Genes for Survival

Investors bet big money earlier this year that Bothell-based Seattle Genetics Inc. has a winning technique in the battle against one form of cancer, and many believe the strategy could work against other cancers.

The first product nearing the market for the 11-year-old Seattle company is known as Brentuximab Vedotin, and it works like a smart bomb that uses advanced targeting techniques to carry potent toxins directly to cancer cells in patients with Hodgkin’s lymphoma, a form of cancer of the white blood cells. This therapy should be on the market by late 2011, says Clay Siegall, the firm’s chief executive officer.

If Seattle Genetics’ promise pays off for other cancers, the rising tide of its growth might help drive growth in the rest of Seattle’s biotech sector. Already, the business has doubled its employee count to close to 300 in two years. (Another Seattle biotech, Dendreon Corp., said this year it will nearly double its office space as it begins bringing Provenge, its prostate cancer drug, to market.)

But many pitfalls loom for any company transitioning from research and development to delivering commercial products. One of those is getting swallowed up.

In July, Bristol-Myers Squibb Co. bought Medarex, one of Seattle Genetics’ competitors, by paying almost double its stock price. Analysts pointed to this move as further proof of the future for antibody-based drugs, and they named Seattle Genetics as a potential takeover target.

The company operates mostly from two beige office and laboratory buildings perched on a slight hill in suburban Bothell, surrounded by many medical, dental and biomedical firms. The lobby boasts framed patent applications, as well as a “wall of honor” where new drug candidates have colorful banners displayed. In the labs, things are a little less formal, with a life-size John Wayne cut-out keeping a steely eye on the equipment.

Seattle Genetics’ goal is to remain independent and in Seattle, although several other local biotechs have been swallowed when they reached a similar size and maturity. The largest of these, Immunex, was bought by Amgen in 2001. Another, Icos Corp., was bought out by Eli Lilly and Co. in 2007 and its local facilities closed.

Siegall argues that with plenty of money in the bank and no debt, there is little pressure to find a buyer. The company in August raised $136 million on the public markets, expanding its cash cushion to more than $300 million. Furthermore, insiders, both company executives and board members, owned about 18 percent of the outstanding shares at the end of the first quarter of 2009. That percentage is higher than the industry average and may make it easier for Seattle Genetics to remain independent.

“We are not looking to get acquired,” he emphasizes. But, naturally, if a credible offer comes along at a great price, he is duty-bound to the shareholders to put it to a vote.

Biotech industry watcher David Miller of Seattle, who publishes the Biotech Monthly newsletter, credits Seattle Genetics with strength in three critical areas: leadership nimble enough to jettison underperforming products; sufficient cash to carry commercialization costs; and strong partner companies.

One strategic partner is Genentech, one of the largest and most successful biotech companies. The company, which recently became a subsidiary of Swiss drug giant Roche, bought the rights to use Seattle Genetics’ “linker” technology by which drugs are added to antibodies, in order to produce what are called antibody-drug conjugates, or ADCs. Under the agreement, Genentech paid $60 million upfront, and has agreed to pay potentially more than $800 million in milestones and escalating double-digit royalties starting in the mid-2010s on annual product sales of any ADCs developed.

Genentech also bought the licensing rights to dacetuzumab, SGN-40, a “naked” antibody that does not have a drug or radioactive dose attached to it. In addition, Seattle Genetics agreed to fund certain manufacturing, commercialization, and research and development costs.

Another recently-signed partner is Millennium: The Takeda Oncology Co. of Japan. Millennium will pay milestone payments and royalties on sales of any ADC products that it develops using Seattle Genetics’ linker technology.

Other license agreements exist with CuraGen, Bayer, Progenics, Daiichi Sankyo, and MedImmune, a subsidiary of AstraZeneca. These companies all make payments for license fees, milestones and royalties on net sales of products incorporating Seattle Genetics’ technology.

Miller sees these partnerships as both evidence of Seattle Genetics’ credibility in the global pharmaceutical market and a ready source of cash that gives the company room to explore additional products in its research pipeline.

Antibody Empowerment

Antibodies are natural killers produced by the human immune system, and each targets a specific pathogen, like a virus or bacteria or sometimes a cancer cell. They recognize and target invaders by what are called antigens on the outside of those cells.

The practice of engineering antibodies outside the body and then using them as agents against cancer has developed over 20 years. But using antibodies that have other cell-killing abilities, such as with drugs or radioactive elements attached to them, has just developed in recent years. These are known as empowered antibodies. Antibodies without these powers are called naked antibodies.

Seattle Genetics is developing both naked and empowered antibodies. The empowered are each designed to safely carry a payload of toxin without damaging normal cells inside the patient’s body. The toxic payload is released only inside the cancer cell, which means it does not hurt the patient’s normal cells. Existing cancer therapies, such as chemotherapy and radiation, do damage to both normal and cancer cells.

So far, Seattle Genetics has done research with relatively few patients in advanced stages of Hodgkin’s lymphoma. But they have shown results meaningful to both the Food and Drug Administration, which regulates new therapies, and biotech investors. The final application for approval of sales of Brentuximab (formerly known as SGN-35) should be filed in 2011, Siegall said.

Lymphoma is a general term for cancer that begins in the lymph system. There are two major categories, Hodgkin’s and non-Hodgkin’s. Seattle Genetics has also shown some results with Brentuximab in treating patients with a non-Hodgkin’s disease known as systemic, anaplastic large-cell lymphoma.

Besides Brentuximab, another of the company’s products is a naked antibody known as SGN-33, or lintuzumab, which is being given to patients with acute-myeloid leukemia (AML). About 210 patients are enrolled in that trial. AML is the disease that claimed the life of popular Seattle school superintendent, John Stanford, in 1998.

The Politics of Health

In cancer treatment, most new therapies are very expensive. Whether naked or empowered, antibody therapies can cost thousands of dollars per treatment. Herceptin, an antibody aimed at a specific form of breast cancer, costs about $3,000 for each month of a yearlong schedule of treatment. Despite the price, the therapy is considered cost-effective. A year of therapy reduces a patient’s risk of recurrence by half. Patients are tested before treatment with Herceptin to make sure their tumors will respond to it.

Seattle Genetics’ Siegall would not predict the eventual price of treatment with Brentuximab, but he does believe that his company’s targeted therapies will remain marketable, even in a political climate that is aiming to cut health care costs.

“Payers are willing to pay high prices for drugs that are targeted carefully to be effective,” Siegall says. He used Herceptin as a good example of how the market has responded to a targeted therapy, where testing in advance determines which patients should receive the drug.

“Everything we make is targeted,” he points out.

Helping patients is the primary focus of the company, Siegall says. His own career in oncology began when his father died of brain cancer during Siegall’s college years.

“In my 20s, I decided I wanted to make better tools for oncologists,” he explains. He holds a doctorate in genetics from George Washington University and spent years working for Bristol-Myers Squibb in their Pharmaceutical Research Institute, which brought him to Seattle. Even though Bristol left the city, Siegall decided to stay. Now 48, he claims to have no wanderlust and no urge to leave Seattle Genetics.

He praises Seattle’s science climate, and serves on the boards of directors of the Washington Biotechnology and Biomedical Association (WBBA) and Alder Biopharmaceuticals Inc., another Bothell firm developing antibody-based therapies. He also previously served on the board of the Fred Hutchinson Cancer Research Business Alliance.

The unfortunate decline of some biotech companies has allowed his company to scoop up talent, he said.

“This area has a strong nucleus of products, and the technological ability is superb. There is a great group of talent,” he says.

Among other company leaders is Eric Dobmeier, an attorney, who is the chief business officer. He has helped raise over $350 million in equity financing for the company.

Two other key employees are Thomas C. Reynolds, chief medical officer, and Peter Senter, vice president, chemistry. Reynolds joined Seattle Genetics in 2007, from Zymogenetics Inc., while Senter holds 20 patents and sits on the editorial boards of four scientific journals.

Whether Seattle Genetics will become an attractive morsel for a bigger company to swallow or remain a strong and growing presence for Seattle’s biotech community is anybody’s guess.

The Puget Sound area needs what amounts to an “anchor tenant” in the imaginary biotech mall, says Miller. Seattle Genetics could become that anchor-if it can just avoid getting eaten like so many of its predecessors.