Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Junk Pile

Is Seagen (SGEN) making Money?

The company known as Seattle Genetics has changed its name to Seagen Inc. (NASDAQ: SGEN) and become a favorite of Mr. Market’s.

In 2020, Seagen’s share price grew from $112.41 on 2 January to $211.93 on 13 October. Seagen’s stock price fell to $204.49 on 15 October 2020. Thus, Seagen’s stock gained almost $100 a share so far in 2020, but is it making money?

Mr. Market loves Seagen (SGEN) because the Federal Drug Administration (FDA) approved two of Seagen’s new cancer drugs in the last 12 months, The Puget Sound Business Journal reports. In addition, Seattle Genetics (SGEN) and Merck & Co. (MRK) signed a $4.5 billion deal to market ladiratuzumab vedotin; a new cancer drug, on 14 September 2020.

Seagen signs $4.5 Billion deal with Merck

Merck (MRK) will pay Seagen $600 million and buy five million SGEN shares for $1 billion, The Puget Sound Business Journal claims. Merck will pay Seagen $850 million in development milestones and $1.75 billion in sales milestones under the deal.

Ladiratuzumab vedotin can destroy solid tumors such as breast cancer in combination with Merck’s KEYTRUDA, Seagen CEO and president Clay Siegell claims. Seattle Genetics will market ladiratuzumab vedotin in North America, while Merck will market the drug in Europe and elsewhere.

Moreover, Seagen has given Merck an exclusive license to commercialize Tukysa in the Middle East, Asia, and Latin America. Tukysa (chemical name: tucatinib) is another breast cancer treatment. Patients take one Tukysa pill each month.

Doctors use Tukysa to treat metastatic breast cancer. Metastatic breast cancer is a cancer that has spread to other tissue near the breasts.

Can Seagen Make Money from Breast Cancer?

There is a growing market for breast cancer treatments. estimates 12% of American women will develop invasive breast cancer.

Moreover, estimates doctors diagnose 276,480 new invasive breast cancer cases in U.S. women each year. Additionally, physicians diagnose 48,530 American women with noninvasive breast cancer year.

Overall, there were 3.5 million women with a history of breast cancer in the United States in January 2020, claims. Plus, Breast cancer is the most diagnosed cancer in American women.

Is Seagen Making Money?

However, Seagen (NASDAQ: SGEN) is not making money from its cancer drugs. For instance, Seagen reported a quarterly operating loss of -$93.97 million on 30 June 2020.

In addition, Seagen reported a quarterly common loss of -$21.19 million on 30 June 2020. In contrast, Seagen reported a $229.75 million quarterly gross profit on the same day.

Interestingly, Seagen’s quarterly operating loss grew from -$38.41 million on 31 December 2019 to -$93.97 million on 30 June 2020. Plus, Seagen’s quarterly gross profit fell from $277.88 million to $229.75 million in the same period.

Similarly, Seagen’s quarterly revenues shrank from $289.80 million on 31 December 2019, to $278 million on 30 June 2020. Thus, Seagen’s sales are falling and it makes less money. Yet Seagen’s stock price is exploding.

Is there a Healthcare Stock Bubble?

I think Seagen’s financial numbers and share price show that there is a healthcare stock bubble. To explain, investors are pouring money into some healthcare stocks because they think those companies could have lucrative new drugs or products.

In recent months, Mr. Market has been paying high prices for drug companies such as Regeneron (NASDAQ: REGN). Frighteningly, Regeneron’s share price rose from $373.35 on 2 January 2020 to $607.98 on 13 October 2020. Regeneron’s share price fell to $585.18 on 15 October 2020.

Mr. Market is buying Regeneron because it makes an antibody cocktail that doctors gave to President Donald J. Trump (R-Florida) for coronavirus in October 2020. Trump claims to have recovered from coronavirus after receiving the cocktail. However, there is no documentation for the President’s claims.

However, Regeneron’s cocktail lacks FDA approval. To explain, Trump’s doctors’ received special FDA permission to use the cocktail on the president. Therefore, Regeneron does not have a product it can legally sell. Yet Mr. Market is paying a fortune for its stock.

The Health Stock Bubble

We see a similar bubble around Seagen which loses money and markets unproven products.

In fact, Seagen reminds me of tech companies during the bubble of the 1990s. In the bubble, people bought internet stocks because they could make money someday. Today, investors buy healthcare stocks such as REGN and Seagen because they might make money someday.

I think all it will take to burst the healthcare bubble for the FDA to deny approval for one blockbuster drug such as Regeneron’s antibody cocktail. Similarly, the withdrawal of one of Seagen’s drugs from the market could destroy that company.

I predict the healthcare bubble will burst when one or two superstar drugs fizzle. Thus, investors need to avoid healthcare stocks unless they are seeking something to short.

How Much Cash is Seagen generating?

Seagen (SGEN) is not generating cash. Seagen reported a negative quarterly operating cash flow of -$86.28 million on 30 June 2020. Seagen’s negative quarterly operating cash flow grew from -$11.85 million on 31 December 2019.

Moreover, Seagen reported a $31.48 million quarterly financing cash flow on 30 June 2020. I think the financing cash flow shows Seagen is borrowing money to finance its operations.

Finally, Seagen reported a -$131.8 quarterly ending cash flow on 30 June 2020. The quarterly ending cash flow fell from $81.1 million on 31 December 2019. In contrast, Seagen reported a $249.12 million quarterly ending cash flow on 31 March 2020.

Why You Need to Avoid Seagen

Overall, Seagen had $895.67 million in cash and short-term investments on 30 June 2020. Seagen’s cash and short-term million investments fell from $811.05 million on 31 December 2019.

However, Seagen has some value in the form of $2.164 billion in total assets on 30 June 2020. Seagen’s total assets shrank from $2.06 billion on 31 December 2019. Thus, Seagen has less value even though its share price is growing.

I think investors need to avoid Seagen (SGEN) because its share price is growing as the value shrinks. I consider Seagen a typical example of the dangerous stocks making up a growing healthcare bubble that could cause a market crash. Consequently, I advise investors to stay far away from Seagen and other hot healthcare stocks.

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