Why Is Seattle Genetics (SGEN) Down 3.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Seattle Genetics (SGEN). Shares have lost about 3.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Seattle Genetics due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Seattle Genetics Q4 Earnings Top, Adcetris Drives Sales

Seattle Genetics incurred an adjusted loss of 22 cents per share for the fourth quarter of 2019, narrower than the Zacks Consensus Estimate of 45 cents and also the year-ago loss of 57 cents.

Adjusted loss in the quarter excluded a market-to-market net investment income related to Seattle Genetics’ common stock holdings in Immunomedics, Inc.

Revenues of $289.8 million were up 66.1% year over year, primarily driven by higher royalty revenues in the reported quarter and sales from the lead drug Adcetris. The top line also comprehensively beat the Zacks Consensus Estimate of $224 million.

Quarter in Detail

Seattle Genetics’ top line mainly comprises product revenues, collaboration and license agreement revenues plus royalties.

Adcetris generated net sales of $166.2 million in the United States and Canada, up 26% year over year. Improved sales of the drug were owing to its label expansions for frontline CD30-expressing PTCL and frontline HL.

Newly-launched Padcev generated $0.2 million sales in the quarter. On the fourth-quarter conference call, management seemed pleased with the uptake of Padcev so far, which exceeded its internal predictions.

Collaboration and license agreement revenues of $51.1 million significantly surged year over year. In the reported quarter, Seattle Genetics received a milestone fee from Glaxo and an upfront payment from BeiGene for entering into a licensing agreement to develop a preclinical product candidate to treat cancer.

Royalty revenues of $72.3 million soared from the year-ago quarter’s $24.6 million. In the reported quarter, Seattle Genetics received a one-time $40 million milestone from Takeda as Adcetris sales crossed $400 million in the latter’s territory during 2019.

Research and development (R&D) expenses of $201.1 million escalated 34.2% year over year due to higher investment in developing the late-stage pipeline candidates.

Selling, general and administrative (SG&A) expenses rose 44.9% year over year to $115.2 million, mainly on account of costs pertaining to the launch of Adcetris in frontline setting and costs related to preparations for the launches of Padcev and tucatinib.

2020 Outlook

Seattle Genetics projects Adcetris’ full-year net sales in the range of $675-$700 million, denoting modest growth.

The company expects collaboration and license revenues in the band of $30-$50 million while royalty revenues are anticipated within $105-$115 million.

SG&A expenses are expected within $475-$525 million while R&D is estimated in the band of $860-$950 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -283.89% due to these changes.

VGM Scores

At this time, Seattle Genetics has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Seattle Genetics has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.