EUR 850.00 For Business Accounts Only

Morningstar | No-Moat Seattle Genetics Reports In-Line 1Q Following 2018 Adcetris Approvals; No Change to $65 FVE

Seattle Genetics reported revenue of $195 million, slightly below our expectations, with Adcetris sales seasonably softer in the first quarter. Net Adcetris sales of $135 million in the United States and Canada represent a 42% increase from last year, and we are maintaining our forecast of about $610 million for the full year, which falls at the lower end of management's maintained guidance. Operating expenses were mostly in line with our expectations, with costs and expenses from Seattle's multiple ongoing trials more than offsetting the product sales, royalties, and other revenue, resulting in a net loss of about $13 million for the quarter. While we may adjust some of our near-term estimates, we don't expect a material change to our fair value estimate of $65 per share. Given the degree of uncertainty Seattle faces in the competitive oncology space, we continue to believe that the company fails to warrant a narrow moat rating. However, the no-moat company's portfolio has continued to expand, most recently with Adcetris' February approval in frontline classical Hodgkin lymphoma.

Management adjusted guidance to incorporate slightly higher operating expense as the company continues to build out its pipeline opportunities in various cancer indications. Seattle reported positive top-line results from EV-201 in March. The results from EV-201, a pivotal trial of enfortumab vedotin in locally advanced or metastatic urothelial cancer in patients who have undergone treatment with chemotherapy and a checkpoint inhibitor, indicated a highly promising objective response rate of 44%.

In June, we expect further data from the drug, and the company indicated that it has yet to enroll a second arm of the study that would include patients ineligible for platinum chemotherapy and expand the addressable patient population. The safety profile for enfortumab vedotin continues to look attractive. We believe it has the potential to be the standard second-line therapy following checkpoint inhibitors, and we currently model a 60% probability of approval. Seattle and partner Astellas plan to file for approval later this year.

We were pleased to hear that HER2CLIMB, a study of tucatinib in HER2-positive breast cancer, has completed enrolling after its earlier delays when the company decided to add 120 patients to the study. The pivotal trial is now powered to support secondary endpoints of overall survival and progression-free survival in patients with brain metastases. Lastly, the company, in collaboration with Genmab, completed enrollment in a pivotal trial of tisotumab vedotin for second-line cervical cancer. For both tucatinib and tisotumab vedotin, we currently model a 60% probability of approval and modest contribution from royalty revenue.