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Seattle Genetics Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 8, 2012 04:35PM

Seattle Genetics Inc. (SGEN) filed Quarterly Report for the period ended 2012-06-30. Seattle Genetics, Inc. has a market cap of $2.89 billion; its shares were traded at around $23.88 with and P/S ratio of 30.4. Seattle Genetics, Inc. had an annual average earning growth of 3.2% over the past 10 years. GuruFocus rated Seattle Genetics, Inc. the business predictability rank of 3-star.



Highlight of Business Operations:

Our revenues are generated from a combination of ADCETRIS sales, which we began in the United States during August 2011, collaboration and license agreements and royalties. Collaboration revenues reflect the earned amount of upfront technology access fees, milestone payments, reimbursement for support and materials supplied to our collaborators, and development cost-sharing under our product collaborations. Under our ADCETRIS collaboration with Millennium, we are entitled to receive royalties based on a percentage of Millennium’s net sales in its territories ranging from the mid-teens to the mid-twenties based on sales volume. For the six months ended June 30, 2012, total revenues increased to $97.1 million, compared to $25.2 million for the same period in 2011. This increase primarily reflects our product sales of ADCETRIS during the 2012 period. For the six months ended June 30, 2012, total costs and expenses increased 18% to $129.9 million, compared to $110.0 million for the same period in 2011. This reflects increases in sales and marketing expenses, research and clinical development activities to explore additional potential applications of ADCETRIS and development costs associated with advancing our ADC product candidates as well as cost of sales for the 2012 period. As of June 30, 2012, we had $330.3 million in cash, cash equivalents and short-term investments, and $218.5 million in total stockholders’ equity.

Net product sales were $34.7 million and $69.2 million for the three and six months ended June 30, 2012, respectively. We began selling ADCETRIS in the United States in August 2011.

Revenues earned under our ADCETRIS and ADC collaborations with Millennium represented 56% of our collaboration and license agreement revenues during both the three months ended June 30, 2012 and 2011, and 51% and 58% during the six months ended June 30, 2012 and 2011, respectively. The decrease in revenues from Millennium during the six months ended June 30, 2012 from the comparable period in 2011 primarily reflects lower revenue from our ADC collaboration during the 2012 period. The 2011 revenues include an exclusive license fee earned in the first quarter of 2011. Millennium revenues for the three months ended June 30, 2012 were comparable to the same period in 2011.

Under the ADCETRIS collaboration, we are entitled to receive progress- and sales-dependent milestone payments based on Millennium’s achievement of certain events related to ADCETRIS, including potential approval of ADCETRIS by the European Commission for which Millennium is responsible. We are also entitled to tiered royalties at percentages starting in the mid-teens and escalating to the mid-twenties based on net sales of ADCETRIS within Millennium’s licensed territories, subject to offsets for third party royalties paid by Millennium. Total future potential milestone payments to us under the ADCETRIS collaboration could total approximately $230 million, of which up to approximately $7 million relate to the achievement of development milestones, up to approximately $158 million relate to the achievement of regulatory milestones and up to approximately $65 million relate to the achievement of commercial milestones. To date, we have received a $5 million milestone payment as a result of the acceptance of Millennium’s MAA by the European Commission. In July 2012, Millennium received a positive recommendation from the EMA’s CHMP for the conditional marketing authorization of ADCETRIS for two indications. The European Commission, which has the authority to approve medicines for use in the European Union, generally follows the recommendations of the CHMP and typically renders a final decision within three months of the CHMP opinion. If the CHMP recommendation is formally adopted by the European Commission, ADCETRIS would be approved for marketing in all 27 member states of the European Union and we will be entitled to a $25 million milestone payment from Millennium. We recognize as collaboration revenue the $60 million upfront collaboration payment, milestone payments and development cost reimbursement payments to us over the ten-year development period of the collaboration. We receive reimbursement funding from Millennium equal to one-half of the cost of joint development activities that are performed by us under the collaboration. To the extent that Millennium performs development activities under the collaboration, our development cost reimbursement payments from Millennium are reduced by half of those costs.

Genentech revenues decreased 7% to $1.4 million during the three month period ended June 30, 2012 and 23% to $2.2 during the six months ended June 30, 2012 from the comparable period in 2011 as a result of a decrease in milestone payments made to us in 2012 compared to the 2011 periods.

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