Buy Price Target: $26.00 SGEN: ODAC Recommends Accelerated ADCETRIS Approval; Reiterate Buy And $26 PT
THINK ACTION:
We believe unanimous ODAC Panel votes in favor of accelerated ADCETRIS approval will likely result in very near-term FDA approval. In our view, the ODAC Panel appears unsatisfied with the Phase 3 AETHERA serving as a confirmatory study for final, full approval. We continue to believe: 1) the drug is incrementally less risky; 2) near term, SGEN shares should trade up, and; 3) we recommend that investors take advantage of potential and likely temporary share price weakness. We reiterate our Buy rating and our $26 PT.
KEY POINTS:
ADCETRIS ODAC Panel: Unanimous ODAC Panel votes in favor of accelerated ADCETRIS approval for RR Hodgkin's Lymphoma (HL) and Anaplastic Large Cell Lymphoma (ALCL) post-autologous stem cell transplant (ASCT) are very important, risk-reducing events leading toward near-term approval, in our view. We believe the ODAC Panel's suggestion that the Phase 3 AETHERA trial may be unsatisfactory to serve as a confirmatory trial for final and full approval was a surprise that will likely be mitigated, if necessary. Fundamentally, we believe ADCETRIS's profound efficacy and attractive current risk-benefit ratio would not be altered even if new confirmatory trials are warranted beyond the Phase 3 AETHERA study. In our view, the FDA appears interested in negotiating potential, new protocol designs prior to the current August 30 PDUFA. We note that, if agreement is not reached by this junction, it could be by the tentative ODAC meetings scheduled for September 14-15, or December 7-8, or at a new ad hoc meeting. As a reminder, the Phase 3 AETHERA study was initiated in April 2010 and should read out primary, end-point data in mid-2013. If alternative confirmatory trials are needed that are potentially larger and include more patients, we believe results might not become available at least until the 2015-16 timeframe. Whatever the outcome of negotiations with the FDA, we believe: 1) near-term approval is likely; 2) a potential need for new confirmatory trials would not affect our long-term ADCETRIS peak sales estimates ($507M in 2016), and; 3) we recommend investors take advantage of any potential, near-term share weakness. This is our view pending any additional information that could be provided on an SGEN conference call later today.
July 15 8:30AM EST SGEN Conference Call (Dial in 800.762.8779/code 4456034): We expect this conference call to provide SGEN management an opportunity to present its view of the ODAC Panel and possibly guide to potential strategies aimed at further reducing risk in the ADCETRIS story.
If Approved by Aug. 30 PDUFA, We Estimate SGEN Shares Should Trade to $26: We believe SGEN shares are likely to spike up to our $26 PT on potential approval by the Aug-30 PDUFA. We believe ADCETRIS would experience a relatively strong launch given: 1) relatively large number of HL and ALCL patients ready for ADCETRIS and 2) the strength of the SGEN commercial team that is headed by Bruce Seeley, who previously came to SGEN from Genentech where he was responsible for launching blockbuster drugs such as Herceptin.
We Believe High Short Interest Could be Wild-Card: We believe SGEN's high short interest could have incrementally positive implications for our thesis and our $26 PT. Currently, there are nearly 20.8M shares short, or 14.9% of float, that could impact our estimates. Should significant short covering occur during the regulatory approval process, or after, we believe this tailwind may provide a further source of potential upside.
AI
