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Seattle Genetics Tumbles on Drug Worries

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The company got a thumbs up from a government panel Thursday but questions arise about market approval and success.

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Some investors are getting out of Seattle Genetics (SGEN) a day after the company scored a win toward a cancer drug approval in the US.

Shares of the company fell 8% to $18.75 in midday trading Friday after falling by double digits earlier in the morning. Yesterday, Seattle Genetics won the recommendation of a panel of government medical advisers who said that the company's drug Adcetris should receive an accelerated approval for two types of blood cancer.

Now a sell-off isn't unusual for a stock that has a big price run-up prior to a catalyst such as a panel meeting. (See Seattle Genetics Moves Closer to Drug Approval.) But the meeting also raised some concerns about market timing and potential of the drug.

The panel advisers twice voted 10-0 to recommend Food and Drug Administration accelerated approval for Adcetris to treat Hodgkin's lymphoma and anaplastic large cell lymphoma. The FDA is expected to make a decision on the drug by August 30. It's not bound by the advisers' recommendations.

The advisers' endorsements are obviously good news. The FDA wants to get promising drugs out to market quickly and sometimes accelerated approval is granted so patients can get the medicines they need. But companies are required to do follow-up confirmatory studies to make sure the drugs do indeed work and there's concern whether Seattle Genetics can meet the FDA demands (the company trials so far have shown Adcetris to be highly effective). FDA officials are making it clear that they want agreement with the company on a confirmatory study before they make their decision by the end of next month. There's a question of labeling restrictions as well given the limitations of the data so far on Adcetris.

"Unanticipated conditional qualifiers and high likelihood of narrow restrictions support our view of limited commercial success," Canaccord Genuity analyst George Farmer says. He rates Seattle Genetics a sell.

Seattle Genetics plans to eventually seek approval for Adcetris to treat a broader range of patients. It also plans to get overseas approvals with the help of partner Takeda, which will sell the drug outside the US and Canada.

On a conference call Friday morning, Seattle Genetics CEO Clay Siegall assured analysts and investors that the company would reach an agreement with the FDA on a confirmatory trial.

"We have a strong working relationship with the FDA," Siegall said.

Siegall said yesterday's panel votes marked "a rare and exciting day" for the company. He noted that unanimous votes are hard to come by.

But Bank of America/ Merrill Lynch analyst Rachel McMinn challenged Siegall on the call, noting apparent tensions between the company and the agency.

"I don't think you should be celebrating," McMinn said, adding that she perceived the company has a "massive disconnect with the FDA."

Richard Pazdur, who heads the FDA's cancer drug division, announced at Thursday's meeting that Seattle Genetics had actually requested a regular approval for its drug, which in the agency's opinion would require more testing. An accelerated approval allows a drug on the market with the understanding that it will do follow-up study to make sure the drug is safe and effective. The FDA recommended that Seattle Genetics seek the accelerated approval but it also wants to make sure that the company has plans in place to complete such a study.

McMinn also took the company to task for not earlier disclosing to investors its application discussions with investors.

Spokeswoman Peggy Pinkston said in a statement, "Seattle Genetics takes disclosure requirements and investor transparency very seriously."
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