Like tech, biotech entrepreneurs also have a wide variety of leaderships. However, given that most of the innovative companies often end up getting acquired by larger cap pharmaceutical companies, it is not easy to find a very long-lasting CEOs. However, the CEO that I want to introduce today really stands out.
He has had very strong conviction in the future of oncology drug development and has steadily executed on his strategy for more than 10 years (I think it could be more than 20 years). He has executed through massive fluctuation in stock price of his company to build the best-in-class antibody-drug-conjugate (ADC) therapeutics and R&D platform. Now you can’t talk about targeted therapy in oncology without talking about his company.
IT is Clay Siegall of Seagen / formerly known as Seattle Genetics / ticker: SGEN.
Seagen remains a mystery to biotech hedge fund community – its revenue is ~$1bn and it is just starting to show profit – most recent profits have been driven by one-off items, but nevertheless are indicative of the capability of Clay & Co. They made a lot of money on Immunomedics investment or obtained large upfront payment for Tukysa commercial rights or LV (ladratuzumab vedotin) partnership to Merck. While many agree that the company have been executed very well, many find $30bn valuation to be perplexing / too rich.
As a result, many have shorted Seagen for valuation, but was faced with large losses as Seagen somehow continued to exceed even the highest expectations – like showing overall survival benefit on tucatinib. I also got burned on short side.
SGEN is trading at ~20x forward revenue because
- High expectations on internal platform: given the history of R&D, investors now expect SGEN’s prolific R&D engine to continue to pump out blockbuster drugs.
- Strong capability to do M&A / licensing to source external candidates at good price: Immunomedics and Cascadian acquisitions have been spectacularly successful.
Clay is actually not the most popular CEO on Wall Street. Some say that he is very promotional, and many investors have lost money given high fluctuations in the stock price. Some also criticize that he is an empire builder (read: loves being a CEO) and he may have blocked many opportunities to sell the company.
Because of my peers, I also had developed some prejudice against him, but they were all gone after I had opportunities to meet him in person and watch his lecture on Youtube. I have gained enormous respect for him and two characters that I want to learn from him are 1) decisiveness and 2) steadfastness.
A MAN OF DECISIVENESS
Not many people are familiar with the story of founding of Seagen because it has been around for a long time. However, I was fortunate to have learned the founding story from him as he explained his commitment to R&D, and I could really understand his rationale for what Wall Street calls “excessively heavy R&D”.
Clay was a high flying oncology researcher at Bristol Myer Squibb. He had worked at Connecticut office until BMY asked him to go to Washington state R&D center to increase productivity. Apparently, Washington state R&D center was internally called “Brisol University” because R&D center pumped out a lot of papers, but didn’t generate much drug candidates with promising commercial prospect. Hence, Clay was deployed to raise the bar.
While Clay was at Washington state, Bristol decided to shrink the R&D center and called him back to the east coast. However, he saw the research and what it could become, and he left the promising career track at Bristol to found Seattle Genetics. Essentially, he was walking into targeted therapy while large pharma made a strategic decision to move away – it was a very contrarian view that would not pay off for a while, but is now making an enormous difference in patients’ lives now.
It was very difficult to raise VC capital – VC are like herds in that most of them just invest in what is “hot”. Large cap pharmas are moving away from targeted therapy, which probably made the fund raising process very difficult. However, one of the core investors during the early stage of the company is none other than Baker Brothers. Baker Brothers have been very strong supporter / shareholder of SGEN and is now the largest shareholder of the company – through initial investment and participation in many follow-on offerings.
Clay’s decisiveness is critical to the continued success of Seagen.
A MAN OF STEADFASTNESS
Clay’s management style is probably unprecedented. Despite $1bn of revenue, Seagen largely remains unprofitable because Clay insists on continuous investment into R&D for value creation, and Clay continuously talks about potential to execute on large scale transactions (upto ~$1bn) and fund it with a equity raise! When Seagen had announced acquisition of Cascadian Therapeutics to get tucatinib (now Tukysa) and sought follow-on equity offering to fund the transaction, many investors were not happy. Clay had to steadfastly endure criticism from investors for this deal.
However, this deal paid off MASSIVELY within 1.5 years with an amazing clinical result from HER2CLIMB. This trial readout pushed the stock that seemed to have a ceiling around $80 to above $100 – raising the floor to $100 because it completely changed the paradigm on which the company is valued. It was no longer a hem/onc focused company with a niche product, but it was now becoming a major player in solid tumor, starting with breast cancer – one of the largest markets in healthcare.
So the decisiveness and steadfastness of Clay have allowed SGEN to be on strong trajectory to becoming a global integrated oncology company.
Historically, ADC technology has been hot and not for many years, and Clay has been pushing on his vision steadfastly and decisively to develop the company into unparalleled player in ADC that carries very high valuation for its scarcity value and growth potential through pipeline development.
ADC is particularly gaining a lot of attention because of exciting data from combination with IO agents, such as PD-1. Padcev and Keytruda have some massive improvement over SOC in 1L bladder cancer and many expect this could translate to other tumor types. This only makes SGEN more attractive as it becomes an easy target for large cap pharmas with I-O franchise (i.e. all of them) with significant potential for revenue and expense synergies.
If I add a bit of exaggeration, we may not have ADC therapeutics as we know it without Clay’s leadership, and many patients may not have benefitted from ADC therapeutics. I think there is so much to learn from this man, who went “off-the-track” by leaving a promising career path at Bristol to execute on his vision.
As I gain more understanding of businesses and their histories, I continue to develop greater respect for entrepreneurs – they have their vision and execute on it, and as a result they change lives of so many people. I also wonder what else could be more important. This forces me to think about my own vision and what I am doing to work towards it.
Merck recently acquired SGEN stock for $200 per share. Clay’s valuation creation for patients and shareholders at SGEN continues and I am a proud shareholder that is just glad to be in it for the ride.
Are you a shareholder of $SGEN? If so, why? If you are bearish, please let me know your rationale as well!
*Not investment advice.
