come from the ECHELON-1 trial with advanced-stage but untreated Hodgkin's patients. It's measuring the standard four-agent regimen, against the three of the same agents, swapping Adcetris for chemo drug bleomycin.

Image source: Seattle Genetics,

I'm afraid we'll have to wait a long time for meaningful results from this trial. Even when patients are diagnosed in stage 3, five-year survival rates for Hodgkin's lymphoma is about 80%. However, it's well worth the wait. With over 9,000 new cases diagnosed each year, Adcetris' inclusion in the first-line standard of care might be necessary to fund its rapidly expanding pipeline.

The company's R&D budget was bigger than ever last year: $294.5 million. The good news is, the amount of data to be created over the next several years is even larger. 

While Seattle Genetics' R&D budget is relatively modest by big pharma standards, it's getting more than its money's worth. With more than 70 ongoing trials sponsored by itself, its partners, and independent investigators, it will be throwing off more clinical data than most companies twice its size in the years ahead. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Seagen Inc. Stock Quote
Seagen Inc.
SGEN
$180.11 (1.79%) $3.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.