The coronavirus has all the media attention in 2020, but cancer is still the biggest problem afflicting Americans.
Although it’s second to heart disease as the leading cause of death, that is somewhat preventable and treatable through changes in lifestyle and diet.
If not identified and treated early enough, cancer is most often deadly. Seattle Genetics, Inc. (NASDAQ:SGEN) is focused on antibody research to help cure cancer cells in the body. This begs the question – is Seattle Genetics stock a Buy?
Companies have been trying to cure cancer for decades, and we’re still only inching closer to viable ways to handle it. However, the company made a $1.6 billion licensing deal with Merck (MRK) that is sure to generate serious revenue over time for its oncology treatment.
This is especially true if it can hit all its milestone payments to net an addition $2.6 billion. With all eyes focused on Covid-19 in 2020, cancer treatment could have a breakout year in 2021. Let’s dive in to see what’s behind the curtain of this genetics company.
Seattle Genetics Treats Lymphomas & Tumors
Seattle Genetics is a biotechnology company that uses empowered monoclonal antibody-based therapies to help treat cancer patients.
Its goal is to target and eliminate cancerous cells the way chemotherapy does, but without harming or otherwise affecting healthy cells.
This approach is meant to help your body fight the disease in a more effective way and includes a variety of treatments in the pipeline for Hodgkin lymphoma, non-Hodgkin lymphoma, solid tumors, and hematologic malignancies.
Specifically, BLENREP is used as a monotherapy treatment for adults with relapsed multiple myeloma who underwent at least four prior treatments.
Multiple myeloma is a bone marrow cancer that causes your white blood cells to be compromised by cancer cells. This is a deadly disease because of a patient’s compromised autoimmune system, making it similar in HIV/AIDS in that respect. Catching another disease
The company’s partnership with Merck (MRK) is for Ladiratuzumab vedotin, an antibody-drug conjugate (ADC). This treatment is paired with Keytruda in late-stage clinical trials for metastatic triple-negative breast cancer (TNBC).
Keytruda is currently one of the most effective anti-cancer treatments, but it still requires pairing with chemotherapy, which can take its toll on patients’ bodies. This is why it was so eager to buy $1 billion in SGEN common stock on top of $600 million in cash up front.
But should you follow Merck’s lead?
Is Seattle Genetics Stock a Buy?
Besides Merk, Seattle Genetics also got a licensing deal with GlaxoSmithKline in late August 2020, after receiving approval for conditional marketing authorization by the European Commission for Blenrep (belantamab mafodotin), which treats B-cell maturation antigen (BCMA).
Blenrep is also approved by the Federal Drug Administration (FDA) through its accelerated approval process in 2020.
Merck’s deal includes a $1 billion stock buyback at a rate of $200 per share, which bumped the stock form $150 to $180 range, even in a week when the general market got pummeled. This puts it at just above a $30 billion market cap.
Although the gains will be limited, there’s still room to grow to the $200 billion price Merck paid. With net sales in 2019 of $627.7 million, the stock is trading for nearly 20x current annual revenue. It’s got a long way to go to justify the premium in its market cap, but an effective cure for cancer would certainly be a medical breakthrough.
Risks of Buying Seattle Genetics Stock
The biggest risk in buying Seattle Genetics is timing – the stock is rising at a time when there’s uncertainty surrounding the economic recovery.
Government stimulus payments are sure to keep people spending through the holiday season, but 2021 could be the start of a years-long recession.
Healthcare costs are a growing concern, however life-saving cancer treatments will surely still be in demand, as cancer-related deaths far outpace coronavirus fatalities.
It is likely to be three years or longer before investors start seeing major gains in the company, and you’ll need to be willing to weather it out.
A lot can happen in that timeframe, but every time it reaches a milestone in the Merck deal, SGEN holders will see a correlating bump in price to correspond to revenue. This will help close the gap and secure a potential bubble that could pop if other treatments prove more effective.
Can Seattle Genetics Competitors Win?
Seattle Genetics isn’t the only company targeting cancer – in fact, every major player in healthcare is. Bristol Myers Squibb, for example, is currently seeking FDA fast-track approval for its blood cancer treatment, ide-cel.
It’s also targeting multiple myeloma in patients using previous treatments and came from the company’s 2018 Celgene acquisition. Although it stumbled several times along the way, the FDA’s fast-track program could get it back in the race.
There are also candidates like JNJ-4528 from Johnson & Johnson (JNJ), which it licensed from a competing Chinese firm Legend Biotech. It should be deep into clinical trials by the start of 2021.
With so many big companies putting big money on these deals, it’s anyone’s guess who will become the preferred treatment of cancer patients.
Is Seattle Genetics Stock a Buy? The Bottom Line
Seattle Genetics is riding a high, with two major licensing deals helping boost its royalty payments and push its market cap above $30 billion.
This is a nearly 20x multiple on annual revenue, and it’s going to take time to grow into its valuation. Unfortunately, this is happening at a time when the general market is declining as investors brace for a mid-winter spending freeze.
Holding the company up, however, are multiple cancer treatments that show real promise in replacing the detrimental side effects of chemotherapy. If its therapies are effective, it signals another step closer to eradicating the scourge of cancer.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.