Seagen Inc (SGEN) 2007 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Seattle Genetics 1st Quarter 2007 Financial and Business Update Call.

During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. If you have a question, please press the * key, followed by the "1" on your touchtone phone. If you would like to decline, press the * key, followed by the 2.

We do ask that if you're on a speakerphone, that you please lift up the handset before making your selection. This conference call is being recorded today, Tuesday April 24th of 2007.

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

Thank you, Operator. I'd like to welcome everybody to Seattle Genetic's 1st Quarter 2007 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 financial results is available on our website. And 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'll now turn the call over to Clay.

Thanks, Peg. And thank you all for joining us this afternoon. Today, I'll provide an update on our recent activities, and review our plans for the rest of 2007. Afterwards, Todd will discuss our financial results, and then we'll open the call for questions.

We're off to a great start in 2007. Wee reported record revenues in the 1st quarter, brought in over $65 million in collaboration payments during the quarter, and ended March with our highest cash position in the history of the Company. Our strong financials, combined with our recent SGN-40 collaboration with Genentech, allow us to aggressively advance our product portfolio.

Starting with SGN-40, our Phase 2 clinical trial is well underway in diffuse large-B lymphoma -- an aggressive subtype of non-Hodgkin's Lymphoma.

This is a single-agent study in approximately 35 patients with relapsed or refractory disease -- designed to assess the anti-tumor activity, tolerability and pharmacokinetic profile of SGN-40 in this homogeneous patient population.

We are also nearly finished with dose escalation in our Phase 1 study of SGN-40 in multiple myeloma, and accrual is complete in the Phase 1 chronic lymphocytic leukemia study.

In addition to these 3 single-agent studies, we are working closely with Genentech on a broad product-development plan for SGN-40. We expect to initiate multiple clinical trials over the next 12 months to evaluate SGN-40 in combination with conventional treatments for patients with non-Hodgkin's Lymphoma and multiple myeloma.

The use of antibodies, combined with chemotherapy or other agents, has become the standard of care for many types of cancer. Despite the success of drugs such as Rituxan and Revlimid, there remains a significant unmet medical need for many patients with these diseases.

We are enthusiastic about our plans to expand and accelerate the developments of SGN-40 through the Genentech collaboration. And we anticipate reporting further progress during 2007 -- including clinical trial initiation and milestone achievements.

We are also making strong progress across our other proprietary programs. We are completing the Phase 1 Single-Agent dose escalation study of SGN-33 or [Lintusamat] in acute myeloid leukemia -- or AML. And mild dysplastic syndromes, or MDS. We plan to report data from this study at the American Society of Hematology Annual Meeting in December.

Given the favorable safety profile of this antibody, we believe that SGN-33 might readily be combined with existing AML and MDS therapies to augment overall activity, and improve patient outcomes. The first such combination trial, which we plan to initiate this quarter, is a Phase 1 study of SGN-33 plus Revlimid, for patients with advanced MDS. This patient population has immediate survival of less than 2 years from diagnosis, and about 30% of cases transform into AML.

Despite emerging therapies for MDS, effective and well-tolerated treatments are greatly needed. Pre-clinical data demonstrates that Revlimid enhances effector function -- the primary mechanism of action for SGN-33.

By combining SGN-33 with Revlimid, our goal is to establish a new therapeutic option for this underserved patient population.

In the 2nd half of this year, we plan to initiate a Phase 2b study of low-dose Cytarabine plus SGN-33, at multiple centers in the United States and in Europe. This randomized double-blind placebo-control study is designed to accrue approximately 200 newly diagnosed AML patients -- 60 years of age and older -- who cannot tolerate intensive chemotherapy.

AML is primarily a disease of the elderly, with a median age at diagnosis of 68 years. Of those patients, fewer than 20% are alive after 1 year.

There is a marked unmet medical need in this population for therapies that can prolong survival, improve quality-of-life, and reduce infections, hospitalizations and blood transfusions. Of note, we've received Orphan Drug designation from the FDA for SGN-33 in AML.

While we are making progress in the clinic with our unconjugated or naked antibodies, including SGN-40 and SGN-33, the potential of empowered antibodies -- utilizing our antibody drug conjugate or ADC technology --continues to emerge.

SGN-35, our lead proprietary ADC, is in a Phase 1 clinical trial focused on relapsed Hodgkin's disease. Dose-escalation is ongoing, and we plan to report data at ASH 2007.

CD-30, the target of SGN-35, is the defining antigen for Hodgkin's disease. SGN-35 delivers a highly-potent Auristatin derivative inside of those tumor cells -- which is designed to induce a strong anti-tumor response in patients -- even though it's with heterogeneous, highly fibrotic tumor tissue.

In February, we received Orphan Drug designation from the FDA for SGN-35 in Hodgkin's disease -- a valuable addition to the program.

We also had a strong presence at AACR earlier this month -- highlighting our leadership position in ADC technology that empowers antibodies to treat cancer. There were 15 presentations by us and our collaborators, including Progenix, Genentech and Medimmune -- relating to our ADC technology and cancer product pipeline. We have a strong belief in the potential of empowered antibodies for the treatment of cancer. And these presentations underscore our continued leadership in this field.

Our collaborators are also advancing their ADC programs. During the 1st quarter, we received milestone payments from Progenix and Genentech as a result of their progress with ADC's utilizing our technology. Several other collaborators, such as Medimmune and Bayer, also continue to advance their ADC programs.

In addition, we announced last month that Genentech paid us $4.5 million, to extend the term of our existing ADC research collaboration, and to exclusively license specific targets. This brings the total amount that we've received from Genentech under this collaboration to more than $30 million.

We're also excited about SGN-70 -- a humanized antibody to CD-70 -- that we plan to advance into clinical trials next year. We believe SGN-70 has therapeutic potential in oncology indications -- including hematologic malignancies and renal cancer, as well as autoimmune diseases. Our manufacturing campaign and IND-enabling studies for SGN-70 are ongoing, and we expect to submit an IND in mid-2008.

Looking ahead over the rest of 2007, we are planning a number of key activities. These include advancing the single-agent Phase 2 clinical trial of SGN-40 in diffuse large B-cell lymphoma, completing dose-escalation in the Phase 1 study of multiple myeloma, and collaborating with Genentech to initiate multiple studies of SGN-40 in combination with chemotherapy.

Initiating 2 clinical trials of SGN-33, one in combination with Revlimid, in patients with MDS -- and another in combination with low-dose Cytarabine, in patients with AML -- completing dose-escalation in our Phase 1 clinical trial of SGN-35. Positioning SGN-70 for an IND in 2008, and presenting data highlighting our development program at scientific and medical meetings -- including data at ASH in December from our SGN-33 and SGN-35 programs.

Before I turn the call over to Todd, I'd like to say that I'm pleased that Dr. Tom Reynolds joined our executive management team in March as Chief Medical Officer, to lead the strategic direction and execution of our clinical pipeline. An important position, in light of our many ongoing and planned clinical trials. He's a great addition to Seattle Genetics, and I'm sure many of you will have a chance to meet him in the future.

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

All right. Thanks, Clay. And thanks, everyone, for joining us on the call this afternoon.

Today I'm going to discuss our financial results for the 1st quarter, and also spend a few minutes covering some of the financial aspects of our collaboration with Genentech. Let me start with financial results.

We reported revenues of $4.3 million in the 1st quarter of 2007 -- slightly more than double our revenues in the 1st quarter of 2006.

This growth, which is in line with our guidance, reflects a partial quarter of revenue earned under our SGN-40 collaboration with Genentech. The collaboration became effective on February 5th, following the Hart Scott Rodino approval.

As described in our last quarterly call, payments from Genentech under the collaboration include the $60 million upfront payment already received, as well as ongoing reimbursements for development work that we perform under the agreement, and milestone payments, as they are achieved.

From a revenue reporting perspective, these payments are aggregated and amortized into revenue over the 6-year development period of the collaboration. In addition to the SGN-40 collaboration, our 1st-quarter revenues also reflect fees, milestones and reimbursements earned under our 80C collaboration -- including pre-clinical milestones earned from both Progenix and Genentech.

Total operating expenses in the 1st quarter of 2007 were $14.6 million -- up from $11.6 million in the 1st quarter of 2006. This planned increase is the result of higher manufacturing costs -- most notably from the ongoing campaigns for SGN-33 and SGN-70, discussed in previous calls -- as well as increased clinical trial costs for SGN-40. In addition, employee costs were higher period-over-period, as we added staff, primarily to support expanding clinical trial activities.

It's important to note that expenses during the quarter include the ongoing costs associated with the SGN-40 collaboration, which are fully reimbursed by Genentech. These costs are expensed as incurred, and billed to Genentech quarterly. The corresponding reimbursements are amortized into revenue over the 6-year collaboration period, along with the upfront payment and future milestones.

Cash received and amounts billed under the collaboration that have not been amortized into revenue are reported as deferred revenue on our balance sheet. Deferred revenue at the end of the quarter totaled nearly $68 million -- the majority of which relates to the SGN-40 collaboration.

Lastly, we ended the 1st quarter with just over $140 million in cash and investments. This includes the $60 million upfront payment from Genentech under the SGN-40 collaboration -- as well as the $4.5 million ADC collaboration payment that Clay referred to earlier. As a result, our cash and investments increased by more than $53 million during the quarter -- significantly strengthening our financial position.

So with that, I'm going to turn the call back over to Peg.

Okay. Thanks, Todd. Operator, at this point, we'd like to open up the call for questions, please.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, if you have a question, please press the * key, followed by the 1, on your touchtone phone. If you would like to decline, press the * key followed by the 2. We do ask if you're on speakerphone that you please lift up the handset before making your selection. One moment, please, for the first question.

Our first question comes from Jason Kantor with RBC Capital Markets. Please go ahead.

Right. Thanks. I've got a clinical development question, and then a financial question. On the SGN-40 program, can you give us a better idea of what trials you and Genentech would hope to initiate? Which ones of those might happen in 2007? And which ones of those might fall into the 12-month window, but not necessarily in 2007?

Thanks for the question, Jason. We are continuing to collaborate with Genentech on the development plan and the timeline for these activities. We are planning a broad development program, a number of combination clinical trials focused largely on non-Hodgkin's lymphoma and multiple Myeloma.

We've discussed a number of these possibilities before we announced the deal with Genentech, such as combination with chemotherapy -- such as Rituxan ICE in aggressive NHL -- which is an area we're very interested in, based on our single-agent data. We've also discussed before we did the deal with Genentech, combining SGN-40 with exciting agents that could include Revlimid and Velcade in multiple Myeloma. So these are some of the possible directions that we could go to further evaluating SGN-40 in studies. And we do except to initiate a number of the studies between the 2 companies' collaboration in the 2nd half of '07, as well as into '08. But the specifics of them, we're still working on and have not announced, yet. We're working on that with our collaborators at Genentech.

Terrific. And on the financial side, could you tell us how many shares are not included in your share count? It looked like your shares went up. I'm wondering if those were conversions of the convertible preferred, or options or warrants, or if you just issued more stock or what that was?

Sure. No, the answer is we haven't issued any additional shares. The increase in the 1st quarter was the result of about 5.7 million shares of preferred stock conversions. And to answer the first part of your question, there remains about 9.3 million additional shares that would be issued upon conversion of the preferred.

Thank you.

Thank you. Our next question comes from David Miller with Biotech Stock Research. Please go ahead.

Hi. Great! Thanks for taking my question. The randomized Phase 2b trial you're going to start in the 2nd half of 2007 in AML -- are you looking at that as a registration quality trial?

The study is not designed exactly as a registrational study. However, it will be powered sufficiently to give us the data that we would need to certainly make a decision about the future direction of the program -- and also to speak directly to the FDA about possibilities. So, I think it should not be lost on the publicity here that we are very excited about SGN-33, that we're investing in SGN-33. We're investing in a way where we're going to do a study with 200 patients -- in blinded and placebo-control -- which add more costs to the study. So that we can use those data, ultimately, in any registrational filing package. But as a single study, it wasn't intended to be a registrational study on its own. We'll be excited to get this going and see the data.

Do you see it as possibly something you could try for accelerated approval with, and then perhaps using a different AML indication or a different indication to do the confirmatory trial? Is there a pathway to that that you guys are looking at, going forward?

I think that is a very relevant question. We have discussed things like that. And I think it is as potential pathway that we're still discussing. But good, interesting thoughts.

That's it, for me. Thanks.

Your next question comes from Richard Yee, with Needham & Company. Please go ahead.

Thanks for taking my question. I have a question related to your number of Auristatin and derivatives that presented at AACR meeting. I was just wondering, could you talk about how these new Auristatin derivatives can potentially improve the therapeutic index. And do you plan to use some of them in future product candidates? Thank you.

Thanks, Richard. We have been developing Auristatins for a number of years, now. We've presented our information on this at a variety of medical and clinical conferences and research conferences.

At AACR, we presented a lot of data using drug conjugants in different configurations and in different ways. I think what we have done is, we have really a few configurations that we work with regularly. And we have different names for them. Like Auristatins. (inaudible) or (inaudible). We use different configurations.

And we think that we have systems that are ready for primetime. We're developing them in the clinic with SGN-35. We have a partner CuraGen, that's in-clinic with Auristatin E and SGN-35 as Auristatin A.

But we're very excited about looking at additional configurations, and continue to push the limit of what we can do -- and make better molecules for the future. So we're happy with what we have. We're investing in clinical trials. But in our research, we're continually pushing forward.

So I think that yes, we could consider things like right now, Auristatin E is in the clinic in 2 trials. I think in the future, you might see Auristatin F and maybe some other Auristatins that we're making, as well.

Okay. Thanks. My second question related to your specific ADC technology with Genentech. I'm not sure if you have disclosed all the specific targets -- to what extent you can disclose, and what has actually triggered the Genentech payments. My third question would be, "What would be additional milestones to trigger additional payments for the next step?"

Yes. Well you know, overall, we have a very strong collaboration with Genentech on our ADC technology. They're evaluating our technology against multiple targets that are not disclosed. And we're not at liberty to disclose them. They have made a lot of preclinical progress. We're very pleased that they renewed their agreement with us recently. They made a $4.5 million payment to us as part of that renewal. Really, we're not allowed to comment on their intentions or plans regarding the development plan of any of the specific ADCs that they're developing that utilize our technology. But I'll just repeat, we have a very strong and active collaboration with them this area.

And Richard, this is Eric. Just to give you a little more color on what that payment was for -- it was to extend the term of the research period. Also, they exercised some exclusive licenses to target. As Clay said, we haven't disclosed the identity of those targets.

In terms of future payments we would get from Genentech or other collaborators, there are fees that vary across our collaborations that relate to renewal of research terms -- or exercise of options for exclusive licenses. There are also your standard milestone payments that run the gamut from preclinical all the way through to approval. If you look at the way that PDL has generated a revenue stream through some of their humanization deals, there's a similar type of story that's starting to mature with our ADC collaboration.

Thanks a lot for taking my question.

Thank you. Your next question comes from Bret Holley with CIBC World Markets. Please go ahead.

Yes. Hi, Clay. I just wanted to ask a question about the trials going forward with Genentech. You mentioned non-Hodgkin's lymphoma and multiple Myeloma. But you didn't notably mention CLL. The Phase 1 data, I guess, we're going to see for single-agent SGN-40 at ASH. Is there some kind of read that we can get on the relative enthusiasm you have for SGN-40 and CLL there?

I guess we are interested in using SGN-40 certainly in lymphoma. We've presented data showing effectiveness, there. So that would be a big priority for us. And multiple Myeloma is also a big priority for us. CLL -- I think we're still discussing this. So I don't want you to read too much into it except for that NHL and MM are pretty definitive, moving forward. That's basically the read. It doesn't mean that we won't do work with CLL.

We have planned quite a lot of activity and trials in NHL and MM, and I think it's going to be an exciting time for us through '07 and '08, and initiating many trials. And we'll receive some pretty hefty milestone payments for initiating those trials. We'll announce those appropriately. And so CLL, I would say, is just a little bit behind the other ones, as far as discussion goes -- for potential for development in the future.

Okay. And I guess the other question I had was on the SGN-70 program. Given the fact that the antibody has potential in both cancer and immunologic disease, would you anticipate running Phase 1 in healthy volunteers? Or would you run cancer trials in parallel with healthy volunteer trials once you got to the clinic in 2008?

That's a really good question. We're having the discussions on the project team. We have an SGN-70 project team. I think we're pretty excited about the cancer opportunity, and the non-cancer or autoimmune disease opportunity. '

One of the things that we've done a little differently than we've done with this drug that we just developed for cancer is, we have organized and are implementing toxicology studies that are bigger and broader and longer. Especially longer with durations -- treatment and duration of follow-up. That is really required for filing in the non-cancer applications. And so we're taking the steps now in all our IND-enabling studies, so that we can go forward in cancer and in non-cancer work. And whether we go forward in parallel or whether the cancer work comes first and then the non-cancer, is not yet fully determined, yet. But those are our considerations.

And I guess the follow-up question, given your hyper-focus on cancer -- does this potentially make for a partnership outside of cancer for the immunological disease application? Is there a chance of that? Is that an opportunity that you'd look at in the near-ish term?

Hey. This is Eric. I think we're not -- generally, we're not -- focused on splitting indications when we partner. It's something that's very difficult to do. So when we look at what our CD-70 programs, our SGN-70 and SGN-75 -- it may make sense to do a partnership to broaden what we can do in both cancer and immunology. It's pretty early, and we feel good about the programs. So that's not our main focus. But if we did, I think we would want to work with a partner where they could exploit the potential in auto-immune disease. But I don't think we would split indications.

Maybe we could divide up the work by which company had the most expertise in the area. CD-70 is a hot area, right now. So there's a lot of interest in the target and our programs. But we're focused on getting these into the clinic and generating perfect concept.

Okay. Thanks, Eric and Clay. Appreciate it.

Thanks. Your next question comes from Douglas [Chow], with [Kerris] & Company. Please go ahead.

Hi. Just one follow-up question to the IND-enabling studies for the non-cancer indication. How long would that follow-up period be for that? And then my second question is just housekeeping on the number of warrants and options outstanding and their average exercise price.

I'm sorry. It was a little hard to hear that. What was the first part of the question before the options?

Oh. Regarding the IND-enabling safety toxicology studies.

For SGN-70?

Yes. For SGN-70. How long of a follow-up period do you need for those patients?

You know it's different. It depends on which autoimmune disease you want to go into, and whether they're more or less life-threatening. You have different studies in cancer. You know, the normal follow-up for a tox study could be 60-90 days. With auto-immune disease, you do it. For us, I think we're going to do about a 6-month follow-up. So it's a long time doing non-human primate tox studies, where you really study them, look at them and figure out what's going on.

It's a different review committee. It's not a review committee that goes through the same. It's not the same cancer review committee. They have specialty review committees. So toxicology is a little different. And there is a little different expectation -- especially in this world where we have drugs like Tysabri and other drugs, where there were things that came up later. Doing pretty extensive toxicology in the non-cancer indication makes a lot of sense to improve the safety of these studies. And we're all very supportive of that.

So we're going to go and do a D package on SGN-70, to enable us to appropriately do the non-cancer indications. We think that those indications for SGN-70 are very potentially lucrative. They're big markets. They're exciting for us to consider looking at.

One of the important things when we hired Tom Reynolds as our Chief Medical Officer is, he has experience in doing work in the cancer field. But he also has a lot of experience doing work in autoimmune disease. And so we now have more of a background to do that. More expertise in house and more horsepower to get those studies done. So I think you'll hear from us on that. I think it's a really good piece of upside that we have that's really not counted in by Wall Street, today.

And then the first part of your question was a comment about equivalents. There are about 6.5 million shares outstanding on stock options, and about 2 million on warrants.

And the average exercised rate?

It's 6.25 on the warrants, and I want to say in the mid-$6 range. I don't have the exact number in front of me, but mid-$6 range on the options.

Great. Thank you.

And your next question comes from Dhesh Govender with Monness. Please go ahead.

Hi, Clay. I wanted to ask a question regarding the strategy, moving forward, with SGN-40 with Genentech, now -- as Rituxan moved up into front line in combo. Do you anticipate combination with Rice trials and those designs? Are you going to talk about those soon, and the plans for that? And how do you see -- generally, then -- SGN-40 moving toward front-line treatment, and the strategy there?

Well, Rice is more of a second-line treatment. And we're excited to be looking at before we even did the deal with Genentech, we were talking about doing studies that were Rice in second-line versus Rice plus SGN-40 trying to improve the CR rates. Progression-free survival -- things like that -- that are important in that indication.

Now as far as front line, we have been speaking for probably over a year about our interest in improving R-CHOP. R-CHOP is a phenomenal therapy that we're transforming for patients with NHL. It really provided -- with the addition of Rituxan to CHOP, there is a certain percentage of patients that have a cure rate, now. And that's really exciting. It's wonderful to have that.

But in the almost decade since R-CHOP was tested, there've been no advances in frontline therapy. So nothing has improved there. So cooperative groups have been very interested in trying to say, "Okay. What can we do next? How can we improve that cure rate?"

So we have been talking well before we did the deal with Genentech about the interest in some cooperative groups, as they've spoken to us about doing studies where there are studies of R-CHOP, plus-and-minus SGN-40. And we certainly have discussed this with Genentech. Genentech has much more experience than we do, doing big, randomized studies -- looking at front-line indications. So it'll certainly be part of discussions with Genentech, going forward. I just don't have any specifics to tell you, right now.

Can you talk about the dosing, then, on the 35-patient single-agent trial, in large B-cell?

Sure. It's weekly dosing.

Weekly at the 8 mg?

Yes.

Then any discussions -- preliminary or advanced -- regarding using SGN-40 in autoimmune or MS?

You know, that's certainly not lost on us. Especially since Rituxan - which also knocks out B cells is an exciting opportunity in autoimmune disease such as arthritis. That's something that is under discussion. Certainly.

And a final question, then. Actually, 2 final questions. Any anticipated triggers and milestones in the ADC collaborations? As well, is there a change of control in the Medimmune agreement regarding their acquisition now by AstraZeneca?

Sure. Hey -- this is Eric.

Hi, Eric.

We do expect to get some additional milestones over the next 12 months. There are several of our collaborators that are moving forward with their programs. And I can't give you any specific guidance on that. That's for our collaborators to talk about. But for example, Progenix has said they plan to move their PSMA ADC into the -- to file an ID, anyway by the end of the year -- and move it into clinic next year. So that's one example of that.

And in terms of the collaboration with Medimmune, that -- assuming the deal goes through -- that would become a collaboration with AstraZeneca. So we don't expect there to be any problems in terms of assigning that over to them.

Great. Thank you.

Thank you. Ladies and gentlemen, if there are any additional questions, please press the * key, followed by the 1 at this time. As a reminder, if you're on speakerphone, please lift up the handset before making your selection.

And our next question is a follow-up from Jason Kantor. Please go ahead.

Hi. Thank you. Two things. Can you give us any sense of your recent Agensys collaboration, and what we may expect coming out of that? And also, with regard to the milestone payments from Genentech, how many indications does this go over? Are they all oncology indications? How much of that could you potentially book in '07 versus 2008 versus 2009, perhaps?

Hi. This is Eric. I can address some of that, and Todd may want to talk a little bit about what our projections are for milestones. But in terms of the Agensys deal, the way that's structured is, there's an immediate codevelopment on one target. It's a solid-tumor ADC target. So that's a target where Agensys has fully human antibodies they made through the Genex/Amgen system, and we're working with them to optimize the best ADC. So it's an early-stage research program. It's something we could move into the clinic over the next couple of years. But it's early.

Then they have rights to use our technology with several other targets, and we get to opt in to 50/50 codevelopment and IND on any one of those.

So I think what you'll be hearing from that collaboration is progress in research, and there may be some research presentations over the coming year on that. But it's an early-stage program. We're excited about it, but it's early.

I think your other question was on Genentech.

Yes. With the milestones.

Yes. So just to refresh -- the milestones exceed 800 billion across the collaboration. They're mostly trial-initiation based -- 90% of the milestones are pre-commercialization types of activities. And they're fairly substantial milestones.

There's a commitment over the initial 2 years of the collaboration for at least $20 million in milestones to come in. So internally, that's what we've been modeling. And we'll provide more guidance with respect to specific milestones as they're achieved.

You said there's a commitment to 20 million in milestones. Is that pretty much what one ought to expect that you'll get? Or is that sort of a minimum level of milestones, and you could do twice that or three times that? I don't know. It's a lot. 800's a lot. It's a big number. So how big could it be over the next 2 years?\

Well, that's the minimum level. We probably can't give much more guidance on what it could be. But I'll be at least 20 million.

Okay. Can you tell whether or not it's both a minimum and a "most likely?" Or is it truly a bottom-end estimate?

You know at this point, Jason, for looking all the way out to the end of 2008, literally, because the deal was signed in January -- so its 'til January 2009 -- it's hard. I don't think we're there, yet, to give you more guidance and say that that's (inaudible).

Thank you.

Thank you. Next question is a follow-up from Richard Yee. Please go ahead.

Hi. Good afternoon. Actually, it's Mark Monane with Richard. A question, please, on the antibody technology and the ability to activate complements. There is some debate in the literature, whether it is a good thing to activate complements. And the question is, in the design of the current projects underway, how much of complement activation is a part of the killing power, in your opinion? And does the ADC linkage change any of that characteristic?

Clearly, you're up with literature and discussions. Because complement is a potential issue. One school of thought is that you want to actually get rid of complement in an ADC. Antibodies have multiple activities. They have antibody-directed cellular cytotoxicity or ADCC.

They also -- some antibodies -- have CDC, through complement. Some antibodies have fagocytosis. Some antibodies have direct apoptotic activity. Complement has been connected with anti-tumor activity, but it's also been connected strongly with toxicities that some people see with antibodies.

You're very correct in thinking that it might be important going forward with ADCs to try to minimize the effective complement. One can do that through site-specific mutations. They can do it through specific kinds of conjugation technologies, and can do it through using different antibody configurations.

So we certainly are studying those. We report a lot of information at meetings like AACR. But our scientists go around the globe, presenting all of our stuff constantly. We don't always announce all of our presentations in the early research, as we do with AACR. But we're constantly looking at that, trying to come up with the best possible molecule that we can.

I think complement is an area -- complement activation may be something you don't want with an antibody drug conjugant, long-term. So you might be right with that.

Thanks for the added information, and congratulations on your progress in the quarter.

Thank you.

Thank you, Mark.

Thank you. There are no further questions, Ms. Pinkston. I'll turn it back over to you.

Great. Thank you, Operator. Thanks, everybody, for joining us. And that concludes our call. Have a good afternoon.

Thank you. Ladies and gentlemen, we do thank you again for your participation. And at this time, you may disconnect.