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Why Is Seattle Genetics (SGEN) Down 4.1% Since the Last Earnings Report?

About a month has gone by since the last earnings report for Seattle Genetics, Inc.SGEN . Shares have lost about 4.1% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Seattle Genetics Loss Narrows in Q3, Revenues Beat

Seattle Genetics reported a loss of 19 cents per share for the third quarter of 2017, significantly narrower than the Zacks Consensus Estimate of 40 cents and the year-ago quarter loss of 23 cents per share.

However, including a gain of $78.7 million from the exercise of the warrant granted during termination of license transaction with Immunomedics, the company reported earnings of 34 cents per share.

Revenues came in at $135.3 million, up 27.3% year over year, primarily on the back of strong sales of Adcetris. Revenues also beat the Zacks Consensus Estimate of $113 million.

Quarter in Details

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

The company's only marketed product, Adcetris, generated revenues of $79.2 million, up 12.9% year over year.

Collaboration and license agreement revenues increased 64.5% to almost $39.4 million, mainly driven by strong demand for Adcetris in the international market. Collaboration revenues include fees earned from the company's agreement with Takeda Pharmaceutical Company Ltd. for Adcetris and other ADC collaborations.

Royalty revenues increased 36.9% year over year to $16.7 million attributable to international sales of Adcetris by Takeda Pharmaceutical.

Research and development (R&D) expenses were $113.6 million, up 22.5% year over year. Also, selling, general and administrative (SG&A) expenses increased 13.9% to $34.8 million. Costs were high primarily due to investment in vadastuximab talirine, enfortumab vedotin, Adcetris and other pipeline development.

2017 Outlook

The company raised outlook for collaboration and license agreement revenues to the range of $90-$100 million (previously $75-$90 million). The royalties are expected in the range of $60-$65 million (previously $50-$55 million). Net sales of Adcetris are expected in the range of $290-$310 million.

Pipeline Update

Seattle Genetics continues to work on expanding Adcetris' label further through three phase III studies. We note that the FDA has granted priority review for a supplemental Biologics License Application in August to include cutaneous T-cell lymphoma in its label. A decision is expected in December.

Meanwhile, the FDA has granted Breakthrough Therapy Designation to Adcetris based on data from the phase III ECHELON-1 study (frontline classical Hodgkin lymphoma) on Adcetris showing a statistically significant improvement in modified progression-free survival. Seattle Generics and Takeda are planning to submit applications for regulatory approval by the year end.

The company expects top-line data from the ECHELON-2 study (frontline CD30-expressing mature T-cell lymphoma) in 2018. The company is also evaluating Adcetris in combination with Bristol-Myers' Opdivo in relapsed/refractoryclassical Hodgkin lymphoma.

In addition, the company initiated a pivotal phase II study on enfortumab vedotin in patients with metastatic urothelial cancer patients in late 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downside. There have been five moves lower in the last two months.

Seattle Genetics, Inc. Price and Consensus

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

VGM Scores

At this time, Seattle Genetics' stock has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. The stock was allocated a grade of F on the value side, putting it in the bottom 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for momentum investors based on our style scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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