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Seattle Genetics Moves Closer to Drug Approval

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But shares fall after a big run-up in price. Adcetris faces FDA panel Thursday for treatment of blood cancers.

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Seattle Genetics (SGEN) investors have been confident for months that the company's experimental cancer drug will get a fast US approval. So why does the stock trade down after a relatively clean bill of health from government reviewers?

Shares of Seattle Genetics fell 4% to $19.74 midday Tuesday. The shares are up more than 30% this year.

Food and Drug Administration documents filed this morning questioned the limitations of research conducted by the company as it tries to advance its drug Adcetris to market. Seattle Genetics is seeking approval of the drug as a second-line treatment for a pair of blood cancers, Hodgkin's lymphoma and anaplastic large cell lymphoma. On Thursday, a panel of medical experts advising the FDA will vote on whether to recommend the fast approval, a regular approval, or rejection of the drug. The FDA will then weigh the advisers' advice as it nears an August 30 decision on market approval for Adcetris.

The comments on trial limitations should come as no surprise. The point of an accelerated approval is to get a drug to market quickly because of an unmet need. In this case, Adcetris would treat a pair of rare diseases. Seattle Genetics studied the drug in a relatively small group of people and didn't include a group of patients taking a placebo for comparative analysis. The FDA staff conceded that Adcetris appeared to work but the trial design can't provide conclusive evidence of effectiveness and safety.

The report had no big negatives but it isn't a slam dunk, and an advisory panel endorsement won't mean that Adcetris is a sure thing for approval either. However, a negative vote will sink the stock. And certainly an FDA rejection next month will tank the shares.

The reason Seattle Genetics is trading down today is because the stock got ahead of itself. The shares are up more than 60% over the past year even with today's drop.

Leerink Swann analyst Howard Liang recently set a 12-month price target of $18 a share on Seattle Genetics, based in part on Adcetris sales of more than $400 million by 2015. Liang is a bull on the stock who predicts the drug will be approved in the US next month.

Any drug sales predictions will be a little loose at this point. Timing of the approval, the drug's label, pricing, sales strategy, and insurance reimbursement will all play into the actual results. But because the drug is aimed at rare diseases and a patient population in the thousands, the drug isn't likely to be an immediate blockbuster. There were 8,490 new cases of Hodgkin's lymphoma last year and 1,320 deaths, government figures show. There are far fewer cases of anaplastic large cell lymphoma.

As is the case with any drug stock that has had a big price run-up, look for some sell-off from investors looking to take profit in the coming days even if Adcetris gets a positive panel vote on Thursday.


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No positions in stocks mentioned.
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