NEW BEARISH Plays
Seattle Genetics - SGEN - close: 30.55 change: -1.19
Stop Loss: 32.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on January -- at $---.--
Listed on January 10, 2015
Time Frame: Exit PRIOR to earnings in mid February
Average Daily Volume = 1.2 million
New Positions: Yes, see below
Why We Like It:
What if you could create treatment that could kill cancer cells while leaving non-targeted cells alive? That's what SGEN's antibody-drug conjugates are trying to accomplish. It's interesting technology.
The company describes itself as "Seattle Genetics is a biotechnology company focused on the development and commercialization of innovative antibody-based therapies for the treatment of cancer. Seattle Genetics is leading the field in developing antibody-drug conjugates (ADCs), a technology designed to harness the targeting ability of antibodies to deliver cell-killing agents directly to cancer cells. The companyâ€™s lead product, ADCETRISÂ® (brentuximab vedotin), is an ADC that, in collaboration with Takeda Pharmaceutical Company Limited, is commercially available for two indications in more than 45 countries."
Unfortunately the stock has not been a winner.
Last year the biotech sector was up about +30%. That outperformed the S&P 500's +11% and the NASDAQ's +13% gains in 2014. Unfortunately, SGEN lost almost 20% last year.
SGEN also delivered better than expected earnings last year. Biotech earnings are always lumpy. One quarter they could soar while the next quarter the company could lose money. Many times revenues can depend on milestone payments by partners, etc. SGEN definitely saw its ups and downs for revenues last year. Yet the company has beaten Wall Street's estimates on both the top and bottom line the last four quarters in a row. Normally that's bullish. Yet the stock isn't responding to these results.
Another surprise is the company's pipeline. Wall Street loves biotechs with a big pipeline. According to SGEN they have 25 ADC's in clinical development. So why are shares underperforming. It would appear investors are worried about competition from other companies where SGEN is focused on the same treatment. Another issue seems to be a disappointing study on their AETHERA drug. The bear case would suggest that the most recent study on
AETHERA was disappointing and SGEN could have a hard time convincing their treatment will work as a maintenance therapy for Hodgkin's lymphoma.
Technically shares look terrible with a clear trend of lower highs and lower lows. The point & figure chart is bearish with a $25.00 target. After consolidating sideways the last four weeks SGEN is on the verge of breaking down below round-number, psychological support at the $30.00 level.
Tonight we are suggesting a trigger to launch bearish positions at $29.85. However, I want to caution readers that this is a higher-risk, more aggressive trade. Biotechs can be very volatile and SGEN is no exception. The right or wrong headline can send the stock soaring or crashing. Plus, there is already a significant amount of bears in the stock. The most recent data listed short interest at almost 29% of the 93.3 million share float. You may want to use put options to limit your risk.
Trigger @ $29.85 *small positions to limit risk*
- Suggested Positions -
Short SGEN stock @ (trigger)
- (or for more adventurous traders, try this option) -
Buy the FEB $30 PUT (SGEN150220P30) current ask $1.70
Option Format: symbol-year-month-day-call-strike