Seagen Inc (SGEN) 2006 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Seattle Genetics' Third Quarter 2006 Financial and Business Update conference call. [Operator Instructions]

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

Thank you very much, Operator. I'd like to welcome all of you to Seattle Genetics' third quarter conference call. With me today are Clay Siegall, President and Chief Executive Officer; Todd Simpson, Chief Financial Officer; and Eric Dobmeier, Senior Vice President of Corporate Development.

Earlier this afternoon we reported our third quarter 2006 financial results and the press release is available on our website. In today's call, we'll review progress on our clinical programs and our third quarter financial results and then we'll open up the call for questions.

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.

I'd now like to turn the call over to Clay.

Thanks, Peg and thank you all for joining us this afternoon. I'm pleased to review our progress in advancing our diverse pipeline of antibodies, which include three product candidates in clinical trials and a fourth that is about to enter the clinic.

Before the end of 2006, we plan to move SGN-40 into Phase II development and initiate a Phase I clinical trial of SGN-35, the first of our proprietary auristatin-empowered antibodies known as antibody drug conjugates (or ADCs).

Dose escalation is nearly complete in our Phase I trial of SGN-33 and two of three planned NCI-sponsored combination studies of SGN-30 plus chemotherapy are underway. We also look forward to a strong presence at ASH in December, with the presentation of data on multiple key programs.

During today's call, I'll update you on each of our clinical stage programs and on the milestones we plan to achieve in the remainder of 2006, as well as our plans to continue to drive value from the programs in 2007.

SGN-40 is our highest priority program and we are dedicating significant resources to advancing it as rapidly as possible in multiple indications. This antibody addresses large markets that exceed $1.0 billion, including non-Hodgkin's lymphoma (or NHL), multiple myeloma (MM) and chronic lymphocytic leukemia (or CLL). In addition there are opportunities for SGN-40 in solid tumors and autoimmune disease, creating significant potential for this antibody.

Our lead indication for SGN-40 is diffuse large B-cell lymphoma, which is the most common type of aggressive NHL. Here, Rituxan plus CHOP chemotherapy is the front-line standard of care, but many patients will relapse and require additional therapy. Consequently, there is an unmet clinical need for a well-tolerated therapy with a durable response rate in this patient population.

We've previously reported data from our Phase I trial of SGN-40 in NHL, including multiple responses in aggressive subtypes. We will report updated data from the trial in an oral presentation at the American Society of Hematology (or ASH) annual meeting in December.

At the same time, we are preparing to advance SGN-40 into a Phase I single agent clinical trial in patients with relapse or refractory diffuse large B-cell lymphoma before the end of the year. Our strategy is to expand the investigation of SGN-40 in NHL beyond the monotherapy trial, with combination studies planned to begin in 2007.

The addition of SGN-40 to standard treatment regimens may add activity without increasing toxicity. Possibilities include SGN-40 combined with Rituxan in third-line, combined with Rituxan plus ICE chemotherapy in second-line, and combined with R-CHOP in front-line diffused large B-cell lymphoma. Some of our preclinical data demonstrating the ability to combine SGN-40 with cancer therapy will be presented at ASH.

In addition to our NHL studies, we are conducting single-agent Phase I studies of SGN-40 in relapsed or refractory multiple myeloma and CLL. Despite treatment advances in the past several years, neither of these diseases is curable and there remains a strong unmet medical need for these patients.

We continue to dose-escalate in both ongoing Phase I studies. We plan to report data from the myeloma study at ASH in December and from the CLL study next year, possibly at ASCO in June.

We are also planning combination studies, including SGN-40 plus Revlimid for multiple myeloma and SGN-40 plus Rituxan for CLL. SGN-40 is an exciting opportunity for the Company, with very meaningful therapeutic potential for patients and we will continue to focus on aggressively advancing this program.

Turning to our SGN-33 program, dose escalation is nearly complete in our ongoing Phase I single-agent study for patients with acute myeloid leukemia (AML) and myelodysplastic (MDS) syndromes. Our clinical trials for this product candidate are focused on optimizing dose, administration schedule in target patient populations. We expect to complete Phase I dose escalation in the first part of 2007.

AML and MDS are diseases that largely affect older people, with a median age at diagnosis at between 65 and 70 years of age, including many who are frail and are unable to tolerate aggressive chemotherapy. SGN-33 can play an important role in several settings for treatment of these patients, including in combination with low-dose chemotherapy for de novo AML and in combination with Revlimid for MDS due to Revlimid's ability to augment effector function, an important mechanism of action for this antibody.

We believe there is a compelling opportunity for a well-tolerated antibody such as SGN-33 in AML and MDS and are evaluating the most rapid and rigorous clinical development and regulatory pathway for this program.

Next I'd like to update you on our anti-CD30 product candidate SGN-30, which is an unconjugated antibody, and SGN-35 in ADC. CD30 is expressed on T-cell lymphomas and Hodgkin's Disease (HD), indications for which there are currently no antibody-based therapies and where effective treatments are limited in the relapsed refractory setting.

Our strategy is to focus our CD30 expertise on internal development of the empowered antibody SGN-35, targeting HD in particular, while collaborating with the NCI on moving SGN-30 forward in combination studies.

We are on track to initiate the Phase I clinical trial of SGN-35 before the end of the year. This will mark an important accomplishment, because it is Seattle Genetics' first proprietary ADC using our stable linker and highly potent synthetic auristatin drug payload to enter the clinic.

On a parallel track, the NCI is funding three trials in SGN-30 in combination with chemotherapy. The NCI has been enthusiastic about collaborating with us on SGN-30, given data showing it is well-tolerated and induces antitumor activity on its own, as well as preclinical data showing synergies with chemotherapy.

During the third quarter, the Cancer and Leukemia Group B (or CALGB), initiated the first of the NCI-sponsored studies evaluating SGN-30 and GVD chemotherapy, a common second-line treatment for patients with HD. This is a randomized study evaluating GVD with or without SGN-30 in relapsed or refractory patients.

And recently, a second NCI-sponsored study opened patient accrual at MD Anderson Cancer Center to evaluate SGN-30 with or without CHOP chemotherapy for front-line treatment of patients with anaplastic large cell lymphoma (ALCL). Success in this setting would enhance the market potential for SGN-30.

A third NCI-sponsored trial will evaluate SGN-30 plus ICE in pediatric ALCL patients and it is anticipated to begin accrual in 2007. These NCI trials are an excellent way for us to capitalize on the potential of SGN-30, by enabling us to obtain data on valuable combination regimens, while allocating our own resources toward continuing to advance the other programs in our pipeline.

To summarize, our anticipated milestones for the remainder of 2006 include initiating a Phase II study with SGN-40 as a single agent for patients with aggressive NHL, initiating a Phase I study with SGN-35 for the treatment HD and presenting data on several clinical and preclinical programs at ASH in December.

With that, I'll turn the call over to Todd to discuss our financial results.

All right, thanks, Clay, and thanks, everyone, for joining on the call this afternoon. As Peggy mentioned, earlier today we reported our third quarter 2006 financial results. These results, as well as this afternoon's press release, are available on our website.

Revenues in the third quarter of 2006 were $2.4 million, compared to $2.6 million in the third quarter of 2005. Revenues for the first nine months of both years totaled $7.4 million. As discussed in previous calls, our revenues consist of fees, milestones, and reimbursements earned under our antibody drug conjugate or ADC collaborations.

We continue to expect total revenues in 2006 to be in the range of $9.0 to $11 million. Total OpEx in the third quarter of 2006 were $12.4 million, up from $9.5 million for the third quarter of 2005. For the first nine months of 2006, our OpEx were $36.4 million, compared to $31.5 million for the same period in 2005.

As we anticipated and have talked about in previous calls, OpEx were higher period over period, primarily due to the impact of FAS 123(R) charges, which were $1.3 million for the quarter and $3.2 million YTD. And to a lesser degree, by higher employee costs as we expand our clinical and development capabilities.

Additionally, SGN-40 and SGN-33 clinical development costs were higher in 2006, reflecting, as Clay described, the increased efforts directed at these programs. Lastly, contract manufacturing costs are lower YTD in 2006 due to reduced amount of manufacturing activities. Specifically, manufacturing for SGN-40 and SGN-35 was substantially completed during 2005, while manufacturing for SGN-33 and SGN-70 was initiated in mid-2006.

We continue to expense that total OpEx for 2006 will be in the range of $50 to $55 million, tracking closer to the lower end of the range. While we plan to provide 2007 guidance in more detail during our year-end call in February, you can expect that our investment in SGN-40 and SGN-33 will drive higher expenses in 2007, reflecting the expanded clinical activities in both programs.

From a cash and investment standpoint, we continue to project that our operating cash requirements in 2006 will be in the $35 to $40 million range and as with OpEx, we expect to finish the year at the lower end of that range. We ended the third quarter with approximately $96.4 million in cash and investments and therefore continue to be in a solid financial position to drive our pipeline forward.

And with that, I'm going to turn the call back over to Peggy

Great, thanks, Todd. Operator, at this point we'd like to open up the call for questions.

[Operator Instructions] David Witzke with Banc of America Securities.

Yes, thanks, good afternoon. My question is on, specifically, Clay, what you'll have at ASH, how many posters you've submitted and on which programs?

Sure. At ASH we will have reports on several of our leading clinical and preclinical programs, including on SGN-40 we'll have Phase I reports on NHL and MM. We'll have SGN-30 reports, Phase II data, in systematic and cutaneous ALCL and we'll also have reports on SGN-35 and SGN-70.

Okay and following that, any go/no-go decisions on Phase II in the NHL and MM with SGN-40 or have those really been made already?

With SGN-40, we have our first Phase II studies, which will start before the end of the year and that's a single-agent study.

And then, as far as 2007, our top priority for a combination study will begin in the first half of the year is what we're targeting, in 2007, and that'll be SGN-40 plus in combination with R-ICE, Rituxan/ICE. It'll be Rituxan ICE plus and minus SGN-40 in aggressive NHL. And that will get going in 2007 and that'll be also in diffused large B-cell lymphoma, much like our single-agent study that will start this year. That'll be the first of the studies.

There are other studies that will begin a little bit after the R-ICE/SGN-40 combination study and that includes SGN-40 plus Revlimid for MM, SGN-40 plus Rituxan for CLL, and we are also evaluating SGN-40 plus R-CHOP in front-line aggressive NHL.

And then finally, if I can, I guess following the SGN-40 data in diffused large B-cell lymphoma at ASCO, any unsolicited interest on the partnership side or has the encouraging data made you think of timelines of partnering any different here?

Hey, David, this is Eric Dobmeier. Our focus has been pretty consistent on partnering, which is we're focused on advancing our programs through the clinic and building value. There has been interest in several of our programs, especially in the clinical side and SGN-40. Due to the data, it has generated some interest.

And partnering will likely play a role in our strategy over the longer-term. But we want to make sure that we build appreciate value and generate the right data and we want to look for a strong partnership with the right deal terms, but also with the right partner that has capabilities in oncology, biologics, manufacturing and S&M.

So we don't comment on specific partnering discussions, but it's definitely an opportunity that we continue to keep up with and our main focus is building more data in the clinic and reporting that.

That's helpful. Thank you.

Mark Monane with Needham & Company.

Hi, it's Mark Monane. Thanks for taking my question. Actually, I have two. The first one is can you comment on the combined ability of SGN-40 with these different regimens? What preclinical data do you have and also, have you learned about sequencing, what's the proper sequence of giving the therapies, either before or after SGN-40?

Thanks, Mark. This is Clay. I think that we do have a good amount of preclinical data. There's never enough preclinical data that you would always want in the world. But we have a lot.

And with SGN-40 and Revlimid in MM, we did a collaboration with a Dana-Farber group headed by Ken Anderson. And it showed that SGN-40 and Revlimid could be used very well together and in fact, Revlimid augments effector function. So Revlimid might be sort of a unique type of anticancer drug that there may not be a sequential timing issue, because it's not like a standard cytotoxic.

With a more standard cytotoxic, it probably would make sense to put the antibody first, followed by the cytotoxic so that you're not knocking out the effector cell that you really need that Revlimid could augment. So I think with Revlimid it could be simultaneous or staggered with a cytotoxic. A standard cytotoxic regimen like an ICE or CHOP, you'd probably want the antibody first.

And we do have data with Revlimid in MM. We have data of the SGN-40 plus CHOP in NHL that looks very nice and we also have data of the SGN-40 plus Rituxan in relatively resistant tumor cell lines that were put into animals and where Rituxan works very little and SGN-40 works a little bit better. But the combination of the two, which is spectacular, granted it's preclinical data, but we're very excited about it.

And is the world ready for two antibodies with Rituxan and SGN-40? Can you comment on that therapy potential?

Well, I think that you're referring, probably, to NHL, because in MM, Rituxan is not really used because there's very little expression of [CP20] in MM, so, in that case, is really not the question. The question is more of like an NHL or CLL, that we think that the world is ready for two antibodies in therapy.

And I think it's all dependent on the data and I think that if the data is strong and the data is good, absolutely the world's ready for it. There's a lot of combinations already with two antibodies with one of the being Avastin or an antibody in a chemotherapy where the chemotherapy is one of the new novel ones that cost just as much as an antibody, whether it be a Tarceva or others.

And so I think that the issue is really the clinical data, the effect on survival. I think response rate on its own is not going to really be that important, when you start talking about very expensive therapy, but survival is really the key and I think that's what the FDA is looking for.

That makes sense. And the last question is more futuristic, and maybe Eric can help with this too, and that is what is your point of view on fragments? A lot of people are looking at -- we've moved from chimeric to human to humanized, and now people are thinking about fragment therapy for antibodies. What's your point of view on the potential for this kind of therapeutic opportunity?

I'm really glad you asked that question. We actually have some really interesting research going on with antibody fragments.

We have heading up our Antibody Technology Group is Dr. Paul Carter, who's one of the world leaders in antibody technology. And Paul leads an effort evaluating the difference and the comparisons between the whole antibody and antibody fragments as unconjugated and especially of conjugated molecules.

And some of our preclinical data is really exciting and I believe that in the future you'll see some ADCs especially that are using antibody fragments that could come in, do their job and clear rapidly. So that you reduce the toxicities by increasing the amount that the drug can bind, penetrate, internalize and reduce the amount that it would be non-specifically taking up.

So we're pretty excited about our research for that the future will hold products that we'll put into the clinic in the future that may include some with fragments.

Thanks very much for the added information.

Thank you, Mark.

Bret Holley with CIBC World Markets.

Yes, hi. Thanks for taking my question. Clay, you mentioned something about the possibility of using 40 in solid tumors and I think you've gone over the rationale before on that. Is there any new data that we should be aware of that makes that a more promising potential avenue for development of 40?

We are interested in solid tumors for 40. CD40 was first discovered in solid tumors. It was discovered in Sweden in 1986 and it was discovered from bladder cancer patient samples. It is expressed on a number of solid tumors, including a percentage of patients with lung cancer, a percentage with ovarian cancer, a high percentage with bladder cancer.

We're working in the research lab and evaluating SGN-40 in different models. Right now we're focused on hematologic malignancies in the hematologic cancer space. It's the best use of our resources at present.

As we go forward into the future, I think that we will likely hit a time where we'll take SGN-40 and put it into solid tumor study. And there are opportunities to do it quicker than later, possibly on investigator-sponsored studies, while we do corporate studies with hematologic. So we're investigating that.

We're talking to some of the doctors that are bladder cancer specialists or renal cell cancer specialists or others that have a lot of CD40 expression on the surface of these cancer types. So I think you just need to stay tuned for that. We are putting most of our resources toward the hematologic, but it's a really fertile place for us in the future.

And I guess, based on that answer, does it make some sense strategically to maybe partner earlier rather than later for potential solid tumor indications for 40, just to kind of drive the agenda there a little bit?

It is an excellent question. You heard Eric's comments on our philosophy of the strategic aspects of partnering. We are open to discussion and there are people that are interested in talking to us about our programs and we're certainly excited to discuss our programs with other folks. We don't feel pressed to do anything now. We have a good cash position. We're adding a lot of value to our programs.

And as far as just partnering for solid tumors - and I'm not sure that's exactly what you meant - but it's very, very difficult to take a product like this and partner it for some cancers and not all cancers. Because that's kind of a difficult way to figure out what kind of and where these sales are coming from in the future. So it's hard to partner it for only one type.

So, I think if we were looking for a partnership in SGN-40, we would use it or look for something that included all different diseases. We might consider partnering on a geography basis and that's something of potential interest.

But Eric, do you want to add anything to that?

No. I think we've done a commercial assessment of SGN-40 and in the three lead indications where we're focused, which are aggressive lymphoma, CLL and MM, the market potential is over $1.0 billion in those indications.

So we think that with the trials we're running and the strategy we've got, we've got a large market to exploit and in the research labs we're looking at solid tumors as well. And down the road, that's something that's additional upside. That would be something that a larger partner would help us with, but it's not something we necessarily need to start doing right away, clinically.

Okay. Thank you.

David Miller with Biotech Stock Research.

Great. Thanks for taking my questions. The first one I have is the studies that you mentioned that the NCI are running for SGN-30. What phase are those and would you consider those pivotal or not or exploratory?

The studies for the NCI are Phase II [Inaudible - background noise] and [inaudible] really more exploratory [inaudible]. Although I have to say that [inaudible] randomized power study [inaudible] plus or minus [inaudible], that's the kind of study that can produce [inaudible].

Okay. Like for accelerated approval?

Yes. We can use that, but certainly pending the data, we certainly would consider going back [inaudible].

Okay. What's the size of those studies, the number of patients?

[Inaudible] over 100 patients [inaudible]. The study, I don't have it right in front of me, but I think it's possibly 140.

One-hundred-forty, right.

Yes. That [inaudible] us to about [inaudible]. It's a pretty good study in that indication. We should be able to see a real difference [inaudible].

Okay.

The front-line CHOP [inaudible]. [Inaudible] CHOP is in 50 patients and the pediatric study with ICE is going to be in about 25 patients. So all told, in the three NCI studies, it's close to 200 patients. So it's a substantial amount of clinical data we'll be getting and we're excited that two of the studies are under way.

Good. Switch gears with a financial question. Can you give us -- do you know what the net cash burn for your first three quarters and for Q3 off the top of your head?

Yes. So guidance for the year was -- I'm sorry. Guidance for the year was $35 to $40 million. We were about $26 million through the first three quarters.

Okay, great. Thank you very much.

Liisa Bayko with Next Generation Equity Research.

Hi. Thank you for taking my call. Just, Clay, if you can maybe provide us with an update of SGN-70 and specifically when we could expect clinical development to be in with that one?

Sure. Wow, I'm really excited for questions on SGN-70. It's a program that we really, really love inside. It's an exciting antibody and it's an antibody that we could use on hematologic malignancies, a variety of them. It's also expressed on a number of solid tumors. We're identifying new disease targets for SGN-70. That has a lot of expression on CD70. So there is a substantial effort going on.

We are manufacturing the product right now. We announced that we had a deal with Laureate Pharma and they are manufacturing the product SGN-70 in their plant facility, I believe, in New Jersey and this is a product that we have not yet put out a specific timing of when it could start in clinical trials. So what I'd like to say for now is that we expect SGN-70 to enter clinical trials in 2008.

Okay, great. Thank you.

[Operator Instructions] And right now it looks like we have no further questions in the queue. I would like to turn the conference back over to Dr. Siegall. Please go ahead.

Thanks again for joining us this afternoon. Seattle Genetics is positioned to achieve the multiple milestones during the remainder of 2006 and make continued pipeline progress in 2007. SGN-40 is our highest priority program with multiple opportunities in large, commercial markets and we expect several clinical milestones in the next 12 months.

Our dose escalation of SGN-33 is proceeding well and we plan to initiate combination studies in 2007. And we are executing on our CD30 strategy through our collaboration with the NCI and three combination studies with SGN-30, while also prepared to initiate a Phase I trial of SGN-35, our powered antibody, before the end of the year. We look forward to updating you on our progress at conference and meetings in the coming months.

That's it. Thanks, everybody.

Thank you and ladies and gentlemen, that does conclude the Seattle Genetics Third Quarter 2006 Financial and Business Update conference. If you would like to listen to a replay of today's conference, you may dial 303-590-3000 or 1-800-405-2236 and use pass code of 11073342 to access the conference. That pass code, 11073342 will work on both numbers. We thank you again for your participation today and time you may disconnect.