Wachovia starts coverage: SGEN: Initiating Coverage--Market Perform
♦ Initiating coverage with a long-term MARKET PERFORM rating. With faith in the company's lead programs, the potential of its antibody-drug conjugate
technology platform, and experienced management leading the way, we initiate coverage of SGEN with a positive long-term view.
Investment Summary
Seattle Genetics is a biotechnology company devoted to the development of monoclonal antibodies for the
treatment of cancer. The company’s platform relies on proprietary chemistries for targeted delivery of
antibody-linked cytotoxic agents and development of naked antibodies alone.
SGEN’s program is based on its first-generation antibody-drug conjugate chemistry employing a “linker” that
covalently attaches a cytotoxin directly to an antibody. Upon internalization by the target cell, the cytotoxin is
released as the linker is destroyed. Local delivery of the cytotoxin theoretically spares the patient of
dangerous side effects typically associated with use of such agents alone while increasing the likelihood that
the drug will hit its intended target. Relative to technology platforms at other companies involving similar
strategies, we believe, based on clinical data obtained so far, that products employing SGEN’s approach will
be very competitive. SGN-15, the latest-stage product based on this platform, has demonstrated promising
activity in Phase II clinical development as second-line treatment for non-small cell lung cancer (NSCLC).
SGN-30 and SGN-40, designed to treat hematologic malignancies, are in Phase II and Phase I stages of
clinical development, respectively. Each of these naked antibodies, based on what can now be considered
conventional therapeutic antibody design, recognizes novel targets associated with these diseases. Both
SGN-30 and SGN-40 have been granted orphan drug status for their respective disease indications.
Several monoclonal antibody therapeutics have shown remarkable success over the past few years, with
Rituxan, Synagis, Remicade, Herceptin, and Avastin leading the way. We believe that the 22 or so
companies occupying this space have just begun to scratch the surface and feel that SGEN has realistic
chances of breaking out as one of the top players. With three clinical products designed for the treatment of
important unmet medical needs, an emerging pipeline of novel products based on second-generation
antibody-drug conjugate technology, and experienced management running the company, we initiate
coverage of SGEN with a long-term MARKET PERFORM and 12-month valuation range of $5-$7.
♦ Antibody-drug conjugate technology showing signs of efficacy. The company's lead program, SGN-15, is an antibody-drug conjugate designed to deliver
a potent chemotherapeutic directly to malignant cells. Preliminary Phase II data suggest the drug has activity in combination with docetaxel as secondline
treatment for non-small cell lung cancer, a large-market indication. Toxicities associated with SGN-15 appear more tolerable than if the conjugated
drug had been administered alone at comparable concentrations.
♦ Clinical data expected Q4 '04 for hematologic malignancy therapy. Two naked antibodies, SGN-30 and SGN-40, are in Phase II and Phase I trials,
respectively, for the treatment of hematological malignancies. Interim data from the Phase II trial is expected at ASH this year, which could be positive
based on earlier signs of SGN-30 activity.
SGEN’s proprietary second-generation antibody-drug conjugate (ADC) platform, while in use for the
development of its own products, has also been licensed to Genentech, Celltech, and Protein Design Labs
from which SGEN could obtain future licensing fees, milestone payments and royalties on product sales.
Technology
Like the other estimated 22 biotechnology companies in the monoclonal antibody space, SGEN is
developing such agents employing what now can be described as conventional monoclonal antibody
technology. Differentiating SGEN from its peers is its novel chemistry platform for targeted delivery of
covalently linked cytotoxins directly to the antibody.
The company’s first-generation antibody–drug conjugation (ADC) technology, on which SGN-15 is based,
employs a chemical structure that links a cytotoxic agent directly to the antibody. While stable at mid-pH
(neutral) conditions found in the bloodstream, this structure is sensitive to low pH (acidic) conditions found in special cell compartments where the toxin is released and kills the cell.
The company’s second-generation ADC technology, on which other preclinical products are based, involves
a similar approach, whereby the linker—of much greater stability than its first-generation predecessor—is
Upon binding target,
antibody enters the cell
Linker is degraded in “cell
stomach” releasing drug
inside cell
Cell death
Seattle Genetics, Inc.
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degraded by an enzyme residing in the same cellular compartment. The end result, however, is the same;
upon cleavage within the target cell, the toxin is released and kills the cell.
Products
SGEN currently has three antibodies in clinical development for cancer indications, each one based on
slightly different antibody technologies. A number of other cancer therapeutic antibodies remains in
preclinical stages of development as well.
SGN-15: Targeted delivery of a cytotoxic payload to lung cancer cells
Behind cardiovascular disease, non-small cell lung cancer (NSCLC) is responsible for the second largest
number of health-related deaths in the developed world. With an estimated 170,000 patients expected to be
diagnosed in the U.S. this year, most will undergo multiple rounds of debilitating chemotherapy and radiation
treatment. Thus, novel therapies to improve survival and/or quality of life that can be used alone or in
combination with existing therapies should have a great impact on the management of NSCLC. Although
many biotechnology companies have been focusing their efforts on novel NSCLC treatments, no product—
with the exception of Tarceva (OSI Pharmaceuticals, Genentech, Roche)—has yet to provide a survival
benefit in randomized, controlled clinical trials. Based on the available data and platform on which SGN-15
relies, we believe that out of all products in the NSCLC biotechnology pipeline, SGN-15 has reasonable
potential to reach the goal of providing therapeutic benefit.
Based on SGEN’s proprietary first-generation ADC technology platform, SGN-15 targets tumors expressing
the LewisY-related carbohydrate antigen found on the cell surface of a variety of solid tumors. Upon binding,
SGN-15 is internalized, whereupon its toxic payload is delivered directly in the cell. In principle, such an
approach should equate with a better safety profile then what would be expected after infusion of the naked
drug via its traditional formulation. In the case of SGN-15, the toxic payload is doxorubicin, a workhorse in
the arsenal of chemotherapeutic agents for the treatment of solid tumors. While potent on its own, use of
this drug is associated with a number of Grade 3/4 adverse events, including cardiotoxicity and
myelosuppression, thus justifying a preference for targeted delivery if possible.
When SGN-15 was used in combination with docetaxel in a Phase II trial that enrolled late-stage metastatic
breast cancer patients, objective tumor responses were observed in 22% of the 27 evaluable patients. While
incidence of Grade 3/4 toxicities were observed, all were short lived, and no evidence of cardiotoxicity or
severe myelosuppression was seen, which would be expected with naked doxorubicin administration at a
comparable dose. Likewise, no cardiotoxicity or severe myelosuppression was observed in 33 patients
enrolled in a Phase II hormone-refractory prostate cancer study; nor were these toxicities observed after
preliminary analysis of an ongoing Phase II advanced NSCLC study testing SGN-15 in combination with
docetaxel versus docetaxel alone. The most meaningful efficacy results from these trials and pertinent
adverse event observations are summarized in Table 3:
The most encouraging signs of clinical activity with SGN-15 have been observed in combination with
docetaxel after preliminary analysis of the second-line NSCLC Phase II trial. Although only based on a trend
without statistical significance, the combination regimen shows an improved median survival of 5.6 weeks
over docetaxel alone. A higher disease stabilization rate was higher in combination arm (49%) versus the
docetaxel-alone arm of the study (18%). Even though adverse events were more frequent with SGN-15, no
increase in cardiotoxicity was attributed to SGN-15 administration consistent with the systemic stability
expected of the antibody–doxorubicin conjugate.
Consistent with preclinical observations that staggered administration of SGN-15 and Taxotere may be may
provide a higher synergistic effect by the two drugs, a Phase IIb study began last July in which administration
of the two drugs will take place either concurrently or 3 days apart. The primary endpoint of this study will
involve improvements based on positron emission tomography (PET) imaging to assess the validity of this
particular schedule of administration.
Assessment
In our opinion, the only major variables of concern when speculating about the potency of SGN-15 are the
following:
1) relative expression of the antibody target on tumor versus normal tissue
2) stability of the antibody–drug conjugate in the bloodstream
3) internalization and activity of the drug payload once delivered to the target cell
SGN-15 recognizes the LewisY-related carbohydrate expressed on many different tumor types, including
breast, lung, prostate, and ovarian. Importantly, with the exception of gastrointestinal epithelial tissue and a
certain cell type specific to the pancreas, we do not find evidence in the medical literature of LewisY
expression on any other normal tissue. This suggests that the LewisY carbohydrate antigen may in fact be a
suitable tumor-selective target and that gastrointestinal toxicities associated with the administration of SGN-
15 are probably due to expression of this antigen in the gut.
Doxorubicin is conjugated to the antibody via a chemical linker, which should theoretically remain stable in
the bloodstream at neutral pH. Significant degrees of cardiotoxicity and myelosuppression that are typically
associated with doxorubicin administration do not appear to be an issue in patients who have thus far
received the drug. This suggests that either too little drug is being administered to cause an effect or that the
drug conjugate is, in fact, quite stable as advertised. We believe the latter, especially since data clearly
demonstrate that SGN-15 remains stable in blood, and intact SGN-15 is delivered directly to patient tumor
tissue. Furthermore, objective tumor responses have been observed, and gastrointestinal toxicities are
consistent with expression of the LewisY antigen in the gut.
Upon binding to the cell-surface target, SGN-15 has been shown to internalize and enters the lysosomal
compartment of the cell. The lysosome can be regarded as the cell’s “stomach” in which engulfed agents
are degraded by acid and special enzymes. Convincing data demonstrate that the linker between
doxorubicin and the antibody, while stable in the bloodstream, breaks down under the acidic conditions found
in the lysosome. Given the agent’s proven stability and affinity for its intended target, the objective tumor
responses as well as the gastrointestinal-related toxicity clearly demonstrate, in our opinion, that SGN-15
does internalize and release its toxic payload, which is consistent with its theoretical mechanism of action. |
