Seagen Inc (SGEN) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Seattle Genetics’ Fourth Quarter Financial and Business Update. [Operator Instructions]

I would now like to turn the conference over to Peggy Pinkson, Associate Director of Corporate Communications. Please go ahead.

Great, thank you. I’d like to welcome all of you to Seattle Genetics’ quarterly conference call. With me today are Clay Siegall, our President and Chief Executive Officer; Todd Simpson, our Chief Financial Officer; and Eric Dobmeier, our Senior Vice President of Corporate Development.

Earlier this afternoon we reported our fourth quarter and year 2005 financial results. If you’ve not seen the press release, it’s available on our website. During the call today we’ll provide an update on our clinical and preclinical programs, review our fourth quarter and year 2005 financial results and give financial guidance for 2006. We’ll then open up the call for questions.

Before we get started, let me remind you that today’s conference call will include forward-looking statements based on current expectations. Such statements are only predictions and actual results may vary materially from those projected. Please refer to the documents that we file from time to time with the SEC and which are available on our website for information concerning the factors that could affect the Company.

And with that, I’ll turn the call over to Clay.

Thank you for joining us this afternoon. Today I’ll discuss the substantial progress we made in 2005 and highlight our plans for 2006.

Our main focus for the coming year is to continue advancing and expanding our proprietary product pipeline to build upon the encouraging data we reported in 2005.

The key value driver for Seattle Genetics is our internal pipeline, including our three clinical programs, SGN-30, SGN-40 and SGN-33 and our lead preclinical program SGN-35 and SGN-70.

In addition, we’re collaborating with a number of companies that have licensed our antibody drug conjugate (or ADC) technology. Several of our partners are advancing their own ADCs towards potential clinical trials in the near future.

On this call I’ll discuss current and planned activities for each of our internal programs, as well as highlight our ADC collaborations. Then I’ll turn the call over to Todd to discuss our financial results and provide 2006 financial guidance.

Our most advanced clinical program is SGN-30, which is in Phase II clinical trials for relapsed or refractory systematic anaplastic large cell lymphoma (or ALCL) and cutaneous ALCL, both t-cell lymphomas. At the ASH annual meeting in December, we reported data from our ongoing Phase II studies.

In systematic ALCL, five of the first 20 evaluable patients, or 25%, had objective antitumor responses, including two complete responses and three partial responses. In cutaneous ALCL, five of the first six evaluable patients, or 83%, had objective responses.

We’re focusing on systematic ALCL as the registrational pathway for SGN-30. Because of SGN-30’s clean safety profile, we were recently able to raise the dose in our systemic ALCL study to 12 milligrams per kilogram (mg/kg) to determine whether we can increase the response rate even further.

Previously, patients received 6.0 mg/kg and all of the data reported at ASH is from patients treated at that dose. Data for patients treated at 12 mg/kg will be important to our strategy for a potential pivotal trial. We plan to report complete Phase II data at the ASH meeting in December 2006.

In cutaneous ALCL, we are continuing to accrue patients at multiple centers in the United States. As mentioned last quarter, this study was recently expanded to include two related indications -- CD30-positive transformed mycosis fungoides and lymphomatoid papulosis, which will provide us with data on multiple CD30-positive lymphoproliferative diseases.

We plan to provide clinical data from this study at the Society of Investigative Dermatology meeting being held in Philadelphia in May. Based on preclinical data, SGN-30 demonstrates synergy with chemotherapy.

To take advantage of this, we’re collaborating with the National Cancer Institute (NCI) to initiate a Phase II combination trial of SGN-30 and GVd, gemcitabine, vineralbine, and doxil in a Hodgkin’s disease, which could start by mid-2006. A combination approach may provide an important way to incorporate SGN-30 into the treatment regimen of Hodgkin’s patients.

CD30, the target of SGN-30, is also expressed on activated T-cells. As a result, there are interesting opportunities in the treatment of immunologic disease, such as severe atopic dermatitis and graft versus host disease.

Our current priority is to advance SGN-30 in cancer settings, since focusing on oncology is the best way to drive value for SGN-30 programs in the near-term. Immunologic disease provides an upside opportunity for SGN-30 in the future.

Moving on now to SGN-40, we have several clinical trials ongoing with this humanized anti-CD40 antibody, including Phase I studies in multiple myeloma and non-Hodgkin’s lymphoma (NHL) and a Phase I/II study in chronic lymphocytic leukemia. These trials are all single-agent, dose-escalation studies in patients with relapsed or refractory disease.

At ASH we were pleased to report our first objective responses with SGN-40 in NHL. At a relatively modest dose of 3.0 mg/kg, two patients had partial responses to SGN-40 therapy. This is encouraging early data from this study, which is primarily designed to elevate tolerability.

We continue to dose escalate and plan to report additional Phase I data as the ASCO annual meeting in early June. Given the clinical data already generated, we expect to advance SGN-40 into a Phase II study in NHL in the second half of 2006. In addition, we’re considering a combination study of SGN-40 and rituxan for NHL based on strong preclinical data.

We also reported at ASH on our SGN-40 multiple myeloma study. Data from doses up to 4.0 mg/kg showed stable disease and reductions in M protein during treatment. We’re continuing to dose escalate and plan to report complete Phase I data at this year’s ASH meeting.

The Phase I data will determine our strategy for advancing SGN-40 into a Phase II study in multiple myeloma as a single agent. We’re also considering SGN-40 in combination with Revlimid, based on published preclinical data showing strong synergy.

We recently initiated a Phase I/II clinical trial of SGN-40 in a third indication - chronic lymphocytic leukemia (or CLL). The study design will allow us to quickly transition from the current Phase I into a Phase II, which we expect to occur in the second half of the year. We plan to report data from the Phase I portion of the study at ASH.

SGN-40 has broad therapeutic potential and is an exciting component of our product portfolio. In addition to the combination studies I’ve mentioned, we’re also evaluating single-agent trials in Hodgkin’s disease and Waldenstrom’s macroglobulinemia, which represents additional clinical opportunities with unmet medical needs.

We’re investing significantly in expanding and advancing our SGN-40 program and look forward to sharing additional progress during the coming year.

Our third clinical program is SGN-33, a humanized anti-CD33 antibody. We initiated a Phase I cultural of SGN-33 in November 2005. This is a single-agent dose escalation study in patients with acute myeloid leukemia (or AML), as well as in patients with myelodysplastic syndromes (or MDS). Our objectives are to establish the safety profile and identify the optimal dose in patient populations.

We’re recruiting patients who are not eligible for intensive chemotherapy, such as the frail or elderly, or those who have relapsed after chemotherapy. In MDS, we’re focusing on patients with high-grade disease. We believe there is a broad clinical need for a targeted therapy in the AML and MDS patient populations. During 2006 we plan to rapidly advance this Phase I study and expect to report data at ASCO and ASH.

In addition, we’re designing a combination study of SGN-33 and Revlimid. We believe this combination may have important clinical benefit, because Revlimid augments effector function, which is SGN-33’s key mechanism of action.

Moving on to our lead preclinical programs, the next product candidate to enter clinical trials will be SGN-35, our first auristatin-based antibody drug conjugate. This is a first in class ADC that uses our proprietary technology composed of a stable linker and highly potent synthetic drug.

We plan to file an IND on SGN-35 by mid-2006 for patients with CD30-expressing malignancies, including Hodgkin’s disease. We’re excited to get this clinical trial underway, both because of it’s therapeutic potential for patients with lymphoma and its pioneering nature as our first auristatin-based ADC to enter the clinic.

The last program I’ll talk about today is SGN-70, which is a rapidly emerging preclinical program that we’re positioning for a 2007 IND filing. SGN-70 targets CD70, an activation antigen expressed in high density on renal cell cancer as well as on a variety of hematologic malignancies. CD70 makes a great target for both cancer and immunologic disease therapy, because it is not readily observed on any normal tissues.

We reported at ASH on the antitumor activity of SGN-70 in preclinical cancer models. I’m very enthusiastic about moving this program toward the clinic and look forward to updating you on our progress during 2006.

We’re expecting a strong showing at the American Association for Cancer Research (or AACR) annual meeting being held in Washington DC in early April. Our poster presentation will highlight the important scientific achievements we’ve made with our ADC technology, as well as with one of our preclinical ADC product candidates, SGN-75.

In addition to advancing our proprietary pipeline, we continue to collaborate closely with our seven ADC technology partners. This includes Genentech, Bayer, MedImmune, CuraGen, PSMA Development Company, PDL Biopharma and UCB Celltech. These companies are employing our ADC technology to develop a variety of antibody-based product candidates.

While we cannot disclose specific timelines, we are optimistic that one or more of our partners will initiate a clinical trial with our own ADC program during the next 12 months. We have assisted Genentech with process development and manufacturing activities to support a potential IND filing for anti-HER2 ADC. CuraGen has stated that they are planning a 2006 IND filing for CR011, an ADC for the treatment of metastatic melanoma.

On the product-partnering front, we currently own worldwide rights to all of our products in our pipeline, which is a significant source of value to the Company.

Although we’re in a strong position to continue to move our programs forward on our own, we’re also exploring potential product-partnering opportunities that can leverage the resources of a larger company, particularly in the areas of manufacturing, regulatory expertise and commercialization.

We intend to evaluate these opportunities over the next 12 to 18 months and may consider entering into one or more product-partnering relationships in that time period.

At this point, I’ll turn the call over to Todd.

Thanks, Clay, and thanks, everyone, for joining in on the call this afternoon. My comments today will be two-fold. First, I’ll highlight our 2005 fourth quarter and year-end financial results, which were announced this afternoon and are available on our website and then secondly, I’ll provide our 2006 financial guidance.

So let me start with revenues, which were $2.3 million in the fourth quarter of 2005 and $9.8 million for the year in 2005. These revenues represent a 35% increase over the fourth quarter of 2004 and a 46% increase over the year in 2004.

Our revenues were generated from activities under our ADC technology collaborations, which include the earned portion of technology access fees. Which are recognized over the research period for each collaboration, fees for R&D activities and payments for material supply to our collaborators and milestone payments and annual maintenance fees received.

While our primary focus is on the development of our own pipeline, our ADC collaborations have been a significant source of capital for the Company over the past several years, bringing in approximately $50 million in cash since 2001.

Total operating expenses in the fourth quarter of 2005 were $10.3 million, down from $12.9 million in the fourth quarter of 2004 and for the year in 2005, were $41.8 million, down from $44.4 million in 2004.

G&A expenses were relatively flat quarter-over-quarter and year-over-year, with the decreases in 2005 expenses resulting from lower contract manufacturing costs for our SGN-40 campaign in 2005, compared to the SGN-30 manufacturing costs in 2004.

As to our 2006 financial guidance, we expect total revenues to be in the range of $7.0 to $9.0 million. This includes approximately $6.0 million related to amortization of deferred payments received under our ADC collaborations. Our revenue guidance is also based on our expectation for continued advancement of activities under our seven existing ADC deals, as well as modest expectations for additional licensing activity during 2006.

Total operating expenses in 2006 are expected to be in the range of $50 to $55 million, with increases over 2005 levels related to the costs associated with continued expansion and acceleration of our clinical programs for SGN-40 and SGN-33, as well as the initiation on an SGN-35 clinical trial later this year. Also contributing to the increase in operating expenses are planned manufacturing campaigns for SGN-33 and SGN-70.

2006 expense guidance also includes non-cash stock compensation expense related to employee stock options, which we project will be approximately $4.0 million. This is the result of the new accounting rules that became effective earlier in January and is based on a number of assumptions, including future stock prices, so it’s subject to change.

On a quarterly basis, we expect operating expenses to be relatively consistent throughout the year, although it is difficult to predict the exact timing of certain activities such as manufacturing campaigns and the rate of clinical trial accruals. We also expect that approximately 80 to 85% of total expenses will continue to relate to our R&D activities.

And lastly, we ended the year with approximately $79 million in cash and investments and project our operating cash requirements in 2006 to be in the $35 to $40 million range and therefore, feel that we’re in a strong financial position to fund continued advancement of our programs.

So, with that, I’ll turn the call back over to Clay.

Thanks, Todd.

Before we open the call to question, I’d like to summarize our key upcoming milestones --

In 2006 we expect to complete our Phase II study of SGN-30 in systemic ALCL and utilize these data to determine our registrational strategy.

In collaboration with the NCI, initiate a clinical trial of SGN-30 plus GVd chemotherapy in Hodkin’s disease.

Advance SGN-40 into Phase II clinical trials in NHL, CLL and depending on data from the ongoing single-agent study, multiple myeloma.

Continue to elevate additional opportunities to expand our SGN-40 program in both single agent and combination settings.

Advance our SGN-33 Phase I dose-escalation clinical trial.

And lastly, initiate a Phase I study of SGN-35 in CD30-positive malignancies. This will be our first auristatin-based ADC to enter clinical trials and our fourth clinical program.

In addition, we plan to provide data updates at major clinical meetings during 2006, including the AACR annual meeting in April, ASCO in June and ASH in December.

Seattle Genetics has a strong product pipeline of antibody-based therapies, leading ADC technology and a solid financial position. We’re poised for many significant milestones in 2006. I look forward to updating you throughout the year on our activities and accomplishments.

Thank you again for your time this afternoon. With that, I’d be happy to take questions.

Yes, let me correct one piece of the financial guidance on revenues. I believe I said $7.0 to $11 million. The guidance is $9.0 million to $11 million, my apologies.

Great. With that, operator, we’re going to open up the call for questions.

[Operator Instructions] And our first question comes from Mark Monane with Needham & Company. Please go ahead.

Hey, thank you very much and congratulations on your progress in 2005.

Thanks, Mark.

-- [technical difficulty] questions come to mind. You stated [technical difficulty] will take place in 2006 ASH Phase II and then you gave another example from the 40 program, hearing about ASH. [Technical difficulty] have to wait for the ASH -- is the Company going to wait for the ASH data to be presented to decide whether to go into Phase III, especially for the 30 program, or will the Company make an executive decision before that time, based on the results? As we know, the meetings often occur a long time after the data are available.

Right. Mark, this is Clay. I think I heard most of that question. There were a few parts that were in and out, but I’ll address the SGN-30 question first, because I think there was also SGN-40 questions in there.

Right.

I think that during the year we will be elevating our clinical data and looking and considering ways that we can go forward into a pivotal study and we will certainly present our Phase II data at ASH. But it’s highly likely that we will be making strong strategic and programmatic decisions prior to that.

And the other question was on 40, a similar congruent statement. We heard there was going to be ASH data on the NHL program, I believe, as well as the multiple myeloma programs. Will we need to wait for those data as well in order to think about going forward in a Phase II trial, for example, with multiple myeloma?

Well, the NHL data is going to be presented at ASCO and so mid-year you’ll be hearing an update on that, as that progresses forward. With multiple myeloma, we’re planning on presenting an update at ASH, like you said. I think it’s highly likely that prior to that we will have completed our Phase I study, based on the data that we will be collecting, be able to make decisions for going forward in myeloma as a single agent, as a combination agent and/or both.

That makes sense. And do you have any meeting scheduled with the FDA yet about moving the program, the systemic ALCL program into pivotal trials?

We do not currently have a meeting planned, although we are discussing that for the future. So that could come at some point during 2006.

And last question. A lot going on at Seattle Genetics, it’s not a company that has one drug, one indication or even one drug in a couple indications. You have multiple potential drugs, potential indications. So the question is how is the executive team [technical difficulty] for? I know you look all your children, but how are you prioritizing or managing Todd’s money going forward in 2006?

Yes. It’s a good question. We discuss our strategy constantly and consider all our different programs. Any company developing a number of products that a small biotech needs to consider the resources.

In the past we have looked at some of our programs that were less likely for success and we have decided to close programs. So we’ve been able to do that in the past. It’s not our intention to do that right now. We have some very exciting programs. We have three products in clinical trials that we’re working on. We’ll add a fourth one in 2006.

If, at any point in time, we believe that a product reaches a point where we think it has a very low likelihood of success, we’ll consider closing programs. We’ve done it in the past and when need be, we would look and do that in the future. The intention is try to make these things, these programs, into successes and being able to bring them towards registration study and product launch.

This is Eric. We’re also looking at product partnering as a way to leverage our resources. So although we’re not in a position where we have to partner our products in the near-term, we are talking to larger companies that, as Clay said during the script earlier, where we can leverage their resources especially in manufacturing, regulatory and commercialization.

That makes a lot of sense. Thanks for the adjuvant information.

Thanks, Mark.

Bret Holley with CIBC World Markets.

Yes, hi. I just had a further question, a follow-up, I think, to Mark’s question on the Phase III for SGN-30. Clay, I guess you said that the data for 12 mg/kg was going to be critical for designing or considering a Phase III for SGN-30. I’m wondering what kind of line in the sand do you think is adequate for a response rate here? It seems apparent that 25% response rate in this indication is pretty robust. Do you think that it needs to be higher? I mean, can you give us a little bit more color on that comment?

Thanks for your question, very much. I think that the things that are really important are response rate and the durability of the responses. Those are the real two things that are important and we started our study in Phase II at 6.0 mg/kg. This drug is very well tolerated and so going up to 12 mg/kg is still very safe to do.

And so we wanted to go in to any pivotal study with absolutely the best dose that we can and if we could further expand our response rate and durability, then it’ll give us a higher likelihood of success going forward into a pivotal study. And that’s really our goal here.

And we’re treating patients that are heavily pretreated and we are seeing responses. So we’re very pleased with that. We’re just trying to make sure and optimize our dosing before going into any sort of pivotal type program.

Then I guess a follow-up to that is response rate seems like an adequate surrogate in this fairly sick patient population. What kind of end point would you consider likely to be considered by the FDA in a pivotal trial in the indication?

I think that they’re going to look at the response rate and durability. I think they’re going to want to see a response rate and that is something over 20% and it’s not exactly aligned there, but they’re going to want to see something over that. And they’re going to want to likely see something with a durability of 90 days or beyond. So, I think that those are going to be the key points.

And what would you say to the question that always comes up in these discussions about a comparator arm for this trial?

Well, I think we’ve looked at that very closely. And since we’re using patients that are heavily pretreated, at the point we’re treating them there really is no comparator arm that we internally, with our clinical team, with our physicians, with outside experts that we’ve talked, there really is no obvious comparator arm.

So, for us, we’re planning on completing the 12 mg/kg patient population in Phase II and making decisions on what kind of study we would consider going forward with. And we plan on going forward, as it stands now, as a single-arm pivotal study, based on having no adequate comparator.

Thanks very much.

[Operator Instructions] Mark Monane with Needham & Company.

Thanks very much. I would be remiss if I didn’t ask you an ADC question and recently we’ve heard reports from clinical trials and decisions from companies regarding ADC technology. Can you sum up how you think about the program? Is it in terms of payload and the linker and talk to us about which is the appropriate payload and which is the appropriate linker for a given cancer, how you go through that decision process?

Sure. I think that when you look at antibody during conjugates, what you want is a payload that’s synthetic and it just makes the manufacture-ability of the product very straightforward and you want a linker that’s stable. You want it to be stable in the blood, but you want it to be released inside of the tumor cell.

And we, for many years, were using different types of payloads such that were natural product drugs, that were just harder to manufacture and harder to manipulate and you could not customize them, because they’re natural product drugs. And that’s why we went ahead and pioneered the use of a synthetic drug, auristatin, for ADC technology.

We were also using linker systems that were cleaved through a reduction or some sort of event based on pH or a reducing environment inside the cell. And when you use that kind of system, a system based on cleaving and releasing the active drug based on reduction, it’s not very exact. And so you get some cleavage that happens at different times and it happens early and you get some non-specific cleavage in the blood as well and not just inside the cell.

So we had been looking for a number of years for a way to have a more specific cleavage event and that’s why we came up with an enzyme cleavable linker. So we would have an event that took place inside the cell, not in the bloodstream, that would cleave and release our synthetic drug.

So those are the keys for our technology. There are other people, like you point out, that are in the field that are developing ADC products and are working on products and we think that that’s good for the whole field in ADCs. We certainly are pleased that ADCs are very relevant to big companies and they’re relevant to other companies and we think that ADCs have a very bright future and we’re excited to be working on it internally as well as with our partners.

Terrific. Thanks again for the added information.

[Operator Instructions] Okay, management, there are no further questions. I will turn the conference back to you for any closing comments you may have.

Great. Thanks, Operator. Thanks, everybody, for joining us today. Please feel free to give us a call if you have any further questions and we look forward to talking with you all again soon. Have a good afternoon.

Thank you. Ladies and gentlemen, that does conclude today’s teleconference. If you would like to listen to a replay of today’s conference you may dial in at 303-590-3000 or 1-800-405-2236, followed by the access code of 11050852 and then followed by the pound sign.(#). [Repeat instructions]

Once again, thank you for your participation in today’s conference and at this time you may disconnect.

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