Dendreon was trading at nearly $36 per share in early August when the company reported sluggish sales of its highly touted prostate cancer compound, Provenge, the first medicine to train the body’s immune system to attack cancer cells like a virus. Shareholders saw their investment plummet by two-thirds in a single day as the company withdrew its 2011 revenue estimate of $350 million to $400 million.
Julian Baker, a Seattle Genetics director, is betting big the same fate doesn’t befall the company’s new cancer medication, Adcetris. His firm, New York City-based Baker Brothers Life Sciences Capital, last week bought $18 million worth of the company’s shares.
It appears less-informed investors are taking a more cautious approach. Although senior analyst Mark Monane at Needham & Company predicts Adcetris will bring in up to $400 million a year in sales for Seattle Genetics, the stock is up only about $2 to nearly $17 since the announcement. More enthusiasm probably was expected for the company’s shares, which have grown five-fold since 2006.
Perhaps investors are shying away from the stock because of Adcetris’ price. The drug, which is approved to treat the blood cancers Hodgkin’s lymphoma and anaplastic large cell lymphoma, will cost $13,500 per dose or an estimated $108,000 for a course of treatment. Adcetris joins Provenge and Bristol-Myers Squibb’s (NYSE:BMY) new melanoma drug, Yervoy, as a new cancer treatment that costs about or more than $100,000 per patient.
So far, Seattle Genetics has to be encouraged by Yervoy’s uptake. Despite its high price, the Bristol drug posted $95 million in sales in its first quarter on the market. If Seattle Genetics can convince doctors and insurers that the price is actually right and maybe even a value to the health care system, Adcetris should be able to follow in Yervoy’s footsteps.
One big advantage of Adcetris is that it targets lymphoma cells without the scatter-shot approach used by chemotherapy, eliminating severe side effects. Mikkael Sekeres, an oncologist at the Cleveland Clinic and one of the FDA panelists who voted to approve the drug, called Adcetris “wildly active.”
This assessment bodes well for the 25 other drugs of the same type currently in trial and awaiting approval. Two of the most prominent among that group are in late-stage clinical trials: trastuzumab emtansine, a breast cancer therapy jointly developed by biotechnology firms Genentech and ImmunoGen (NASDAQ:IMGN); and a lymphoma compound developed by Pfizer (NYSE:PFE).
Even if Adcetris achieves expectations, the lack of any products behind it might be another good reason for investors to proceed cautiously on Seattle Genetics. The company is evaluating several compounds, but they are all in the early stage of development. This means barring an acquisition or the licensing of a drug, it will be some time before Seattle Genetics brings another product to market. Also, Adcetris eventually will have some competition. Novartis (NYSE:NVS) and Amgen (NASDAQ:AMGN) have licensed technology that should allow them to develop rival compounds to Adcetris.
Barry Cohen is long PFE, AMGN and NVS.