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Seattle Genetics Is Oversold, Analyst Says


Wall Street estimates for Seattle Genetics' new cancer drug are too low, according to an RBC analyst. Doc survey shows strong interest in the drug.

Seattle Genetics (SGEN) lost more than a quarter of its value this month on worries that the company's newly approved cancer drug Adcetris won't live up to expectations.

At least one analyst says the stock is oversold as a survey of doctors shows interest in prescribing the drug.

Citing a proprietary survey of about 100 docs, RBC Capital Markets analyst Jason Kantor says Seattle Genetics is a buy after the stock was beaten up on fears that Adcetris sales will disappoint. The drug was approved for sale in the US in August as a secondary treatment for two types of blood cancer.

Cautious statements by Seattle Genetics execs earlier this month spooked investors. Analysts, in turn, issued conservative sales estimates. But Kantor says docs in a survey -- a cross section of hospital-based, private practice, and community physicians -- indicated a strong likelihood to prescribe.

"The rapid uptake, high penetration rate, and potential for retreatment will position Seattle Genetics for multiple quarters of exceeding consensus expectations," Kantor says in a note Monday.

The analyst is raising his fourth-quarter sales estimate to $35 million from $22 million (the earlier estimate is roughly consensus among investment firms who follow the company). Kantor predicts the drug will reach about $300 million in US sales by 2015.

Shares of Seattle Genetics rose 7% to $16.05 midday Monday. Kantor, who recommends buying the stock, has a 12-month price target of $26 a share. The stock traded above $22 at the beginning of the month -- just before the shares crashed on the cautious outlook from company execs.

On November 3, company officials said they sold $10 million worth of Adcetris in the first six weeks of sale (the drug shipped the fourth week of August). On a conference call, company officials cautioned that sales wouldn't continue at such a robust pace and refused to provide any forecast for future revenue. Company execs said they couldn't forecast because of "signficant unknowns" due to product adoption and timing of sales.

Adcetris treats a pair of rare diseases, Hodgkin's lymphoma and anaplastic large cell lymphoma. Because the patient population size is relatively small compared with other diseases, the company is charging a high price to recoup its expenses for developing the drug -- up to $121,500 a patient. (See Seattle Genetics Slaps Big Price on New Cancer Drug.)

The sell-off isn't surprising. A slow start for sales of Human Genome Sciences' (HGSI) lupus drug Benlysta and the meltdown after high expectations for Dendreon's (DNDN) prostate cancer vaccine Provenge have made a lot of investors gun shy about drug launches. Stocks of companies with new launches can be particularly volatile.

Twitter: @brettchase

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No positions in stocks mentioned.
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