Seagen’s Strong Oncology Programs Support Its Narrow Moat and Long-Term Growth

Equity Analyst

Rachel Elfman

We think Seagen is well positioned with its robust portfolio of internally developed antibody-drug conjugates, and we expect label expansions for its three approved drugs will push the firm into profitability in the next couple of years. 

Its leading ADC technology has allowed Seagen to develop an internal pipeline of innovative cancer treatments and become the partner of choice for leading oncology players. The technology improves the potency and safety of cancer-targeting monoclonal antibodies by linking them to potent cell-killing drugs (chemotherapies), enhancing antitumor activity while reducing the potential toxicity. This approach has yielded remarkable results. In addition to strong results from Adcetris, approved for Hodgkin and some types of non-Hodgkin lymphoma, and Padcev, approved for previously treated bladder cancer, the company's leading pipeline candidates have exhibited promising efficacy in various cancer indications. 

Adcetris was approved by the Food and Drug Administration in 2011 and is commercially available in more than 75 countries. We think Adcetris will likely hold a strong position in Hodgkin lymphoma due to its efficacy, and we see room to grow in non-Hodgkin lymphoma over the next several years. We also think trials of Adcetris in combination with checkpoint inhibitors, such as Bristol's Opdivo, offer further runway for growth. 

Padcev, approved late 2019 for urothelial cancer, showed strong results in previously treated patients and could see future approvals in combination with a checkpoint inhibitor, Merck's Keytruda, in the front-line setting. This could significantly expand the addressable patient population and improve the efficacy offered by systemic chemotherapy. Tukysa was approved in 2020 for previously treated HER2-positive breast cancer, including patients with brain metastases. The FDA approved Tivdak in September 2021 for metastatic cervical cancer.

Seagen's late-stage candidates are ladiratuzumab vedotin for triple-negative breast cancer and disitamab vedotin for treating solid tumors, including gastric cancer. We believe new data will continue to bolster the medical community's confidence in ADCs for cancer.

Business Strategy & Outlook

We believe Seagen has earned a narrow economic moat rating based on the intangible assets from its development of antibody-drug conjugates for various cancer indications. Its lead drug, Adcetris, was first approved by the FDA in 2011 and has garnered approvals in several indications for both Hodgkin and T-cell lymphomas. Adcetris is the standard of care for patients with Hodgkin lymphoma and peripheral T-cell lymphoma, and it is commercially available in more than 75 countries. We continue to believe Adcetris is not likely to see serious competition in the next several years. Padcev, approved in late 2019 for previously treated bladder cancer, was the second approved ADC in Seagen's portfolio and is poised for further studies in combination with Merck’s Keytruda. In April 2020, Tukysa received approval from the FDA for metastatic HER2-positive breast cancer. Seagen's pipeline looks healthy, with several candidates approaching pivotal data readouts and regulatory approval, which will drive increasing returns. Further, we think the company's ADC technology positions it to target difficult-to-treat indications and significantly improve on existing chemotherapy regimens. With highly effective technology in lucrative indications, protected by patents that last until 2036, we believe it is more likely than not Seagen will be able to earn excess returns over the next 10 years and warrants a narrow economic moat rating. 

Seagen's impressive portfolio of cancer therapies reflects a strong research and development strategy. Seagen has two late-stage programs, ladiratuzumab vedotin and disitamab vedotin, which are advancing toward securing approvals. Many of Seagen’s early-stage candidates are supported by early or interim data readouts that indicate strong efficacy and reasonable safety profiles. Seagen's ADC technology has been in development since the late 1990s, and this new class of drugs, antibody-drug conjugates, is reaching broader approval as the difficulties of heterogeneous efficacy and toxic side effects have been resolved.

Improvements to the linker, drug, antibody, and antigen selection have allowed for a wider therapeutic window for ADCs that makes the class more viable to work with than previous generations. The efficacy of the drug class in difficult-to-treat diseases is demonstrated by some of Seagen's leading therapies, such as Padcev in metastatic urothelial cancer and Tukysa in previously treated breast cancer. Padcev showed impressive results in previously treated patients, spurring speedy regulatory approval in the U.S. in late 2019. To further demonstrate the potential and strong efficacy of ADCs, when Padcev was combined with Merck's Keytruda (a checkpoint inhibitor) in its phase 1/2 trial, 71% of patients experienced tumor remissions for advanced bladder cancer, including 13% with complete remission responses. Another 22% of patients had stable disease without further progression. Tukysa has been approved in 36 countries, including the U.S. and the European Union. Seagen also granted Merck an exclusive license to commercialize Tukysa in Asia, the Middle East, Latin America, and other regions outside of the U.S., Canada, and Europe, which will further accelerate the commercialization of Tukysa. 

We think that ADCs will play an increasing role in the standards of care for cancer, with our projections for key ADCs in our coverage approaching $7 billion in sales. This new class of drugs can eliminate the need for toxic chemotherapies and can be combined with efficacious checkpoint inhibitors to address indications with unmet need. Seagen's pipeline is full of ADCs, all internally developed with Seagen's proprietary platform. The company's technology has also won votes of confidence from large pharmaceutical and biotech firms, such as Roche, AbbVie, Bayer, Genmab, and GlaxoSmithKline, all of which have used Seagen's ADC technology and provided Seagen with steady licensing revenue and royalties. 

While several other firms are developing their own ADCs and ADC technology platforms, Seagen has patent protection through 2036 based on its current intellectual property, and we expect new iterations of the technology to earn additional patents. We think Adcetris and Padcev alone could allow the firm to earn excess returns over the next 10 years, and both candidates will benefit from patent protection for the next 10 years. Additionally, both Adcetris and Padcev tackle difficult-to-treat areas that are unlikely to see real competitors any time soon, based on current drug pipelines across the industry. Overall, Seagen's ADC portfolio boasts a unique combination of highly effective and lucrative areas of focus that bolsters our confidence in its returns. 

Adcetris' label expansions and approvals of Padcev and Tukysa already provide healthy diversification, and Seagen's portfolio will continue to grow with its pipeline success. Before awarding a company a narrow moat, we like to see a well-protected and diversified revenue stream. We think that Adcetris and Padcev provide ample near-term diversification for Seagen, which we believe will only improve with additional label expansions and approvals of other indications. Adcetris has a unique mechanism of action that targets the CD30 antigen, and we don't see any competitors encroaching on its niches of lymphoma. We also reiterate that Padcev is targeting bladder cancer, which is an exceptionally difficult to treat cancer, and it induces high response rates prolonging progression-free survival and overall survival. 

Adcetris, Padcev, and Tukysa are well-protected assets that should drive cash generation as the company commercializes its recently approved drug, Tivdak, for cervical cancer and continues to develop its other pipeline candidates. Seagen’s highly effective ADC technology in lucrative indications and strong patent protections support the company’s narrow moat as we believe it is more likely than not Seagen will be able to earn excess returns over the next 10 years.

Narrow

Economic Moat

Seagen

Seagen Inc. is a biotechnology company, which engages in the development and commercialization of antibody-based therapies for the treatment of cancer. Its products include Adcetris and Padcev. The firm is also advancing a pipeline of novel therapies for solid tumors and blood-related cancers. The company was founded by Clay B. Siegall and H. Perry Fell on July 15, 1997, and is headquartered in Bothell, WA.

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Seattle Genetics is a clinical-stage biotechnology company that focuses on developing and commercializing monoclonal antibody-based therapies for the treatment of cancer and autoimmune diseases. Its lead product, SGN-35, is in the pivotal trial for patients with relapsed or refractory Hodgkin lymphoma. The company's other product candidates in various stages of clinical trials include dacetuzumab (SGN-40), a humanized anti-CD40 antibody; lintuzumab (SGN-33), a humanized anti-CD33 antibody; SGN-70, a humanized anti-CD70 antibody for the treatment of autoimmune diseases; SGN-75, which is in Phase I clinical trials for metastatic renal cell carcinoma and non-Hodgkin lymphoma; ASG-5ME, a preclinical antibody-drug conjugate product candidate for the treatment of solid tumors; and SGN-19A, a preclinical antibody-drug conjugate product candidate for the treatment of hematologic malignancies. It has collaborations with Bayer Pharmaceuticals Corporation; Celldex Therapeutics, Inc.; Daiichi Sankyo Co., Ltd.; Genentech; GlaxoSmithKline LLC; MedImmune, Inc.; Millennium; PSMA Development Company LLC; and Genmab A/S. The company also has an antibody-drug conjugates co-development agreement with Agensys, Inc.  The company was founded in 1997 and is headquartered in Bothell, Washington.

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