Seattle Genetics (SGEN) Q1 Loss Widens, Sales Top Estimates

Seattle Genetics, Inc.SGEN reported a loss of 42 cents per share for the first quarter of 2017, wider than the Zacks Consensus Estimate of a loss of 41 cents and the year-ago loss of 15 cents per share.

Revenues came in at $109.1 million, down 1.8% year over year, primarily due to lower royalty revenues from the sales of Adcetris. Revenues, however, beat the Zacks Consensus Estimate of $103.3 million.

Seattle Genetics’ share price has gained 29.1% year to date compared with the Zacks classified Medical - Biomedical and Genetics industry’s rise of 4.8% in the same period.

Quarter in Detail

Seattle Genetics’ top line comprises product revenues, collaboration and license agreement revenues and royalties.

The company’s only marketed product, Adcetris, generated revenues of $70.3 million, up 20% year over year.

Collaboration and license agreement revenues increased 8.2% to almost $21.8 million. Collaboration revenues included fees earned from the company’s agreement with Takeda Pharmaceutical Company Ltd. for Adcetris and other ADC collaborations.

Royalty revenues declined 47.5% year over year to $16.98 million. The decline was due to unfavorable year-over-year comparisons. The company had received a milestone payment of $20 million from Takeda in the first quarter of 2016 on international sales of Adcetris.

Research and development (R&D) expenses were $118.2 million, up 27.3% year over year. Also, selling, general and administrative (SG&A) expenses increased 29.1% to $38.4 million. Costs were high primarily due to investment in vadastuximabtalirine, Adcetris collaboration activities for product supply to Takeda and pipeline development.

In its call, the company asserted that there was no erosion of its share in the relapsed HL business despite the FDA approval for Merck & Co., Inc.’s MRK Keytruda as the second PD-1 inhibitor for the treatment of relapsed Hodgkin lymphoma in Mar 2017.

2017 Outlook Update

The company reiterated its outlook for net sales of Adectris to be in the range of $280 million to $300 million. Although the company expects royalty revenues to decrease in the second quarter, it continues to expect it in the range of $50 million to $55 million for the full year.

Pipeline Update

Seattle Genetics continues to work on expanding Adcetris’ label further through 3 phase III trials. We note that the company reported positive data from ALCANZA phase III study recently and is planning to submit a supplemental Biologics License Application (BLA) by mid-2017.

The company expects top-line data from the phase III ECHELON-1 study (frontline classical Hodgkin lymphoma) during 2017 while top-line data from the ECHELON-2 study (frontline CD30-expressing mature T-cell lymphoma) should be out in 2018 (previously expected in the 2017 to 2018 timeframe).

In addition, the company continues to enroll patients in the phase III study on vadastuximabtalirine in combination with hypomethylating agents in older patients with newly diagnosed acute myeloid leukemia. Also, the company plans to start a phase II study in younger patients with newly diagnosed AML in the second half of 2017.

Our Take

While the company missed bottom line expectations, sales came in ahead of estimates in the first quarter of 2017.  With the approval of Keytruda, investors should focus on Adcetris sales in the upcoming quarters. However, the FDA has lifted the clinical hold on two phase I trials of its candidate, vadastuximabtalirine in acute myeloid leukemia (AML) in March.

Seattle Genetics, Inc. Price, Consensus and EPS Surprise

Seattle Genetics, Inc. Price, Consensus and EPS Surprise | Seattle Genetics, Inc. Quote

Zacks Rank & Stocks to Consider

Seattle Genetics carries a Zacks Rank #4 (Sell).

A couple of better-ranked stocks in the health care sector include Heska Corporation HSKA and Regeneron Pharmaceuticals, Inc. REGN. While Heska sports a Zacks Rank#1 (Strong Buy), Regeneron carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Heska’s earnings estimates increased from $1.53 to $1.65 for 2017 and from $1.80 to $2.01 for 2018 over the last 60 days. The company posted positive earnings surprises in eachof the four trailing quarters with an average beat of 291.54%.

Regeneron’s earnings estimates remained almost stable for 2017 and 2018, respectively, over the past 30 days. The company recorded positive earnings surprises in three of the last four quarters, with the average being 8.08%.

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