Value Line has initiated coverage of Seattle Genetics, Inc. (SGEN) in its flagship product, The Value Line Investment Survey. Seattle Genetics is a biotechnology company that focuses on the development and commercialization of targeted therapies for the treatment of cancer. As of December 31, 2013, the company had 582 employees. Seattle was incorporated in Delaware in 1997, and its principal offices are in Bothell, Washington.

The company’s only product approved for marketing, is ADCETRIS, an antibody-drug conjugate (ADC). It received FDA approval in August 2011 for patients with Hodgkin’s lymphoma. The company is collaborating with Takeda Pharmaceutical Company to commercialize this product around the world. Seattle retains rights for ADCETRIS in North America, while Takeda would retain the rights for the rest of the world. Seattle and Takeda have received marketing authorization in 39 countries as of January 31, 2014.

Seattle Genetics does not have the ability to manufacture its drugs internally, so it relies on corporate collaborators and contract manufacturing firms. Management believes it will continue to rely on contract manufacturers and other third parties to produce, vial, and store its products for the foreseeable future.

The company sells ADCETRIS through several pharmaceutical distributors. It receives orders from these distributors, and then ships the products directly to health care providers. Three of its primary distributors, AmerisourceBergen (ABC), CardinalHealth (CAH) and McKesson Corporation (MCK), each accounted for 10% or more of total revenues in 2013. Sales of ADCETRIS were $144.7 million last year, or 54% of total revenues. Collaboration and license agreements accounted for 40% of revenues, with the remainder allotted to royalties. International sales were less than 10% of last year’s total.

Seattle Genetics also has five clinical-stage ADC programs, as well as several pre-clinical stage programs. The company has collaborations for its ADC technology with several biotechnology and pharmaceutical companies, including GlaxoSmithKline (GSK), Bayer, and Pfizer (PFE Free Pfizer Stock Report), among others.

Competition in the biotechnology and biopharmaceutical industries is intense, with rapidly advancing technologies and a strong emphasis on proprietary products. Seattle competes with third party pharmaceutical and biotechnology companies, along with academic institutions and other research organizations. Many of these players have significantly greater financial resources, along with more expertise in research and development, manufacturing, conducting clinical trials, and obtaining regulatory approval.

Smaller companies are competitors, as well, since many collaborate with larger, more established firms. Major competitors include some of the same firms that Seattle has collaborated with, including Bristol-Myers Squibb (BMY), ImmunoGen (IMGN), and Pfizer. However, regarding ADCETRIS, there are currently no other FDA-approved drugs for the treatment of relapsed Hodgkin’s lymphoma. 

Seattle Genetics faces several risk factors. Since its primary product, ADCETRIS, represents more than half of total sales, any problems with effectively commercializing and expanding its use could be detrimental to business. Reports of adverse events or safety concerns regarding the drug could hurt the company from maintaining regulatory approval. In addition, the target patient population for ADCETRIS is small, and therefore, total sales potential for the product is limited.

The company also has a history of posting operating losses, and Seattle expects to continue to incur net losses in the foreseeable future. These losses are largely due to the significant amount of R&D incurred for developing drugs and conducting clinical trials. The company also uses a small number of collaborators and distributors for its products, so the loss of any of these would likely hurt prospects.

Overall business prospects at Seattle Genetics remain mixed. As we mentioned, the company will probably continue to post operating losses for the next few quarters, and sales in 2014 will likely come in about flat with the prior-year tally. Management is trying to increase the average treatment cycles of ADCETRIS, as well as add new patients. There is some noteworthy upside, as well, assuming some of its products currently in the pipeline under trial come into market.

Subscribers interested in learning more about this biotechnology company are advised to consult Value Line’s quarterly reports for Seattle Genetics, as well as any supplemental reports and relevant articles that may arise as important news comes to light.

At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.