Seattle Genetics Misses 1st Quarter Sales Estimate, But Sees $1B Future

5/8/12Follow @xconomy

Seattle Genetics fell short of Wall Street’s quarterly sales expectations for its new lymphoma drug, but the company boldly declared today that it sees its first drug becoming a billion-dollar blockbuster over time.

The Bothell, WA-based company (NASDAQ: SGEN) said today it generated $34.5 million in net product sales in the first quarter, about a 4 percent increase beyond the $33.2 million it reported in the previous three-month period. That performance fell short of Wall Street’s average estimate of $39 million, according to Jason Kantor, an analyst with RBC Capital Markets. Shares of the company dipped in after-hours trading by 9 percent to $17.40 at 5:26 pm ET.

Despite missing Street expectations of net sales, Seattle Genetics offered a bullish forecast for its new drug brentuximab vedotin (Adcetris). The company, which won FDA approval for the product in August, said it expects to pull in $140 million to $150 million of net product sales in 2012. While the new drug is currently FDA-approved for a small group of patients with relapsed forms of Hodgkin’s disease and anaplastic large cell lymphoma, the company is pushing hard on clinical trials that could prove the drug’s value for many more people. By moving the drug into newly diagnosed lymphoma patients, and extending it to other patients with different forms of cancer, Seattle Genetics said it envisions much greater potential over time.

The drug, which combines the specific cell-targeting capability of an antibody with a toxin that gives it more punch, has shown an ability to significantly shrink tumors in patients who don’t respond nearly as well to conventional chemotherapy.

Seattle Genetics CEO Clay Siegall

“In the longer term, we believe the commercial opportunity for Adcetris exceeds $1 billion in the U.S. and Canada,” CEO Clay Siegall said on a conference call with analysts. Millennium: Takeda holds the rights to the drug in Europe.

David Miller, an analyst with Biotech Stock Research in Seattle, said the first quarter fell short of his expectations, but the long-term trend is still encouraging. “They are doing great. They’ll be able to beat guidance if they can convince docs to use the drug in retreatment situations,” Miller says.

A couple of dynamics made the first quarter unusual. About 200 very ill patients who had been getting Adcetris through a free extended clinical trial program in 2011 were converted into paying customers last year after it won FDA approval, but most of them have since quit taking the drug, the company said. Plus, Public Health Service discount programs went into effect in the first quarter, which widened the gap between gross and net sales that Seattle Genetics could record on its books. Now that the discounts are in effect, those adjustments are expected to be consistent going forward, the company said.

Seattle Genetics, which hasn’t previously offered a sales forecast to analysts, described a number of factors on this quarterly call that give it increasing confidence. The drug is expensive—$13,500 per dose for a product given every three weeks—but no patients have been denied reimbursement for the drug when it has been prescribed in accordance with FDA guidelines, the company said. About 750 different accounts have ordered Adcetris so far, which represents less than half of the total potential market for the drug with its current FDA-approved uses, said Chris Boerner, Seattle Genetics’ senior vice president of commercial operations. When the company has surveyed targeted physician prescribers, it has found more than 90 percent have a positive impression of the product, Boerner says.

The company arrives at its billion-dollar forecast through an aggressive set of clinical trials it has teed up to expand use of Adcetris. For starters, the company looks to extend Adcetris to patients with earlier-stage forms of Hodgkin’s disease and anaplastic large cell lymphoma. There’s more potential for the drug in retreatment of patients, and in the “maintenance” setting in which patients get the drug to ward off future relapses. A pivotal-stage trial just got underway for patients with cutaneous T-cell lymphoma, and another study is looking at whether Adcetris can help patients with solid tumors that carry the molecular target Adcetris is designed to hit, CD30. Seattle Genetics and its partner, Millennium, are working with Roche’s Ventana Medical Systems to develop a companion diagnostic test to look for CD30 to more readily identify patients who are good candidates for Adcetris.

Financially, the new cash flow from Adcetris is enabling the company to continue to raise expenses on sales and marketing as well as R&D, while narrowing its net losses. The company’s R&D expenses climbed to $38.5 million in the first quarter, from $32.4 million in the same period a year earlier. Sales, marketing and administrative costs rose to $22.2 million, from $12.7 million a year earlier. Despite the increasing expenses, Seattle Genetics’ net loss narrowed to $12.3 million in the first quarter, far less than the $32.6 million loss it had a year earlier, before Adcetris hit the market.

Seattle Genetics said it had $308.9 million of cash and reserves at the end of March, down from $330.7 million it had at the beginning of the year. There was no discussion on today’s call about when Seattle Genetics might turn profitable, but there was also no talk about any need to raise more cash from investors. “We are in a strong financial situation,” said Todd Simpson, the company’s chief financial officer.

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