Seagen Inc (SGEN) 2006 Q2 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Seattle Genetics second quarter 2006 financial and business update conference call. As a reminder, this conference is being recorded Tuesday, July 25, 2006.

I would now like to turn the conference over to Ms. Peggy Pinkston, Associate Director of Corporate Communications.

Please go ahead, ma’am.

Great. Thank you.

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

Earlier this afternoon, we reported our second quarter 2006 financial results. If you have not seen the press release, it is available on our web site. During the call today, we’ll review progress on our various clinical programs and our second quarter financial results, and then we’ll open up the call for questions.

Before we get started, let me remind you that today’s conference 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 SEC and which are available on our web site 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. I am excited to review our progress in the second quarter to advance our diverse pipeline and position ourselves to achieve a number of key milestones in the remainder of 2006.

We’re entering the second half of the year with a great deal of momentum. Our key activities are directed toward our lead product opportunities including advancing SGN-40 into phase II development, initiating a phase I clinical trial, the SGN-35, and presenting data from multiple clinical programs at ASH.

The potential for SGN-40, which is our highest priority program is substantial, and we are focusing significant resources toward rapidly advancing this program. We reported data from our ongoing phase I clinical trial of SGN-40 in non-Hodgkin’s lymphoma at the ASCO annual meeting in June. The drug induced 5 objective responses, 1 complete response and 4 partial responses in heavily pretreated patients. Notably, 4 of the 5 responses were in patients with aggressive non-Hodgkin's lymphoma, including 3 with diffuse large B-cell lymphoma and 1 with mantle cell lymphoma. SGN-40 was well-tolerated at doses up to 8 mg/kg per week. Based on the strong data, we plan to advance SGN-40 into phase II clinical trial this year in patients with relapsed diffuse large B-cell lymphoma, which is the most common type of aggressive NHL.

Rituxan plus CHOP chemotherapy is the frontline standard of care; however, many patients with aggressive NHL will relapse and require additional treatment, there is a great need for a well-tolerated therapy with a durable response rate in this patient population that is not addressed by current therapies including Rituxan, which has limited efficacy in this setting. SGN-40 could play an important role for these patients as a promising and regulatory pathway.

In addition to our NHL studies, we’re conducting single agent phase I studies of SGN-40 in relapse or refractory multiple myeloma and in patients with chronic lymphocytic leukemia. We plan to report additional data from our phase I at the ASH annual meeting in December.

We are also planning to initiate combination studies with SGN-40 within the next 12 months to further evaluate its ability to enhance anti-tumor activity in hematologic malignancies. We’re considering combination studies with Revlimid for multiple myeloma or Rituxan for non-Hodgkin's lymphoma. We’re excited about the opportunities represented by SGN-40 and are working to aggressively advance this program.

Also, at ASCO, we reported preliminary data from our ongoing phase I single-agent dose-escalation studies of SGN-33 in patients with acute myeloid leukemia, or AML; or myelodysplastic syndrome, or MDS. In the first cohort of 6 patients, SGN-33 was shown to be well-tolerated and demonstrated decreases in bone marrow blasts and monocytes, indicators of anti-tumor activity. Our clinical program for this product candidate is focused on optimizing the dose, administration schedule and target patient population. Dose escalation is ongoing and we intend to report additional phase I data from this program at ASH later this year.

Before we in-licensed SGN-33, the antibody was shown to be active in AML patients at relatively low doses, which we’ve already surpassed in our clinical trial. In addition, we’re exploring a broader range of indications including MDS and less aggressive settings of AML. In particular, we believe patients with relapse disease and untreated elderly patients who cannot tolerate chemotherapy could benefit from SGN-33 treatment.

We’re also planning to initiate a study of SGN-33 combined with Revlimid for patients with MDS. Revlimid augments NK cell activity which should enhance SGN-33 effective function, which is an important mechanism of action for this antibody. In May, we reported data from our phase II study of our third clinical program, SGN-30, which targets CD30+ hematologic malignancies in cutaneous anaplastic large cell lymphoma, a T-cell lymphoma of the skin at the Society of Investigative Dermatology Annual Meeting. Multiple patients achieved objective anti-tumor responses to SGN-30 therapy as a single agent including both complete and partial responses and SGN-30 was very well tolerated.

We have also completed enrollment in the systemic ALCA phase II clinical trial with SGN-30, with the last few patients currently on the study. We intend to report final data from this trial at the ASH meeting in December which will further guide our future plans for this program.

We announced today that we have submitted an IND to the FDA for SGN-35, our anti-CD30 antibody-drug conjugate. This was an important milestone for the Company and marked the first ADC utilizing our proprietary stable linker and highly potent synthetic or auristatin drug payload that we will advanced into clinical trials. We plan to initiate a phase I dose-escalation study in patients with Hodgkin’s disease and other CD30+ malignancies later this year. We’re optimistic about the therapeutic potential of SGN-35, considering the safety profile and activity that we’ve observed with our anti-CD30 antibody, SGN-30 in its unconjugated form.

In preclinical studies, SGN-35 demonstrated strong anti-tumor activity, including complete regression at very low doses. Also during the second quarter, one of our ADC technology collaborators, CuraGen, initiated a clinical trial with their lead ADC, CR011-vcMMAE in patients with metastatic melanoma. This triggered a milestone payment to Seattle Genetics and is an additional demonstration of progress with our ADC technology. Many of our other collaborators are also advancing ADCs using our technology including Genentech, MedImmune, Bayer, and Progenics through its subsidiary PSMA development company.

I also wanted to take this opportunity to officially welcome Dr. Pamela Trail to our senior management team. Pam joined us a few months ago as our Chief Scientific Officer. She is a talented scientist who has strong oncology research, development, and management experience from her tenures at both Bayer and Bristol-Myers Squibb. Pam has led multiple functional teams to develop the first cancer therapies including antibodies, small molecules, and ADCs. We look forward to the contribution she will make as we work to build and advance our pipeline.

Finally, we raised approximately $43 million in the second quarter. The funds further strengthen our ability to advance our diverse pipeline of clinical stage cancer therapies. As you can see, the rest of the year promises to be eventful and we are well positioned to continue building value in our key programs.

With that, I’ll turn the call over to Todd.

All right. Thanks, Clay, and thanks everyone for joining in on the call this afternoon. As Peggy mentioned, earlier today we reported our second quarter 2006 financial results. These results are available on our web site.

We reported a net loss of $8.6 million, or $0.17 per share, in the second quarter of 2006, compared to a net loss of $8.4 million, or $0.20 per share, in the second quarter of 2005. We posted a year-to-date net loss of $17.3 million, or $0.37 per share, for the first half of 2006, compared to $15.9 million, or $0.38 per share, in the first half of 2005.

Revenues in the second quarter of 2006 were $2.8 million, up from $2.2 million in the second quarter of 2005. Second quarter revenues include, as Clay mentioned, a phase I clinical trial initiation milestone earned under our collaboration with CuraGen. Year-to-date revenues in 2006 were $5 million compared to $4.8 million in the first half of 2005 and in line with our expectations. These revenues are generated from activities under our ADC technology collaborations and can vary from quarter to quarter based on the level of support we provide to our partners and the timing of milestones achieved. We continue to expect total 2006 revenues to be in the range of $9 to $11 million.

Total operating expenses in the second quarter of 2006 were $12.4 million, up from $11.2 million in the second quarter of 2005. For the first half of 2006, operating expenses were $24 million compared to $22 million for the first half of 2005. As expected, operating expenses were higher period over period, mainly due to the impact of noncash stock compensation expense following our adoption of FAS 123(R) in January, as well as somewhat higher employee costs. Contract manufacturing costs were lower in 2006 due to the timing of our manufacturing campaign. In 2005, we conducted a manufacturing campaign for SGN-40 at Abbott Labs. 2006 expenses reflect SGN-70 manufacturing activities to be followed later in the year and into 2007 by SGN-33 manufacturing activities. These campaigns are important to our pipeline and leverage our internal efforts to enable product supply necessary to drive our clinical programs forward.

We continue to expect that total operating expenses for 2006 will be in the range of $50 to $55 million. In addition to the impact of stock-based compensation charges, the significant drivers of operating expense increases in 2006 include the cost associated with continued expansion and acceleration of our clinical programs for SGN-40 and SGN-33. SGN-35 trial initiation later in the year and as I mentioned, manufacturing campaigns for SGN-70 and SGN-33.

We ended the quarter with approximately $104 million in cash and investments. This includes net proceeds of approximately $43 million from a common stock financing the close in the second quarter. We continue to project that our operating cash requirements in 2006 will be in the $35 to $40 million range and with the proceeds from our latest financing we’re well positioned to continue advancing our programs. So with that, I’ll stop and turn the call back over to Peggy.

Okay. Thanks, Todd.

Operator, at this point, we would like to open up the call for questions, please.

(OPERATOR INSTRUCTIONS)

Mark Monane, Needham & Co.

Hi. Thank you and I appreciate you taking my question. I have a couple of CD40 question for Clay and for Eric. Maybe you can outline for us, Clay, what made Seattle Genetics choose CD40? We know CD20 obviously from Rituxan. Is CD40 twice as good as that being CD40? Or is there – and has Eric received a lot of attention from this molecule from outside people?

Right. We’d like to think about CD40 being twice as good as CD20 targeting but that’s an interesting thought that we had not considered yet. So CD40 has been something as a target, I’ve been very interested in for many years. CD40 is – was first discovered as a bladder cancer antigen and shown to be on certain solid tumors and then it was rediscovered as a B-cell antigen on certain B lineage type tumors like multiple myeloma, NHL, CLL, and others. It does have some normal tissue expression, but the most notable is on B-cells, much like CD20, but it’s a little different than CD20 with different expressions on a wider range of tumors and solid tumors.

So we are very interested in CD40 as a target and we were looking for an antibody that had the right properties, that had strong effector function that also had apoptosis function on its own and we identified one with FGN 40. So we think that CD40 is a great target for an antibody and our data so far supports that notion and we are totally excited with going forward into phase II. Our top priority as a Company is to advance SGN-40 into a single-agent, phase II study in diffuse large B-cell lymphoma before the end of 2006. That’s our single top priority.

And has Eric received – Eric, have – has Eric received comments or inquiries on this molecule from other companies?

Thanks, Mark. Yes. We have had quite a bit of interest in SGN-40 especially after the data we reported at ASCO. We've talked with some partners. I think as Clay said the main focus is getting this into phase II. We want to build value in our programs and not partner too soon but at the same time we recognize that the right partnership could make sense for us if the financial terms are right; and in some senses even more importantly, if we find the right partner who provides additional resources that lets us broaden and advance this program quicker than we could do necessarily by ourselves. Things like additional resources for manufacturing and commercialization which we have not developed on our own yet would be helpful.

So it’s something that we’re certainly aware of and keeping an eye on but again our main focus is keeping this moving forward in the clinic and building more value through clinical data.

That’s fair. Last question on CD40. The CD40 ligand is – or – is – the receptor is on a number of different cells besides the B-cell. I know it’s on dendritic cells and maybe you can talk about any negative effect it may have on tumor immunology given the fact that it’s blocking CD40 which is on the dendritic side, have you observed any of that? And then also CD40 ligands are responsible for processes like inflammation and atherosclerosis. I am wondering if the team or outside investigators are expressing interest in thinking about cardiovascular applications?

Right. Our antibody targets the CD40 receptor, not the CD40 ligands, and they really are different in a pretty substantial way, and so with our antibody, our antibody binds to the receptor and does not block ligand binding. In fact, it augments ligand binding. So it’s really different. We do not see the possible clinical utility based on our antibody to the receptor for cardiac types or cardiology uses based on the expression profile. While I understand that the ligands have a completely different expression profile that one may consider such as a clinical utility. Does that help to answer your?

Absolutely. Thanks for the added information. Congratulations on your progress.

Jason Kantor, RBC Capital Markets.

Thanks for taking my call, and congratulations on getting that IND for SNG-35. That’s very, very exciting. A couple of questions. First, SGN-30, it’s been the lead drug in every previous conference call you’ve done. It’s now behind SGN-40 and SGN-33 and when you list it, what’s driving your operating expenses? You mentioned every single program except SGN-30. Is this – are you killing this program?

With SGN-30, we have completed enrollment, like we said, in the systemic ALCL study, although there are quite a few patients on the study and receiving treatment right now. We expect that we will have our data analyzed within the next several months and we absolutely intend to report that at ASH. The data that we get will help guide us for the next steps on the program and we have to consider our data as we look at it and analyze it along with other aspects of the program; including regulatory pathway, market size, etc. As well as in the context with the rest of our pipeline opportunity including SGN-40, which is doing extremely well and we’ve outlined that and other programs. So as soon as we outline our future critical development pathway and evaluate all of the things I just discussed, we’ll certainly disclose more of our decisions on it but we have not done anything – we have not closed any programs where we sit right now.

But I mean in the option of doing a deal that offloads one of these other programs? I mean, is there any data that you can see out of ALCL cutaneous or systemic that would warrant moving this forward in your mind?

You know, we’ll just have to look at the data and let it guide our decisions. It’s really hard to speculate on what data could look like or might look like. You’re asking very good questions and we have to completely look at our pipeline and look at all of our opportunities and all of our resources and make the best decision for Seattle Genetics and we’re excited to see the rest of our data come in from the study. There’s quite a lot of data still out.

Two quick other questions. You mentioned a combination of I think Revlimid with your [inaudible] 33 antibody because it could enhance effector function. Any plans to look at modified versions of that antibody that might in and of themselves have an enhanced effector function?

You know, that kind of information is confidential at this point, but that’s a good question.

And lastly, you mentioned combination studies with CD40, and I think what you said is you plan to start those in the next 12 months. Is that another way of saying mid ’07 or is it something that could actually start up soon?

You know it is possible to start it sooner given certain conditions, but what’s most important to Seattle Genetics is getting that single agent phase II study initiated in a very robust fashion because that single agent study, we believe, can lead us to future pivotal studies and moving forward.

So we are not leaving – we’re keeping our eye on the ball with SNG-40 and the pivotal study would certainly come after the single agent study is robustly initiated. So I think it is very important for us to initiate some of these combination studies. Whether it's -- we’ve talked about two of them but it is very important for us to initiate these studies.

Thanks.

Bret Holley, CIBC World Markets.

Hi. This is actually Michael [Deanerman] for Bret. I was just wondering if you could tell us – actually I wanted to follow up on this whole registration. At first I was wondering whether there was a potential on Phase II and if you’ve considered at all potentially increasing enrollment and if not what is the actual plan for registration or do you require the data there?

Now are you talking about SGN-30, SGN-40?

Sorry. For SNG-40.

Okay. That’s what I thought you were talking about. Okay. So with SGN-40, you know, we are thrilled with our data in aggressive lymphomas and the data we’re discussing is what we have presented up through the ASCO presentation. And the phase I continues. That was not the completed phase I study that was presented, and we talked about that at ASCO. We talked about that in our press release at that time, so we are continuing to work on the phase I study at the same time that we’re trying to initiate the phase II study.

The question you asked is could we make this phase II study into a pivotal study or can we expand a proposed phase II study into a pivotal type study, and we have had many discussions about that. I think what we have decided to do with a lot of outside experts that we've talked to is to initiate as a phase II study in a substantial patient population with diffuse large B-cell lymphoma, the single largest population of aggressive lymphomas. And as our study – data comes in, we will reserve the right to go back to the FDA at some appropriately early time frame to potentially transition this into some sort of pivotal study and/or large appropriate separate unique pivotal study but that will depend on our early data coming out of the phase II study. And provided that data looks similar to what we’ve seen in our phase I study, I think we can see – you can envision some potential ways to accelerate development of this product.

Great. Thank you.

David Witzke, Banc of America Securities.

Yes. Thanks. Good afternoon. Could you speak to the durability of the 5 responses and I guess the one complete response and just an update on those 5 patients post ASCO?

Sure. We’ve talked a little bit of ASCO about the durability of some of the responses. The good news is the majority of them have stayed durable and we really think we have responses that can be durable. Now granted, this is a phase I study, and we still have to go into phase II, and I think one of the important things of the early data in phase II is assessing our response rather than looking at early durability. I think you want to get past that three to four month level and I think we’ve certainly done that with a number of patients in our phase I and we have to continue doing that in phase II. Because durability of responses – and I think this goes to your question – is really, really key to the FDA these days. So we are putting more and more emphasis on that. You know, having responses that are these two month responses are just not nearly as valuable as having 6, 9, 12 month responses on patients that are [in lieu south of setting]. So we hear you loud and clear. We’re looking at that. We think we’ve made good progress with that and we have a drug that gives us durable responses but we certainly have to execute in phase II and look at our data.

And kind of what is kind of the hurdle you need in phase II for this really to be a phase III enabling study?

Well, I think what you really want to look at is you want to see a 25% or so response rate or greater. That’s a rough number to look at and the durability is you want to see something that keeps people progression free for at least three to four months. So I think if you’re in the 25% range, 30% response rate, something like that, and you have a four to six months survival advantage, progression through survival advantage, I think you’re in great shape. If can you do better than that, even better.

And you’re thinking on the dose scheduling. I recall it's a fairly unique dose scheduling to get around some early enzyme elevations. Can you increase dose more rapidly in the phase II or what’s your strategy?

Well at ASCO, we presented our first protocol amendment which accelerated the dose ramping and that – we talked about the dose ramping at ASCO but we did not present the data and so if you have the poster or you looked at the poster, we discussed that we were going toward a schedule that put in more drug quicker. Because the safety profile of our loading technique looked very good. So we have not reported yet on those data, but I would say it’s likely that in our phase II setting we’ll be using a little more rapid of a dose-loading schedule than what we have been reporting at ASCO – sorry. So, you know, so far we’re pretty pleased with what we have done since our ASCO report as far as how we load the drug and how we dose the drug and so I think it’s improved.

And are you still looking to go to a maximum 16 mg/kg per week?

No. I think that what we’re looking for the phase II dose we’re – it’s likely that we’re going to stick at 8 mg/kg and just make it a more rapid ramp to get 8 mg/kg.

And entry criteria all fair Rituxan or R-CHOP. Is that a criteria?

Basically, all patients that are aggressive lymphoma get R-CHOP. So, yes, you bet you they’ll go off the R-CHOP.

Okay. Thank you.

David Miller, Biotech Stock Research

Hi. Good afternoon. Thanks for taking my call or my questions. The first question I have is whether SGN-35 kind of makes SGN-30 obsolete.

You know, I think that it really doesn’t. They’re separate drugs. They’re really different drugs, and it will be important for us to look at the therapeutic window of SGN-35 in humans and compare it to the therapeutic window and therapeutic benefits of SGN-30. And I think that they have very different mechanisms of action.

There are quite a number of drugs out there that are targeting the same receptor that are different drugs that are approved that do different things in different patients. So before we get SGN-35 into humans, it’s hard to say that. I don’t want to rule out that SGN-35 might not be very much – that might not provide a higher level of efficacy at a very safe dose than SGN-30. That could happen. It’s not something – you know, that’s something that very well could happen. We’ve discussed that.

The preclinical data on SGN-35 is outstanding. So it would not be a bad situation to find better drugs and keep on improving on the drugs for this target that we’re excited about, especially Hodgkin’s disease. Now in anaplastic lymphoma, we’ve had data in SGN-30 that we’ve reported on with nice anti-tumor data. With Hodgkin’s disease it was a little bit different. We had patient benefit who reported a lot of stable diseases and we had some patients that had reduction in the tumor but did not qualify as a PR. You know, meaning that it was less than 50% reduction in the tumor whereas in the SGN-35, it’s much more potent than SGN-30.

In our preclinical models, we see bystander effects. We think we have a shot at really targeting the market for HD and HD is a market that’s an exciting market and one that once you have failed frontline therapy or relapse or recurrence from frontline therapy which is ABVD, it’s a combination of cytotoxics and a steroid. And once you've relapsed or recurred from that, there really is no standard of care that is used. There are a lot of different things thrown at these patients and to try to have a targeted therapy that could work strongly as a single agent in the HD setting I think could be very valuable and I think that’s where SGN-35 could differentiate itself from SGN-30 in a big way.

Okay. Can you give us some – the kind of complete timeline schedule for SGN-40? When is the first patient going to be enrolled? When do you expect to complete enrollment? When you might take that “early look” at data to kind of figure out how you’re going to handle a pivotal trial to that and when we might see final data?

I’ll do my best to address that. I would say that before 2006 is over we’ll be in phase II. I would say halfway through 2007, we’ll start taking a look at the data really strongly and seeing whether there is rationale to accelerate this in any which way. And regardless of that, I think by the end of 2007, we should have this phase II study enrolled to completion. I think that’s about the timing we’re looking at.

And how fast would you get final data after that?

How fast would what?

Would you get final data after?

Well –

If enrollment was completed at the end of '07.

The study is not a blinded study so we’ll have data coming in the whole time. We’ll have it reviewed by our sites. Internally we'll review it. We’ll also have external reviewers reviewing the data so that it has a second set of eyes on it that are not jaded at all. We’re looking at all the data. So I think the data will be reviewed over time so, hopefully, within a few months after the last patient is treated we would have all of our data sent in.

Okay. When would you – and I know that this is kind of fungible because of the strategy you’re using with SGN-40 but when would you expect to see a drug from Seattle Genetics into pivotal trials? You know, we had hopes that SGN-10 would make it there and then 15 and then both of those failed. You know, 30 looked like it was headed there but now that’s too – it’s a third priority. So when might investors see something in the pivotal trials from the company?

Well, you know, SGN-40 is moving forward in an aggressive fashion and so depending on our data that we have from our phase II study, we’ll be looking at it closely in 2007 and considering what to do and how to accelerate the program. So we have possibilities with SGN-40 to do it in a fairly short time frame.

With SGN-33, we’re excited with the program and it’s been in patients before. We are doing dose escalation now so I don’t want to speak before the dose escalation is up. We need to finish that.

We will be – with SGN-30, we will be moving from dose escalation into expanding our top dose into different disease settings and looking at it closely. So a pivotal study for SGN-33 is a potential in 2008. So I would say 2007 is an outside possibility but 2008 is more of a realistic possibility.

Okay. And the final question I have – is it – it seems like each time the stock gets some headway we get in another financing and I understand that you guys – and you guys have done a good job about being opportunistic but with something over ten quarters of cash in the bank, can we expect to break from equity based financing for awhile?

I think it is likely that you could expect a break from equity based financing for a little while. We have a very good cash position. We have an aggressive plan for developing these products and I think that what you said is what you’ll get.

Okay. Great. Well, we look forward to watching the progress. Thank you.

Jason Kantor, RBC Capital Markets.

Hi. Thanks. My question is in regards to your technology partnerships, and I know that’s an area that you don’t overly emphasize but is that – are you actively doing feasibility work with any additional partners and you had one partner file an IND. Is that something we can expect from any one of your other partners for the remainder of 2006?

Hey, Jason. This is Eric. I can take that one. We are continuing to talk to partners and doing feasibility studies. Our goal has been to do a limited number of these partnerships with a strong company. So we did two deals in ’05 and two deals in ’04. We’re looking to do anywhere from maybe one to two deals a year and that’s a possibility for this year as well. We – in terms of other partners moving forward, Progenics through their PSMA development company has announced they are targeting an IND for the PSMA ADC next year. And none of our other partners have said anything publicly and that's obviously for them to say but there are a number of others that are moving forward in selecting leads and moving towards development and manufacturing to support clinical trials. So I do think that we’ll see other INDs over the next 12-18 months.

Okay. But not likely another one this year?

Not likely.

Okay.

(OPERATOR INSTRUCTIONS) Ms. Pinkston, there are no further questions at this time. Please continue.

Okay. Thank you very much and thanks everybody for joining us this afternoon. Please feel free to give us a call if you have any further questions and we look forward to speaking with all of you again soon. Thanks.

Ladies and gentlemen, this concludes the second quarter 2006 financial and business update conference call. You may now disconnect.