Seattle Genetics Inc. Reports Operating Results (10-Q)
Seattle Genetics Inc. has a market cap of $1.16 billion; its shares were traded at around $11.56 with and P/S ratio of 22.5. Seattle Genetics Inc. had an annual average earning growth of 2.2% over the past 10 years.SGEN is in the portfolios of RS Investment Management, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations: We do not currently have any commercial products for sale. While certain of our product candidates are advancing into later stages of development, such as brentuximab vedotin, significant further research and development, financial resources and personnel will be required to develop commercially viable products and obtain regulatory approvals. As of March 31, 2010, we had an accumulated deficit of $384.2 million. Over the next several years, we expect that we will incur substantial expenses, primarily as a result of activities related to the potential regulatory approval and commercialization of brentuximab vedotin, including preparation for commercial manufacturing. We will also continue to invest in research, development and manufacturing as we plan to move toward potential commercialization of our other product candidates. Our commitment of resources to the approval and commercialization activities for brentuximab vedotin and the research and continued development and potential commercialization of our other product candidates will require substantial additional funds and resources, and our operating expenses will also likely increase as a result of such activities. In addition, we may incur significant milestone payment obligations as our product candidates progress through clinical trials towards potential commercialization. We expect that a substantial portion of our revenues for the next several years will be the result of amortization of payments already received and expected to be received pursuant to our collaboration agreements. Until such time as we have commercialized a product candidate, our revenues will also depend on the achievement of development and clinical milestones under our existing collaboration and license agreements, particularly our brentuximab vedotin collaboration with Millennium, as well as entering into new collaboration and license agreements. The majority of our revenues for the past three years resulted from our dacetuzumab collaboration agreement with Genentech. In December 2009, Genentech informed us of its decision to terminate the collaboration effective June 8, 2010. This has resulted in a substantial acceleration of revenue recognition for amounts previously received and recorded as deferred revenue on our balance sheet. During the quarter ended March 31, 2010, we recognized $39.9 million related to the dacetuzumab collaboration resulting in net income for the quarter. As of March 31, 2010, we had remaining deferred revenue of $29.1 million recorded on our balance sheet related to the dacetuzumab collaboration. We expect to recognize this amount as revenue, along with amounts billable to Genentech for additional collaboration activities, during the quarter ending June 30, 2010. In addition, as a result of the termination, if we decide to conduct further development of dacetuzumab, we will be responsible for and will be required to solely fund any new dacetuzumab development and clinical trial activities undertaken after the collaboration ends. Our results of operations may vary substantially from year to year and from quarter to quarter and, as a result, we believe that period to period comparisons of our operating results may not be meaningful and you should not rely on them as indicative of our future performance.
To date, we have generated revenues principally from our collaboration and license agreements. These revenues reflect upfront technology access fees, milestone payments and reimbursement for support and materials supplied to our collaborators. For the three months ended March 31, 2010, revenues increased to $46.5 million, compared to $9.1 million for the same period in 2009. This increase was primarily due to accelerated revenue recognition during the first quarter of 2010 related to the termination of our dacetuzumab collaboration with Genentech, which will be effective on June 8, 2010. For the three months ended March 31, 2010, total operating expenses decreased 5% to $35.5 million, compared to $37.4 million for the same period in 2009. Our net income for the three-month period ended March 31, 2010 was $11.5 million compared to a net loss of $27.3 million for the same period in 2009, which was driven by the accelerated recognition of amounts previously received under our dacetuzumab collaboration with Genentech. As of March 31, 2010, we had $331.1 million in cash, cash equivalents and short-term and long-term investments, and $222.1 million in total stockholders equity.
Millennium revenue reflects amounts earned under our December 2009 brentuximab vedotin collaboration agreement and our March 2009 ADC collaboration agreement. Millennium revenue includes the earned portion of a $60.0 million up front payment received by us in the first quarter of 2010 related to the brentuximab vedotin collaboration agreement and payments to us for development activities conducted under the collaboration and reimbursed by Millennium. Millennium revenue also includes the earned portion of a $4.0 million upfront payment received in the second quarter of 2009 related to our ADC collaboration agreement with Millennium, and reimbursable support and research materials provided to Millennium by us under the agreements. GSK revenue reflects the earned portion of a $12.0 million upfront payment received by us in the first quarter of 2010, and reimbursable support provided to GSK by us under the ADC collaboration agreement we entered into with GSK during the fourth quarter of 2009. Agensys revenue increased during the first quarter of 2010 compared to the first quarter of 2009. This increase reflects the earned portion of a $12.0 million payment received by us in the fourth quarter of 2009 related to an amendment to our collaboration agreement that expanded the scope and extended the research term of the agreement.
Our combined cash, cash equivalents and investment securities increased to $331.1 million at March 31, 2010, compared to $287.7 million at December 31, 2009. This increase reflects receipt of upfront payments of $60 million from our brentuximab vedotin collaboration with Millennium and $12 million from our ADC collaboration with GSK. As a result of these cash payments received, we generated $44.6 million in cash flow from operating activities in the first quarter of 2010 compared to $18.6 million used in operating activities during the fist quarter of 2009. Our working capital was $279.0 million at March 31, 2010, compared to $244.1 million at December 31, 2009. We have structured our investment portfolio to provide working capital as needed. Our cash, cash equivalents and investments are held in a variety of interest-bearing instruments and subject to investment guidelines allowing for holdings in U.S. government and agency securities, corporate bonds, taxable municipal bonds, mortgage-backed securities, auction rate securities, commercial paper and money market accounts. As of March 31, 2010, we held auction rate securities valued at $12.9 million that have failed at auction and are currently illiquid. Liquidity of these investments is subject to either a successful auction process, redemption of the investment, sale of the security in a secondary market or a negotiated or adjudicated resolution. Each of the securities continues to pay interest according to the stated terms on a monthly basis. The interest rate on these auction rate securities is no longer established based on an auction process but is established according to the terms of the issue, which as of the date of this filing, is set at the 30-day London Interbank Offering rate plus 225 basis points. Based on our available cash, expected operating cash requirements and our belief that the holdings in auction rate securities will likely be liquidated in approximately one to three years at par, we believe it is more likely than not that we have the ability to hold, and we intend to hold, these investments until they recover substantially all of their cost basis. This belief is based on our current assessment of our future operating plans and assessment of the individual securities and general market conditions. We periodically reassess this conclusion
Our investment portfolio is structured to provide for investment maturities and access to cash to fund our anticipated working capital needs. However, if our liquidity needs should be accelerated for any reason in the near term, or investments do not pay at maturity, we may be required to sell investment securities in our portfolio prior to their scheduled maturities, which may result in a loss. As of March 31, 2010, our cash, cash equivalents and investment securities are presented net of a cumulative $1.0 million unrealized loss. This amount represents the difference between our amortized cost and the fair market value of the investments and is included in accumulated other comprehensive loss. As of March 31, 2010, we had $318.3 million held in cash reserves or debt securities scheduled to mature within the next twelve months.
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