Seagen Inc (SGEN) 2006 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Seattle Genetics' fourth quarter 2006 financial and business update conference call.

[OPERATOR INSTRUCTIONS].

As a reminder, this conference is being recorded, today, Tuesday the 6th of February 2007. I would now like to turn the conference over to Ms. Peggy Pinkston. Please go ahead.

Great, thank you. I would like to welcome all of you to Seattle Genetics' fourth quarter and year 2006 conference call.

With me today are Clay Siegall, President and Chief Executive Officer, Todd Simpson, Chief Financial Officer, and Eric Dobmeier, Senior Vice President, Corporate Development.

The press release of our 2006 financial results and 2007 financial outlook is available on our website. 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.

With that I'll turn the call over to Clay.

Thanks, Peg, and thank you all for joining us this afternoon.

The progress we made across our product portfolio in 2006 particularly with SGN-40 led to a great start in 2007. Last year we advanced SGN-40 into Phase II trials and initiated a Phase I clinical trial with SGN-35, our first proprietary auristatin-based antibody drug conjugate. We also made progress in the dose escalation trial of SGN-33 and initiated our collaboration with the NCI to continue development of SGN-30.

Capping off our recent progress was a collaboration we announced at the beginning of the year with Genentech to develop and commercialize SGN-40. Seattle Genetics' business and product portfolio has never been stronger and we're looking forward to a productive future that promise to both benefit cancer patients and build value in the Company.

I'll begin by reviewing the status of our programs and outlining our plans for 2007. Then Todd will discuss our 2006 results and provide 2007 financial guidance, including the expected impact of our agreement with Genentech and then we'll open the call for questions.

In early January we entered into an exclusive worldwide license agreement with Genentech for the development and commercialization of SNG-40. The transaction was subject to Hart-Scott-Rodino Antitrust review for which we received clearance yesterday.

This collaboration will not only accelerate and expand development of SGN-40 but it also brings substantial financial resources to the Company that enables us to more fully exploit the potential of our pipeline. Under the terms of the agreement, Genentech will pay $60 million up front, potential milestones exceeding $800 million and escalating double-digit royalties starting in the mid teens on annual net sales of SGN-40.

In addition, Genentech will fund future costs associated with research, development, manufacturing and commercialization of SGN-40 including reimbursing Seattle Genetics for work that we perform. We plan to maintain an active role in the development of SGN-40 through participation in the joint development committee as well as by managing specified clinical trials.

Initially we plan to conduct the ongoing single agent Phase II trial into fuse large d-cell lymphoma, the ongoing Phase I trials in multiple myeloma and chronic lymphocytic leukemia and several combination trials in non-Hodgkins lymphoma and multiple myeloma. Partnering with Genentech is a strong step forward for Seattle Genetics.

They are the leader in mono clone antibodies for cancer and we believe that the opportunities to tap into their vast experience increases the chances for SGN-40's clinical, regulatory and commercial success. We anticipate reporting continued progress with this program in 2007 including clinical trial initiations and financial milestone achievements.

Beyond SGN-40 we're advancing several other clinical stage programs addressing a diverse range of unmet medical needs in cancer. We're developing SGN-33 or Lyntusimab for myloid cancers including acute myloid leukemia and myloid dysplastic syndromes. We are specifically targeting our antibody to patients with abnormally high percentages of malignant blast cells in their bone marrow including all patients with AML and a large portion of MDS patients who are considered to be at high risk for leukemic transformation or death.

The incidents of both AML and high risk MDS dramatically increases with age and thus these diseases predominantly affect older adults. Because the malignant cells in these diseases are typically resistant to chemotherapy and because older patients do not tolerate aggressive chemotherapy well, more than 80% of elderly AML patients die within a year of diagnosis. In advanced MDS the median survival after diagnosis is less than two years.

Despite emerging therapies for the treatment of AML and high risk MDS, new treatments that reduce infections and bleeding, improve quality of life, and prolong survival are greatly needed. Our first priority in developing SGN-33 is to evaluate its tolerability and anti-tumor activity at escalating single agent doses.

During 2006 we conducted dose escalation in our Phase I study. We've reported some of the early clinical data demonstrating that the antibody is well tolerated and induces blast reductions and improved blood counts in multiple patients.

In 2007 we plan to move SGN-33 into combination clinical trials. We believe there is a strong rationale for a well-tolerated antibody such as SGN-33 to be combined with other agents for the treatment of AML and MDS much in the way that Rituxan has revolutionized the treatment of lymphoma. The combination of SNG-33 with chemotherapy regimens or immunomodulatory agents such as Revlimid may provide clinical benefit without a meaningful increase in toxicity.

In first half of 2007 we plan to initiate a Phase I study to evaluate the combination of SGN-33 and Revlimid for high risk MDS. We are particularly interested in this combination because Revlimid augments immune affecter function which is a primary mechanism of action for SGN-33.

We believe that this may increase the anti-leukemic activity of the antibody. The study will enroll patients with high risk MDS to evaluate both tolerability and anti-tumor activity of the combination.

In the second half of 2007, we plan to initiate a randomized double blinded placebo controlled Phase II study of SGN-33 combined with low dose chemotherapy in AML patients. This study will accrue older patients with newly diagnosed AML who decline or are ineligible for induction chemotherapy.

The primarily goal of this study will be to determine whether the addition of SGN-33 prolongs survival of the older AML patient for whom aggressive chemotherapy is not indicated. In addition, the trial will evaluate whether patients receiving SGN-33 experience reduced infection, transfusion independence, fewer hospitalization and improved quality of life. We expect this study will provide sufficient data to direct our next step toward registration of SGN-33.

Our two other clinical stage programs are SGN-30 and SGN-35 both of which target CD30. As I mentioned earlier, we are collaborating with the National Cancer Institute to evaluate SGN-30 in combination settings for relapsed Hodgkin's degrees for front line antiplastic large cell lymphoma or ALCL.

These two studies are already ongoing and the Children's Oncology Group has just activated a pediatric ALCL trial. Meanwhile, SGN-35, an antibody drug conjugate employing our auristatin-based technology is being evaluated in a Phase I dose escalation clinical trial for relapsed Hodgkins disease and other CD-30 positive hematologic malignancies. We initiated this trial in the fourth quarter of 2006 and plan to report clinical data at ASH 2007.

Our collaborators also advanced our ADC candidates during 2006. [Surigen] initiated a clinical trial with its ADC programs, CROO1 for the treatment of metastatic melanoma and several other ADC collaborators are advancing towards clinical trials over the next 12 to 18 months.

In addition, we announced earlier this year an ADC collaboration with [Agensen]. This agreement is different from our other ADC deals in that we will jointly develop up to two ADC product candidates and share equally in any profits. Under this collaboration we will develop ADC's utilizing proprietary targets and fully human antibodies provided by Agensen primarily focused on the treatment of solid tumors where our drug conjugate technology may provide the potency neccessary to treat these agressive diseases. This deal illustrates how we intend to leverage our ADC technology to create pipeline expansion opportunities for Seattle Genetics.

Finally, SGN-70, a humanized antibody targeting CD70 is the next product candidate we plan to advance into clinical trials. We believe SGN-70 has therapeutic potential and oncology indications due to the antibody's multiple mechanisms of action and strong preclinical anti-tumor activity as well as the preferential expression of CD70 on several types of tumors including hematologic malignancies and real cancer.

SGN-70 also has promise in autoimmune diseases because of its demonstrated ability to selectively deplete activated but not resting T-cells in preclinical studies. In 2007, we will conduct the manufacturing activities and pre-ID studies necessary to initiate clinical trials of SGN-70 in 2008.

Progress with our earlier stage pipeline and ADC technology in particular will be highlighted in multiple presentations at the American Association For Cancer Research or AACR annual meeting in Los Angeles in mid-April. We expect 2007 to be a very productive year.

Here is an overview of some of the things we plan to achieve. With SGN-40, we will continue to advance the single agent Phase II clinical trial in NHL, complete dose escalation in the Phase I studies of multiple myeloma and CLL and collaborate with Genentech on initiating combination studies.

We plan to initiate two combination clinical trials of SGN-33, one in combination with Revlimid in MDF and another in combination with low dose chemotherapy in AML. We will complete dose escalation in the Phase I clinical trial of SGN-35.

In collaboration with the NCI we will conduct three clinical studies of SGN-30 combined with chemotherapy. We will position SGN-70 for an IND in 2008 and we will present data highlighting our clinical and pre-clinical programs at meetings including AACR and ASH.

With that, I'll turn the call over to Todd to discuss the financials.

All right, thanks, Clay and thanks to everyone for joining us on the call this afternoon.

My comments today will be two-fold. First, I'll summarize our 2006 financial results. These results were released this afternoon and are available on our website. Second, I'll provide an overview of of our recent collaboration with Genentech, talk about how this will impact us from a financial standpoint and then provide our financial guidance for 2007.

So I'll begin with a summary of our financial results. Revenues in the fourth quarter of 2006 were $2.6 million, compared to $2.3 million in the fourth quarter of 2005. Revenues for the year in 2006 were $10 million and in line with our guidance, compared to $9.8 million in 2005. These revenues consist of fees, milestones, and reimbursements earned under our ADC collaborations.

Total operating expenses in the fourth quarter of 2006 were $13.8 million, up from $10.3 million in the fourth quarter of 2005. For the year-end 2006, operating expenses were $50.2 million, compared to $41.8 million in 2005.

2006 expenses were also in line with our guidance and as we anticipated, increased primarily due to the impact of FAS-123R charges which were approximately $4.7 million for the year as well as higher employee costs as we expanded our manufacturing and clinical activities across our development programs and continued to advance our pipeline. Most notably, moving SGN-40 into a Phase II trial and advancing SGN-35 into the clinic.

From a cash and investment standpoint, we started the year with $79 million on our balance sheet, we raised net proceeds of $43 million in the second quarter through common stock offerings and this allowed us to drive our programs forward through the year and importantly to negotiate our SGN-40 deal from a strong financial position. We ended 2006 with $86.6 million in cash and investments.

Our year-end cash balance does not, though, reflect any payments related to the SGN-40 agreement with Genentech signed on January 7th. This collaboration will not only enable us to accelerate and expand the development of SGN-40 but also has a significant impact on Seattle Genetics from a financial standpoint.

We will receive a $60 million up front payment plus over $800 million in potential milestones, $20 million of which is committed during the first two years of the collaboration. The agreement is structured with an initial six year development period. During the first several years of this period, Seattle Genetics will conduct specified clinical trials and after that we may agree to oversee additional studies at our election. Importantly, we will be reimbursed by Genentech for the cost that we incur on the SGN-40 program.

Our revenue guidance reflects the upfront payment and estimated milestones and reimbursements from Genentech as well as revenues earned under our existing ADC collaborations. In total, across all of our collaborations, we expect to receive between $80 and $90 million in cash during 2007. The majority of which will be under our SGN-40 license agreements.

From a GAAP standpoint, payments received from Genentech under the SGN-40 deal will be recognized as revenue over the six-year development period. We expect total revenues in 2007 to be in the range of $17 to $19 million. With respect to operating expenses, the biggest drivers of development spending in 2007 will come from SGN-40 and SGN-33. We expect total operating expenses in 2007 to be in the range of $55 to $65 million with increases over 2006 levels driven by three things.

One, manufacturing campaigns for SGN-33 as we prepare for Phase II clinical trials. Two, costs associated with continued expansion and acceleration of our lead clinical programs. And three, increases in headcount and employee costs led by growth in our clinical development team. 2000 expense guidance also includes non-cash expenses, expected to be in the $7 to $9 million range. Of this amount, stock-based compensation expense is expected to be in the range of $5 to $7 million.

This estimate is based though on a number of assumptions including future stock prices and the number and timing of option grants and is therefore subject to change. We expect operating expenses to be relatively consistent quarter-over-quarter, although it's difficult to predict the exact timing of certain activities, such as manufacturing campaigns, the rate of clinical trial accruals and the speed at which we can hire new employees.

We expect that research and development expenses will continue to comprise approximately 80% of our total expenses. In terms of our cash position, the impact of the Genentech agreement is as you've heard significant. We expect to be cash flow positive in 2007 with cash provided from operating activities in the $35 to $45 million range.

We should end 2007 with more than $120 million in cash and investments. That includes the upfront payment, milestones and reimbursements expected to be received from Genentech during the year. If you excluded the $60 million upfront, our operating cash requirements in 2007 would be in the $15 to $25 million range. This is down significantly from 2006, highlighting the impact of the expected milestones and reimbursement payments under the deal.

So in closing, the Genentech deal puts us in a strong financial position to aggressively pursue our development goals across our portfolio. While we will always be opportunistic about raising additional capital, we don't anticipate the need to raise money in the foreseeable future, thanks in large part to this deal.

And with that I'll turn the call back over to Peg.

Okay, great, thanks Todd.

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

[OPERATOR INSTRUCTIONS]

Our first question is coming from David Witzke with Banc of America Securities. Please go ahead.

Yes, thank you.

For modeling purposes, has the Genentech deal closed? I assume it has, and is there about 3.5 quarters of the year where that $60 million up front will be amortized?

The deal effectively closed yesterday with the clearance of Hart-Scott Rodino,so the revenue recognition will start as of yesterday.

Okay, and then I think you mentioned $20 million milestones expected over the next two years. I assume when you receive milestone payments those will be recognized at that time point as revenue and not amortized. Is that accurate?

Well, under GAAP, the milestones get added into the pool of funds that get amortized forward.

Okay. So that would be like if it happened in a year, five years left under the six year development deal, correct?

I'm sorry. Say that again.

Correct, Dave.

Okay. Thanks. Then looking at SGN-33, as far as what data we can expect to see in 2007 and how aggressively can you move this program forward in AML, given the prior track record of this program?

In 2007 we will be presenting at appropriate conferences that include ASH at the minimum. Data on our Phase I dose escalation study in AML and MDS, and I think we're excited, we're still working on that study. We're still dose escalating, getting data, evaluating patients, looking at them over time. So we're collecting data and it will come out.

Now, as far as how aggressively we can pursue this, while we are continually working on the Phase I dose escalation study, we are planning on initiating two studies in combination with chemotherapy, one in advanced MDS which is going to be in combination with Revlimid, and that study we're really excited about because Revlimid meds affecter function through it's affective on NK cell activity by enhancing it. So we think that an antibody plus Revlimid is a really neat opportunity for us to go forward with that immunomodulatory agent.

And the other big study we're going to do is a quite large randomized, placebo controlled, double blinded Phase II B type of study in AML patients with low dose chemotherapy plus SGN-33 versus low dose chemotherapy that's used. We're looking for SGN-33 to be the antibody, the well-tolerated antibody that is used with any kind of therapy in myloid diseases in the future and we're going to try to make that happen.

And then, Clay, I think from prior studies at PDL you had some concern on the dose may not be right as well as the sequencing of giving the antibody with chemo. Kind of where are you in your thinking about both dose and chemo sequencing?

Right, well first of all with the dose, I'd say that we started our dose, the actual dose was about five times higher than the Phase III dose that was used in prior PDL studies, and that was our first cohort in Phase I and the first cohort was done at 1.5 mg per kg. Our plan in Phase I was to go between 1.5 and 8 mg per kg in our dosing range where the Phase III dose previously used was 0.3 mg per kg which we thought was too low, and not standard type of dosing for most antibodies.

So we are going along with that and so that's doing very well in trials with our dose escalation and we're learning details on saturation and pharmaco kinetics and everything that will be presented as part of data when we present the data. Now as far as sequencing goes, I can tell you that with a drug like Revlimid it's a little bit different.

Revlimid augments affecter function so you don't need to have sequencing like you do with induction chemotherapy where you use some heavy duty standard chemotherapy that you don't want to use something like an antibody right after that you want to use an antibody before that so as we go toward any kind of regimen using chemotherapy the dosing will be the antibody first followed by the chemotherapy and that's different than what PDL used and if we do something with an immunomodulatory agent like Revlimid you can use the drug at the same time because you actually want to use them at the same time.

Thanks, and then finally can you remind us of royalty payment or range that you would owe PDL if this program is successful?

Yes, that would be mid-single digit royalties and that does include the queen patent for immunization.

Our next question comes from Mark Monane with Needham & Company. Please go ahead.

Good afternoon from New York City and congratulations on the progress in Seattle.

Couple questions, one is on SGN-40. Anti--therapies directed against CD40 can take the form of maybe interrupting the antibody ADCC or it also--and/or can take place by interrupting the signaling pathway leading to program cell death.

Can you talk about which of these effects you think are seen with SGN-40 and does that make SGN-40 more or less likely to combine with other agents used in hematological malignancies.

Thanks for the question.

With SGN-40 the antibody can induce ADCC against target cells and so it also can affect the signaling pathway and induce a direct [inaudible] effect or direct program cell death effect. So it really has multiple mechanisms and in fact we're still learning about the mechanisms and studying them and so we know at least a few of the mechanisms of action. Our research group is staring at SGN-40 strongly, and so will Genentech's group be as well.

So we're excited with the multiple mechanisms of action. But that also really highlights that SGN-40 can be used with other types of therapies, and can give many mechanisms to which to attack cancer cells.

I think that when you look at the most effective cancer therapies in the world, most of the time it is by attacking cancer cells in different mechanisms. So we're hoping that's the case with SGN-40 and that's why we're going into some pretty aggressive trials in combination with different types of therapies.

And there are a number of companies that are developing therapies towards CD40. Maybe--can you give some reasons why you think SGN-40 might be a superior choice and maybe why Genentech was interested in this, among other agents?

Well, I think that when you look at the whole CD40 field or I should say the antibodies targeting CD40, usually antibodies are broken down into ones that are agonists and ones that are antagonists. The agonists are the antibodies that don't block the CD40 ligand from binding, they even augment it whereas the antagonist block the ligand from binding, and so we--our antibody definitely is an agonists and it does not block the ligand , it fact it augments the ligand binding to receptor.

Having said that, our--we have competition from some other companies that are developing antibodies out there such as Novartis who has through their acquisition of [Chiaron] has an antibody to CD40 that they're developing and have put out some data at the most recent ASH. Their antibody is, based on their data, is an antagonist that blocks ligand binding. Very different from our antibody. They have patents on their antibody in their class. We have patents on our class of antibodies.

Based on our understanding of this, almost anybody developing antibody would either have one type or the other type of antibody and I think we are protecting our type of agonist antibody which can augment ligand binding and kill cells directly. And I think that for cancer uses, based on theoretical considerations, we would think that an agonist that has signaling activity that induces apotosis would be the type you would want to use for cancer.

Generally you think of a blocking type of antibody and blocking antibodies in general are considered important to use in autoimmune disease. So I think that our antibody has properties that one would consider for cancer as being strong properties. Plus, we have data already in humans that show objective anti-tumor responses at very well tolerated doses. You can never look past data.

That's true. That's very well said.

And in terms of--last question, in terms of what kind of of outcomes you're expecting from the various SGN-40 trials, can you go over what you think you want to learn from the Phase II trial as a single agent? Is that helping you think about what to use in combination and the dose escalation. If you could tell us what you plan to learn from each of these trials, and what a potential registration strategy might look like?

From the single agent trial, clearly we want to try to measure single agent activity in a homogenous patient population. Our Phase I trial included many different types of lymphomas. We had low grade and high grade lymphoma, we had phalicular lymphoma and marginal cell and mantle cell, and a few sarge B, so it was just an allcomers B lineage NHL study.

In a Phase II setting what we're doing is we're just limiting it like we previously discussed do diffuse large B-cell lymphoma, and that's how you really go forward to get registration approval. It's really using homogenous patient populations.

So we're trying to understand with our single agent study is what the dose, using a dose that we picked for Phase II, what the activity is and the safety profile, etc., in a discrete patient population. And we picked diffuse large B-cell lymphoma which is the single largest population of aggressive lymphomas out there. So it's a good marketize, it's an unmet medical need and it's an important patient population.

So we're going after that. Now, it will give us guidance going forward, but we're not waiting for that study to give us guidance. We're going forward in other types of combination studies in various ways and we're looking forward very much to working with our partner Genentech to be designing and initiating and forwarding these combination studies in many regards.

Very fair. Thanks very much for the added information.

Jason Canter, RBC Capital Markets. Please go ahead with your question.

Yes, it's Michael Yee for Jason. Clay, just a couple questions. To touch upon Mark's question, do you think that the single agent trial could eventually be expanded to some sort of registrational trial or do you think that even the Genentech combination chemotherapy trial could be extended to be a pivotal trial? How are you thinking about that? Do you think this needs to be going to Phase III?

The issue with extending Phase II trials into registrational type trials is always dependent on data, and data always rules the day. If the data is really fantastic with a single agent study or any specific combination study whether it be NHL or MM we absolutely, together with our partner Genentech will look for ways to go forward as fast as possible through registration and work with the agency to do so.

Okay. And then the other question is given the type of data you've seen with SGN-30 and given your work on SGN-35, how are you thinking about the indication for SGN-35 given some of the issues you've previously mentioned about SGN-30 in terms of uncertainty of a registration path and that kind of thing and those indications you've been studying?

With SGN-35 our first and foremost disease that we're going after is relapsed refractory Hodgkin's disease. With SGN-30 we treated Hodgkin's disease historically. But Hodgkin's disease has about--a little less than 10% of the cells are what's called Reed Sternberg cells and those are the tumor cells and those are loaded with CD30. In fact, CD30 Reed Sternberg defines cells in Hodgkin's disease.

But the infiltrating cells which represent over 90% of the cells are not necessarily CD30 positive. So when we came in with the naked antibody, SGN-30, we think we actually had a positive anti-tumor effect and we had many stable diseases and regressions of tumors but we didn't have profound data that we saw with T-cell lymphomas like anti-plastic lymphoma which is more homogenous for CD30 expression.

Looking to SGN-35 which is our drug conjugate form of our CD30 antibody, we have not only direct potent cell killing activity, we have indirect activity or bystander effect where the tumor cells take up the antibody drug conjugate, the drug is released inside the cell, and can impact cells that are in very close proximity. We really don't see toxicity released at all. We just see a very close proximity bystander effect. So we think that for a disease like Hodgkin's disease where you have a mixed bag of cells that a drug conjugate could be very effective and we're really going after that hard.

And I may add that we have been in our history of the Company doing SGN-30 trials and now doing SGN-35 trials and continuing on with SGN-30 trials, accrual of patients with Hodgkin's disease is really amongst the best of any study we've ever done. We just continue to get these patients really fast which really always tells you something. When you accrue patients really fast that means there's a lot of them out there.

All right. Thanks.

Thank you. [Lisa Baker] with Next Generation Equity Research. Please go ahead with your question.

Hi, guys, congratulations on a fabulous quarter.

Thanks.

Just wanted to maybe see if you could elaborate a little bit on the SGN-40 combo trial that you mentioned Genentech would be conducting. What kind of combinations do you foresee?

I think there's a number of combinations that we perceive. We've in the past talked about different combinations with chemotherapy and second line NHL and third line NHL, in multiple myeloma with different drugs that are approved. But I think I'd like to have the opportunity to work with our partner Genentech and go through our joint committee meetings and start really coming up with a good solid plan. Yesterday we got our HSR clearance, so we really haven't had the time yet and we do respect Genentech's opinion on this very, very much. I'd like to hold that question for a later time point, if you don't mind.

Fair enough. And then just a quick question, given the mechanism of action of SGN-40, do you imagine this to be something that could be used in autoimmune diseases?

That's a very interesting question. On the surface as I said before, you normally, with autoimmune diseases have something that blocks an activity. Like you could think of Humira blocking TNF receptor and that is normally the dogma. You can also look at a way to treat autoimmune disease where you deplete a cell population and in fact that's what is happening with Rituxan. Rituxan depletes a cell population, B cells.

And so it's kind of a little new and I think people were a little surprised scientifically that Rituxan worked so well in autoimmune disease because that really wasn't what people were looking at or even considering. And as you know, Rituxan was around for many years before people even considered doing that because that was not the original dogma that people thought of in treating autoimmune disease. Having said that, I think that SGN-40 does have potential promise in certain autoimmune disease and we'll certainly be considering and looking at that as time goes by.

Okay, interesting. And then just a quick modeling question, so you mentioned you have the six-year development period. That is the period of time in which you will be ammoratizing the upfront payment and the initial $20 million in two year payment and whatever other payments there are during the development period?

Yes, over that six year period we'll take in the $60 million up front and then all milestones and reimbursement that come in during that time period.

Okay. Great. Thanks a lot you guys.

All right. Thank you.

George Farmer with Wachovia. Please go ahead.

Hi, thanks for taking my question.

First a modeling question, how are you going to be booking the reimbursements from Genentech? Is that going to be a separate line in the revenue on the topline?

No, it gets included with the other payments and is part of the pool of money that is amortized over six years.

Okay. And then Clay, regarding SGN-33 given the lessons learned with PDL's experience, do you think that this can move forward as a single agent or based on these other studies that you're doing in combination regimens, I'm getting the feeling that that may be the direction you think that this can go in with this antibody.

Well, we certainly want to be part of front line therapy. That's our goal here.

How do you think you can position the antibody relative to all these other drugs in development?

To be part of front line therapy you really need to be in combination and so that's why we're very rapidly launching this into combination studies. And we--that is our goal, to be the Rituxan of myloid diseases, and we think that--we're going to start it with some low dose chemotherapy that's widely used. There's a lot of new drugs that are looking at the AML market. Because it is a very big unmet medical need because the vast majority of patients succumb to the disease within a year, so it is a big need.

There's a variety of drugs from [inaudible] there's the old drugs, there's a variety of drugs that are being considered for this disease and they're all cytotoxics. They all have profiles, toxicity and we think that SGN-33 can be used with any of the above. Now, we don't know right now which of some of the new drugs will be approved and which won't. It's highly unlikely that all will be approved.

Some will be approved, and based on the data that has already been presented on some of these cytotoxic drugs, you certainly can get some response rates. But it doesn't appear that there is a really big survival advantage.

I hope that we see actually some good survival advantage in upcoming ASH conferences and whatever with some of these novel therapies, because the disease really needs to have that. But even if it was a substantial advantage in survival for these patients it will push the average survival of elderly patients from what five months to six months or five months to seven months.

I think with an antibody when you add a targeted antibody without toxicity on here, we can potentially start thinking about the hope for really extending survival in a good percentage of patients and so I think that whether we look at it as a single agent or more likely for front line, in combination with some other agent, we can see--envision a really good path for use of a naked well tolerated antibody in front line AML.

So in that front line trial with low dose chemo that's randomized to low dose chemo alone is that right?

Correct.

Do you think you could use that as a registration trial?

If the data is good, you bet you we could. That is why--George, that is why we're doing it as a double blinded placebo controlled study.

How many patients do you think in that?

Well over 200.

And for Phase II?

Phase II B type trial. The Revlimid trial in MDF, is that in the a 5Q minus carrier type patients only or is that in all commerce? No, actually it's neither of those, it's actually in the intermediate and advanced MDS and the high risk patients as they term them.

5Q minus which is where Revlimid is approved is only about 15% of patients with MDS. 85% are the high risk patients, the ones that die from the disease, the ones that transform into AML and those are the ones that really need additional therapy. So we're using that in that setting because we love the activity--combination activity of Revlimid the way it augments NK cell activity with antibodies. We think it's a real great combination.

Great. Thanks very much.

All right. Thank you.

Bret Holley with CIBC World Markets. Please go ahead with your question.

Yes, thanks for taking my question.

Maybe you said this, Clay, I was wondering when we might see the first data from the Phase II for SGN-40. I think you said continue the trial in 2007. I'm just wondering when we might see the next chunk of data from that.

The first thing I would say is I'd like to defer to our working partner here, Genentech, we have a joint development committee. That committee will be looking at all our studies including when the right time is to put out key data.

We have meetings such as ASH in late 2007. That could be an appropriate time to put out data, and I think that's the kind of time frame that we're looking at here.

Okay. So I guess I'm hearing that you will put out--you anticipate putting out some data in 2007 or you just don't know yet.

I think that there's a decent chance we will, but I don't want to commit to anything yet until we have a chance to meet with our partners and talk about the right plan. Clearly Seattle Genetics wants to put out data at an appropriate time frame on an annual basis or at appropriate meetings I should say. We want to put out data and we just want to work correctly with our partner on this so that we--so we do it in an appropriate fashion.

What might be a reasonable time frame for us to expect when we'll get some clarity on a go forward plan at least for the additional trials that Genentech is planning on running?

I would say we might be able to give a little bit more clarity on this at least at our next conference call. Right now, I mean, yesterday we cleared HSR. So if you give us just a little bit of time on that so we can actually meet as a joint development committee it would be helpful.

Okay. And then the last question is on the Phase II combo, is it combo ARC that you're running or potentially going to run for 33?

Yes, that's likely the drug we'll use. It's an old one but a good one.

It's really the only drug to date that has been-conclusively shown to extend survival, albeit a little bit, in elderly patients with AML, like dinovo patients that are getting treated. There was a randomized using ARC. ARC is a very low cost generic type drug, and it's a type that is highly likely that we'll be using in combination with our large AML study.

The last question is in terms of registration strategy, if in fact the data were from that trial, you might possibly be able to go to the FDA with the trial data. The question I have is if in the intervening period either [Chloratisine] or [Chlorpherabine] for example were approved based on their Phase II trials would that potentially kind of muddy the waters for registration and would you potentially get an SPA for the Phase II?

I think that you're asking an interesting question but I think it really depends on the data from the [Chloratisine] and [Chlorpherabine] or other drugs and I think that if those data come out and they have some response rates but don't really change survival and we have a study using ARC that really impacts survival and CR rate, etc., they kind of stand on their own.

It's not like any of these single cytotoxic drugs that are being developed are going to radically change the therapy of AML, and so I think that the data we'll have will be able to be standing on its own. It's unlikely that the playing field will change dramatically.

What was the last part of your question?

That was basically the question. That's fair enough. Thank you very much.

Thank you.

David Miller, Biotech Stock Research. Please go ahead.

Hi, another question on SGN-33. On the Phase II B you're talking about that it could be a registration trial, are there any plans to just go ahead and call it a Phase III and get a special protocol assessment for it?

There is not plans--there are not plans to do that at the present time for a variety of strategic reasons.

Okay, and then of the six year component of the Genentech deal, can you describe--I understand the six year term for purposes of doing the financial modeling, but can you describe, is that exactly how that works, especially whatever option you have at the end of that six years?

Hey, David, this is Eric.

The way that the development plan was set up is there's an initial set of studies that we've committed to conduct. We would conduct them through our clinical group [CR Rose] and be reimbursed for our costs by Genentech. And then after those studies are completed, which is probably a few years' worth of work, we could elect to continue doing additional studies beyond that up until the end of the six year development period.

So we want to stay involved. We thought it was important to stay active in this collaboration and run some of the trials. We do think that we can add a lot of value to this program, especially in Phase I and Phase II.

As we get into later stage development, Genentech may decide to take on more studies on their own. But that's really up to the joint development committee and what we decide to do at that point.

Okay, but just to clarify, you're both going to be running your own lists of studies during this six years, it's just that--?

Right.

At that six year point--do you get any extra milestones or royalties or anything for continuing past the six years?

No.

But they would be reimbursed after that?

Right. If we decided to do anything beyond then.

Okay, and then it's also beyond the initial list as well, right?

Right.

Okay. Great. Well all my other questions were answered. Thank you very much. Great year.

All right. Thank you.

[Dush Govander], [Monesk, Krespi, Hart and Company]. Please go ahead.

Yes, on SGN-40 in terms of continuing with dose and looking at combo trials, any discussion with Genentech as to how you think about dosing given the data thus far and especially with combination trials?

We have like I said, we just got clearance from HSR yesterday and I think that any questions like that would probably have to be pushed to the future, after we've had time to meet with our partners and discuss future plans in combination.

On the Agenisis deal, what do they bring? It's interesting, prior the model was kind of licensing out, parcelling out the ADC technology on different indications companies. What does the Agenisis bring that makes you want to co-develop joint research as well as commercialize with them as well as is there any conflicts now the Progenics or Curagen and different indications and different candidates that would come out of the Agenesis collaboration?

This is Eric. I'll take that one.

Agenesis has proprietary solid tumor targets that they've discovered internally in fully human panels--panels of fully human antibodies to a number of targets. We've selected one target that we've already decided to co-develop that we think is a really interesting solid tumor opportunity and as we've said in the past, ADCs have a real opportunity to make a big difference in solid tumors where naked antibodies on their own aren't as effective often. So, they really bring a couple portfolio opportunities where we can get into solid tumors with fully human antibodies that already exist. We can optimize the best antibody and the best drug payload and take things quickly into late stage pre-clinical development towards clinical trials.

And one final question. On SGN-40, there's no evidence thus far showing any B-cell depletion in SGN-40 or the patients thus far as we see in Rituxan?

When you say depletion, you mean B cells?

Yes.

We put out data showing at last years ASCL and ASH showing at least some data from our Phase I study where there was depletion of B-cells in patients in Phase I. Like Rituxan you do see some B-cell depletion. It's a little different than Rituxan, but--and we detail that at some of the presentations, but you do see B-cell depletion, absolutely.

Okay. Great, thanks, guys. Congratulations.

[OPERATOR INSTRUCTIONS]

Management, there are no further questions at this time. Please continue with any closing comments.

All right. Thank you, operator, and thank you all for joining us this afternoon.

Thank you. Ladies and gentlemen, this does conclude the Seattle Genetics' fourth quarter 2006 financial and business update conference call.

You may now disconnect. Thank you for using ACT conferencing. Have a very pleasant day.