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Seattle Genetics Frontline Trial Plans Are Not New -- and Not a Problem, Either

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A confirmatory trial design of Adcetris plus AVD versus ABVD is obviously not a new idea. It's also not a problem for key opinion leaders in the Hodgkin's Disease space.

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Seattle Genetics (SGEN) released earnings for its recently-launched cancer drug Adcetris yesterday after the bell. Revenues of $10 million for the first six weeks on the market far exceeded consensus estimates for Q3 and even some analyst estimates for all of 2011. By any measure, the results were quite good. With about 450 patients now taking Adcetris every three weeks at an average per-dose cost over $11,000, all analysts are likely to be raising their 2011 revenue estimates.

Adcetris received accelerated approval from the FDA for both Hodgkin's Lymphoma (or HL) and anaplastic large cell lymphoma (or ALCL). Under FDA rules, Seattle Genetics must run a confirmatory trial. The FDA and Seattle Genetics have an agreement this confirmatory trial will be in front-line (treatment naïve) patients and will have a survival endpoint.

Current front-line therapy for HL is a cocktail of four cancer drugs commonly referred to as "ABVD." ABVD was first developed in the 1970s. Even a brief discussion with leading hematological oncologists will inform you nobody really likes ABVD. It works, but it is toxic. There are dozens, if not hundreds, of clinical trials already in the books seeking ways to improve ABVD's efficacy or reduce its pulmonary side effects. Of the four combination drugs, the "B' in ABVD (Bleomycin) is responsible for the pulmonary side effects.

To prepare for the Phase III confirmatory trial required by the FDA, Seattle Genetics is running a Phase I trial testing the safety of Adcetris in combination with ABVD and some of its components. The first step of this trial was to test Adcetris plus ABVD. On yesterday's call, Seattle Genetics announced the pulmonary toxicity already present with ABVD increased meaningfully with the addition of Adcetris. Seattle Genetics said that because of this, the confirmatory trial would be AVD plus Adcetris – in other words, removing Bleomycin from the combination. Early testing of AVD plus Adcetris ("AVDA") shows no pulmonary toxicity so far.

Some on Wall Street, particularly the fast-money biotech funds who are short Seattle Genetics, have seized upon this as a "new" issue that will delay Seattle Genetics' confirmatory trial and eventual entry into the much larger front-line indication

This isn't new and it isn't a problem.

Even before Adcetris was approved, Seattle Genetics management was talking about the front-line trial for HL being Adcetris plus AVD. My firm published this in our 200+ page Anniversary Issue last August in fact. A confirmatory trial design of Adcetris plus AVD versus ABVD is obviously not a new idea.

It's also not a problem for key opinion leaders in the Hodgkin's Disease space. I've spoken with to several at scientific conferences over the past couple of years who expressed sincere excitement in obtaining Adcetris for their treatment-naïve patients. They talked openly about how they would create combinations. Removing the 'B' from ABVD and adding Adcetris was very often communicated as their preferred approach.

When a biotech releases good news but has a short interest as high as Seattle Genetics' short interest (25.3 million shares with just 3 million shares traded daily and a 81 million share float), bears have to come up with something negative to talk about. My guess is that "something" will be how Seattle Genetics' front line program is now "in trouble" or "in disarray" or has some "unexpected complications." This is something the smart, well-researched investor will recognize as spin.

Don't get me wrong. Seattle Genetics' market cap is priced for perfect execution on the sales side. With such a fast start, people might get carried away with revenue projections for the remainder of 2011 and especially 2012. There are risks to the Adcetris launch, but one of those risks is not that the front line trial in HL will be Adcetris plus AVD.

Twitter: @BiotechStockRsr

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