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I have thoroughly analyzed Seagen’s (SGEN) investment case in my previous articles (Seagen: SEA-CD40 Is The Next Growth Driver, Seagen: The New Oncology Hope). In this article, I would like to update the investment case, which is particularly relevant after the share price fell following the results of the latest financial statements.

Seagen released a positive quarterly report and weak outlook for 2022. Quarterly revenue was $430 million (6% higher than expected), of which $369 million came from net sales and the remainder from royalties and collaboration revenue. Net loss (GAAP) was $175 million, worse than consensus expectations ($152 million loss).

Revenue projections for 2022 are $1.67-1.75 billion (excluding Tivdak), implying 7-12% year-on-year growth. The numbers were 20% below consensus expectations of $2.15 billion. The low revenue forecasts were for all drugs, but the worst were the forecasts for Tukysa. Despite the news, I remain bullish on the stock. Let’s analyze the results and forecasts for the 4th quarter in more detail.

Adcetris

Adcetris fourth-quarter revenue was $176 million, implying an 8% year-over-year increase. Actual results were 2% lower than consensus. Adcetris sales in 2022 are expected to be between $730 million and $755 million, implying 5.1% year-on-year growth (8% less than expected). Medicine continues to be the backbone of the company’s business.

Padcev

Padcev sales in the United States were $93 million (+34% year-on-year, 5% above consensus). Management expects Padcev sales to be around $435-455 million (+31% year-on-year and 3% below expectations). Continued growth will require expansion into additional indications and earlier treatment lines. Regarding clinical data, I expect data on the use of Padcev as a first-line treatment for mUC in cis-ineligible patients in the second half of 2022. I highlight the positive outlook and strong actual results by Padcev.

Tukysa

Tukysa revenue was $94 million (+53% year-on-year, 9% above consensus). Management expects Tukysa’s 2022 sales to be between $315 million and $335 million, down 3% from the 2021 level and 32% below consensus estimates. As reasons for such a weak forecast, management cited the threat of increased competition in the second-line HER2+ treatment for metastatic breast cancer. Management sees Enhertu (AstraZeneca (NASDAQ:AZN)/Daiichi (OTCPK:DSKYF)) as the main competitor, which has shown good clinical data in the second-line treatment of HER2+ breast cancer. Data on the use of Tukysa for the treatment of colorectal cancer are expected in the second half.

Tivdak

Tivdak has grossed $6 million in the first full quarter since approval. For Tivdak, management plans to expand to early-stage cervical cancer treatment. A sales forecast for the drug for this year was not provided. According to Tivdak, the management has noted positive feedback from doctors who have already prescribed the drug to their patients. Currently, the drug is only approved for the 3rd line treatment of metastatic cervical cancer. The indication itself is rather small, and most interesting is the entry into the first lines of therapy within the framework of combination therapy and the potential expansion into the treatment of other types of cancer.

SEA-CD40

Having completed the review of the current portfolio, let’s move on to reviewing the news of the pipeline and updating the case with the litigation with Daiichi. In January, the company published data on the use of SEA-CD40 in combination with Keytruda and chemotherapy for the treatment of metastatic pancreatic cancer (Phase 1). The study involved 61 patients. According to the study, the drug showed high efficacy compared to the current standard of care. This is all the more important as current treatment standards do not show high efficacy and there is a significant unmet need in this indication. Overall response to SEA-CD40 (ORR) combination therapy was 44%, mPFS was 7.4 months, and mOS was 15 months. For comparison, I will give data on the current standard of care (gemcitabine/Abraxane). It has an ORR of 23%, mPFS of 5.5 months and mOS of 8.5 months. Further regulatory steps depend on further data on the survival of treated patients. If the data is at least as good as the current data, a fast-track drug review and earlier approval is possible.

The dispute with Daiichi

Regarding the legal dispute with Daiichi over the use of ADC technology, management noted that the court hearing has been reopened to consider additional evidence. The reopening of the hearings pushes the verdict back to the second quarter of 2022. Allow me to remind you of the key elements of the dispute. The dispute concerns the intellectual property relating to the use of ADC technology. Daiichi and Seagen entered into a partnership agreement in 2008 which lasted until 2015. Under this agreement, Seagen provides access to its ADC technology. If the decision is in favor of Seagen, the company will collect some royalties on the sale of several drugs (Roche’s Polivy (OTCQX: RHHBF)GlaxoSmithKline’s Blenrep (NYSE:GSK), and others).

Risks and Final Thoughts

Regarding risks, I would like to point out that the sector is risky for investment and that it is necessary to take into account many factors and potential risks when choosing assets. To save time, I will not list all the risks here. You can familiarize yourself with them in the corresponding section of the company’s latest financial statements (Seagen 10-K).

Based on the results of the reporting, I made adjustments to the DCF valuation model. In particular, I lowered Tukysa’s revenue forecast. I also reduced the probability of a business takeover to 15% (instead of 20%). However, I continue to expect growth in M&A activity in the sector, as the valuations of many mid- and small-cap companies are at attractive levels and large companies need new engines for growth. revenue growth. As a result, my new target price is $180. This implies DCF valuation weightings of 85% and an M&A target weighting of 15%. Note that my DCF estimate does not include the potential sale of SEA-CD40, LV, DV, and royalties from winning the dispute with Daiichi. As a result, I remain bullish on the stock.