Exiting a Bank, Initiating a Biotech

After you receive this Alert, we will be exiting our position in Citigroup (C) , selling 500 shares at a bid/ask of around $46.30/46.40. In addition, we are initiating a position in Seattle Genetics (SGEN) , buying 300 shares at a bid/ask of about $155.00/160.00. Following the trades, SGEN will represent 1.81% of the portfolio.

Before we talk about our newest name, we are closing out our small Citigroup in what is expected to solid up-open in the markets.

We have always viewed Citigroup as the best capital return story within the financials, but this thesis has been completely derailed due to the higher capital needs of the financials and the group's decision to suspend buybacks for what looks like the foreseeable future. From a sector view, we have concerns about what lies ahead with the dividend, especially at Wells Fargo (WFC) (which is currently in the Bullpen but will be officially removed in the coming days as part of a full Bullpen cleanup that weeds out the investment theses that have materially changed from Covid-19) but we note Goldman Sachs (GS) and JPMorgan Chase (JPM) have lower dividend payout ratios than WFC.

Additionally, we do not like having too much exposure to credit cards, and would rather be levered to the growthy, transactional, network side of the business (Mastercard (MA) ) than credit due to the likelihood of increased delinquencies and charge-offs as consumers don't pay their bills.

Finally, we no longer wish to hold on to so many small, challenged positions in hope that something good will happen. Yes, some names come to mind that we should have moved on from long ago, but if we cut C loose the morning after it suspended the buyback (announcement here) then we would have sold at around $40 per share and missed out on the bounce back.

We will realize an average loss of about 28% on the last bit of shares we own, but for those that have been with us since this 2016 initiation here know there has been plenty of profits realized along the way.

With a new free spot, we are calling up Seattle Genetics from the Bullpen to the portfolio. Seattle Genetics is a biotech focused on creating live-saving treatments for people with cancer. The company's first-quarter earnings presentation can be found here.

Co-Founder, Chairman, President & CEO Dr. Clay Siegall, Ph.D came on Mad Money last Friday to talk about the company in an interview you can watch here.

The company's first commercial treatment was Adcetris, a drug for the treatment of several types of CD30-expressing lymphomas. This drug has been on a great growth trend, with sales increasing 22% year over year to $164.1 million in the first quarter. Although the result came in about $3 million below expectations, we are willing to look past the headline because management maintained its full-year 2020 Adcetris net sales in the range of $675 million to $700 million despite Covid-19 related uncertainty.

But the real story of Seattle Genetics rests with the recent approval of two new treatments, which significantly expands the company's potential addressable market and turns it from a one-trick pony into a more diverse drug company with at least three drugs that each has a multi-billion peak sale opportunity.

First is Padcev, which in December was approved for the treatment of locally advanced or metastatic urothelial (bladder) cancer. Padcev sales were terrific in its first full quarter, with sales of $35 million more than 4x the ~$8 million consensus ahead of the quarter, all despite uncertainty from Covid-19, no global rollout yet, and a commercial team that had to go virtual in the middle of the quarter. Looking beyond Padcev's current label, management sees opportunities in earlier line and late stages of bladder cancer. Work is under way combining Padcev with Merck's (MRK) blockbuster cancer drug Keytruda.

Second is Tukysa, a treatment to be used for certain types of breast cancer and certain patients with brain metastasis, which can unfortunately develop as a tumor in the breast region progresses and that's why this drug is so critically important. This commercial product was approved in April, four months ahead of the ahead of the PDUFA action set date by the Food and Drug Administration (FDA), and hit the market about two weeks ago.

And there is a pipeline here management is committed to developing. While we hardly expect them to produce another potential blockbuster every four months like they recently achieved, these are still developments worth monitoring.

Full disclosure: This position is more of a speculative play due to the lack of earnings and dividend yield to fall back on. As of today, the company is not expected to turn a profit until 2022. But that is OK. Profits are more important for certain types of companies, and success here is not measured by today's P&L.

As an aside, we like how Seattle Genetics is a biotech that is not a play on anything related to the treatment of coronavirus. That's a good thing because we won't have to deal with "hot money" trading the latest therapeutic/vaccine headlines.

Additionally, this is a pure drug execution story that has zero exposure to the next direction the economy. Whether we see a V, U, or L shape recovery, Seattle Genetics business can still win.

We are starting somewhat small with this position and are leaving plenty of room to scale in further on weakness. We are initiating a position with a price target of $170, which is slightly higher than some of the base case discounted cash flow (DCF) models we have reviewed, however, we see opportunities for continued upside on faster-than-expected growth in Adcetris and Padcev plus a strong Tukysa launch.

Action Alerts PLUS, which Cramer manages as a charitable trust, is long C, GS, JPM and MA.