$Seattle Genetics(SGEN)$     On June 25, Seattle Genetics (NASDAQ: SGEN) announced a new antibody drug conjugate collaboration, or ADC, with Bayer Healthcare. ADC’s are a new class of biopharmaceutical drugs used as therapy for treatment of cancer. This collaboration will give Bayer the right to sell Seattle Genetics’ auristatin based ADC technology with antibodies to oncology targets worldwide.

For this right, Bayer will pay $20 million upfront and option exercise fees. The company will further receive a $500 million milestone payment and royalties on worldwide net sales products under collaboration in the long run. It is expected that total royalty income will rise to $10.39 million this year and $11.70 million next year compared from $5.06 million last year.

Seattle Genetics has more than 15 ADCs in clinical development using its technology. It is expected that in the long term, once these drugs reach to their peak sales, Seattle can receive around $3.5 billion as milestones and royalties payments from these collaborations.

‘Adcetris’ was approved by the FDA for treatment of Hodgkin lymphoma, or HL, and systemic anaplastic large cell lymphoma, or ALCL, in 2011. HL and ALCL are types of blood cancer. Recently, the clinical trial of Adcetris was halted due to safety issues related to pancreatitis. However, it is too early to draw any conclusion until additional details of pancreatitis in other clinical trials are available.

This drug is also being tested for use against other diseases, which will enhance its total addressable market. It is expected that this product will generate total sales in terms of product sales and royalties of $143.3 million in fiscal year 2013 and will reach to $260.9 million in fiscal year 2014. However, negative data about its safety could reduce its growth prospects.