Seattle Genetics’ (SGEN) revenues are expected to rise due to growing collaborative and royalty revenues and increased demand for its drug Adcetris. While the company has surpassed all estimates for EPS (earnings per share) in the past, analysts estimate SGEN’s EPS to be negative, standing at -$0.10 on revenues of $115.8 million in 1Q16. This translates into a year-over-year growth of ~43%.
The above chart shows revenues for each quarter since 1Q14. EPS are estimated to remain negative in fiscal 2016. Moving forward, estimates show EPS of -$0.28 on revenues of $97 million in 2Q16, -$0.29 on revenues of $102.6 million in 3Q16, and -$0.30 on revenues of $108.2 billion in 4Q16.
The EPS are negative because the company is reporting losses due to high research and development and selling, general, and administration costs. However, in the long term, these research and development expenses will decrease upon the development of new drugs, and growing revenues from existing and new drugs and collaborations will help the company generate profits.
While the annual estimated EPS for 2016 is -$1, the estimate is -$0.71 for 2017. Analysts expect revenues to improve by 26% to $424.0 million in 2016. The estimates show an increase in year-over-year revenues for each quarter from 1Q16 onwards, due to an increase in contributions from Adcetris. Also, the revenues from collaboration and license agreements and royalties are increasing every year.
To divest risk, investors could consider ETFs such as the iShares NASDAQ Biotech ETF (IBB) which holds 0.9% of its total assets in Seattle Genetics. IBB also holds 8.2% of its total assets in Amgen (AMGN), 8.2% in Gilead Sciences (GILD), 7.7% in Celgene (CELG), and 7.8% in Biogen (BIIB).