Seagen Inc (SGEN) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Seattle Genetics second quarter 2009 financial results conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions)

This conference is being recorded today, Thursday, July 23, 2009. I would now like to turn the conference over to Ms. Peggy Pinkston. Please go ahead, ma'am.

Thank you, operator. I'd like to welcome all of you to Seattle Genetics second quarter 2009 conference call. With me today are Clay Siegall, President and Chief Executive Officer, Todd Simpson, Chief Financial Officer, Eric Dobmeier, Chief Business Officer and Tom Reynolds, Chief Medical Officer.

This afternoon Clay will provide an update on our programs including recent highlights and upcoming activities. Next Todd will discuss our second quarter and year-to-date financial results and then we'll open the call for your questions.

Today's conference call will include forward-looking statements based on current expectations. Such statements are only predictions and actual results may differ materially from those projected. Please refer to the documents that we file from time to time with the SEC and which are available on our website for information concerning the factors that could affect the Company.

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

Thanks Peg and thank you all for joining us this afternoon. Today I'll update you on the progress we've made over the past quarter and also review our upcoming milestones. Highlights of the second quarter include our oral presentation on SGN-35 at the American Society of Clinical Oncology or ASCO annual meeting and the European Hematology Association or EHA Congress, which was held in June.

In addition, our ongoing pivotal trial with SGN-35 in Hodgkin lymphoma has been accruing rapidly and we expect to complete enrollment this quarter. We believe that this demonstrates the substantial unmet medical need for patients with relapsed or refractory Hodgkin lymphoma.

We've also made strong progress on our Lintuzumab and Dacetuzumab programs as well as on positioning our next two ADCs to start clinical trials over the next 12 months. We have considerable positive momentum and are well positioned financially to move our pipeline forward.

I'll begin with an update on our lead program, SGN-35, and antibody drug conjugate or ADC targeting CD30. As you may have seen on our press release this afternoon, we have obtained a non-proprietary or USAN name for SGN-35 for brentuximab vedotin. For the sake of simplicity, I'll use a condensed version, b-vedotin.

Our initial development focus for b-vedotin is in relapsed and refractory Hodgkin lymphoma and systemic anaplastic large cell lymphoma or ALCL. Our ongoing pivotal trial in 100 Hodgkin lymphoma patients, which is being conducted under a special protocol assessment, is enrolling ahead of our expectations. Patients receive treatments every three weeks up to a year.

The primary efficacy endpoint of this study is objective response rate assessed by independent review. We are also evaluating complete response rate, duration of responses, progression free and overall survival and tolerability.

We are encouraged by the rapid pace of enrollment and as a result we have accelerated our timeline. We anticipate completing accrual in the second quarter -- I mean third quarter, excuse me, of this year. This will position us to report data from the pivotal trial in the second half of 2010 after we have had sufficient time to follow patients for objective responses, duration of responses, safety and other data.

If the pivotal trial results are positive, we plan to submit a New Drug Application or NDA for b-vedotin in the first half of 2011 under the Accelerated Approval Regulations. Our goal is commercial launch of b-vedotin in the second half of 2011. These timelines are approximately six months ahead of our previous guidance.

We have also accelerated our manufacturing activities to align with the revised timeline to submission. Todd will discuss the financial impact of the acceleration later.

The pivotal trial design is based on our phase I study evaluating b-vedotin administered every three weeks in patients with relapsed or refractory Hodgkin lymphoma or ALCL. At EHA in June we reported that the overall response rate for patients treated at doses of 1.2 mg/kg and higher every three weeks was 54% response rate based on investigator assessment and 57% response rate based on independent review. We are pleased to see this high level of concordance between the two assessments, reinforcing our confidence in the high response rate observed in the trial.

We also reported that the median duration of response in this trial had lengthened to 7.3 months with multiple patients in ongoing response. Duration of response is an important factor for relapsed and refractory patients and so it's encouraging that this data point continues to lengthen.

We are also conducting a phase I trial of b-vedotin administered weekly. At ASCO we reported that out of 20 patients treated at doses of 0.8 mg/kg and higher 60% achieved an objective response including 50% with complete responses.

These interim data reaffirm the response rate and tolerability profile from our every third week phase I trial. The weekly dosing trial is ongoing and we expect to report additional data later in 2009.

In our phase I trials b-vedotin has been generally well tolerated. The majority of adverse events have been grade one and two with few dose reductions or dose delays. The most common events have been fatigue, fever, peripheral neuropathy, neutropenia, diarrhea and nausea.

In addition to Hodgkin lymphoma, we believe that ALCL may provide another registration pathway for b-vedotin. Across both of our phase I clinical trials, six out of seven systemic ALCL patients treated with b-vedotin achieved a complete response. Based on these compelling data, we recently initiated a phase II trial of b-vedotin for relapsed or refractory systemic ALCL to further evaluate its potential in this setting.

We also recently opened a retreatment clinical trial to assess a second course of treatment in patients who previously responded to b-vedotin. Today we treated our first patient. We have seen early evidence from our phase I clinical trial suggesting that patients who initially responded to b-vedotin but who relapsed once discontinuing treatment may have further tumor shrinkage with additional b-vedotin therapy.

The purpose of this trial is to evaluate response rate, quality and durability of an additional course of b-vedotin in patients with relapsed or refractory C30 positive lymphoma.

Based on our market research we believe there is a substantial commercial opportunity for b-vedotin. Although frontline chemotherapy for Hodgkin lymphoma and ALCL results in high durable response rates and cures, we estimate that there are currently more than 8,000 people in the US with relapsed or refractory disease who would be eligible for treatment with b-vedotin. There are slightly more eligible patients in Europe.

Our projected worldwide sales potential for b-vedotin is $300 million to $400 million annually in the relapsed and refractory setting.

Beyond these indications we believe there is substantial upside potential including the use of b-vedotin in retreatment and maintenance settings, in front line lymphoma for relapsed prevention following stem cell transplants or chemotherapy and in other CD30 positive malignancies.

We are planning additional trials of b-vedotin as a single agent and in combination with chemotherapy to expand its market potential.

We believe that b-vedotin could be an important new treatment for patients with Hodgkin and T-cell lymphomas and a significant commercial opportunity for Seattle Genetics. We are investing substantial resources to rapidly execute on the clinical, regulatory and CMC activities necessary to bring this program towards our goal of regulatory submissions in the first half of 2011.

Our next proprietary clinical program is Lintuzumab or SGN-33, and antibody targeting CD33. At the EHA meeting in June we presented final data from a phase I single agent, dose escalation trial of Lintuzumab for acute myeloid leukemia or AML and myeloid dysplastic syndromes or MDS. In this trial, which enrolled 82 patients, we observed multiple objective responses at well tolerated doses. The majority of adverse events were grade one and two with the most common being chills and nausea. Notably, across all dose levels, 47% of AML patients experienced reductions in tumor blasts compared to baseline.

The activity and tolerability profile of single agent Lintuzumab are encouraging and suggests that it may combine well with other therapies. We continue to believe that the most promising path forward with Lintuzumab will be as a combination agent and that is the primary focus of our clinical development activities.

Specifically, in the first quarter of 2009 we completed enrollment of 210 patients with AML, aged 60 or older in a phase IIb randomized, double blind, placebo controlled trial. This study is designed to compare overall survival of patients receiving low dose cytarabine plus Lintuzumab to those receiving low dose cytarabine alone. We expect that data will be available in the first half of 2010.

If the trial demonstrates that the addition of Lintuzumab results in a meaningful overall survival advantage in older AML patients, it would represent an important advance in therapeutic options for these patients who currently have a median survival of less than six months.

Strong data would lead to substantive discussions with the FDA and trigger the manufacturing activities necessary to support a regulatory submission.

We are also evaluating Lintuzumab in combination trials for MDS. We have completed enrollment of a phase I trial in combination with Revlimid. In addition, we expect that an investigator sponsored phase II trial to evaluate Lintuzumab combination with VIDAZA for MDS will be underway by the end of 2009.

Next I'll talk about Dacetuzumab or SGN-40, which is an antibody targeting CD40 that we are developing in collaboration with Genentech, a wholly owned member of the Roche Group. We and Genentech are advancing five trials in combination with standard treatments for non-Hodgkin's lymphoma in multiple myeloma.

The largest of these trials is the [CGEN MARINER] study which is a randomized, double blind trial evaluating Rituxan and ICE chemotherapy plus or minus Dacetuzumab in 220 patients with second line diffused large B-cell lymphoma. The data are expected in 2010. In addition, we expect that data from our four ongoing phase Ib trials will be reported beginning later in 2009 and in 2010.

In addition to our broad ongoing clinical development plans for Dacetuzumab, there is an exciting research -- there is exciting research being conducted under the collaboration. At ASCO Genentech described a diagnostic gene signature that correlated with sensitivity to treatment with Dacetuzumab in patients with diffused large B-cell lymphoma.

The gene signature is being retrospectively analyzed in patient samples from both completed and ongoing clinical trials of Dacetuzumab. This research may ultimately lead to a diagnostic test that can predict which patients are most likely to respond to Dacetuzumab therapy.

Our fourth clinical stage program is SGN-70, an antibody targeted to CD70. CD70 is highly expressed in activated T and B cells but not resting lymphocytes. By selectively targeting activated immune cells, SGN-70 may provide a new therapeutic option for autoimmune disease that may avoid globally suppressing the patient's immune system.

We have completed the healthy volunteer portion of our phase I trial and recently expanded into patients with autoimmune disease. We are assessing the tolerability and pharmacokinetics of SGN-70 in these patients as well as evaluating biomarker activity. This trial will serve as a foundation for our future clinical development efforts with SGN-70.

The next program we are positioning for clinical trials is SGN-75, an ADC targeting CD70. Our preclinical data with this program are encouraging and we remain on track to submit an IND later this year. The phase I trial will be for patients with CD70 positive hematologic malignancies and solid tumors.

In addition, we are advancing ASG-5ME, formerly referred to as AGS-5 ADC, under our collaboration with Agensys, a subsidiary of Astellas. This ADC is being developed for solid tumors and the goal is to submit an IND in the first half of 2010.

Beyond our three lead ADC programs, b-vedotin, SGN-75 and ASG-5ME, a number of our collaborators are also advancing programs utilizing our technology. CuraGen, Progenics and Genentech have entered the clinic and we expect additional ADCs will follow as the potential of empowered antibodies continues to emerge.

The excitement around ADCs has also drawn continued interest in the technology from other companies, including our most recent collaboration with Millennium, the Takeda Oncology Company. We received an upfront fee of $4 million for access to our ADC technology for a single solid tumor antigen. We are also entitled to receive fees, progress dependent milestone payments and mid-single digit royalties on net sales of any resulting products using our ADC technology.

Before I turn the call over to Todd, let me summarize our key upcoming activities. For b-vedotin, we plan to complete enrollment to our pivotal trial, finalize our US and European regulatory strategies for initial approval and report additional data later this year.

For Dacetuzumab, we will advance the five ongoing combination clinical trials for non-Hodgkin's lymphoma in multiple myeloma under our collaboration with Genentech and plan to report data beginning later this year.

For Lintuzumab, we plan to complete treatment and followup in the phase IIb trial and initiate a combination trial with VIDAZA in MDS patients.

For SGN-70, we will continue enrollment of autoimmune disease patients in the phase I trial.

For SGN-75, we plan to submit an IND for a phase I trial in CD70 positive malignancies and for ASG-5ME, we will continue to pre-IND activities toward a planned IND in the first half of 2010.

We are excited by the potential of our broad pipeline and I look forward to keeping you updated on our progress.

I'd now like to turn the call over to Todd to discuss financial results.

All right, thanks Clay and thanks everyone for joining us on the call this afternoon. Today I'm going to highlight our financial results for the second quarter and year-to-date as well as provide an update for the remainder of 2009.

Our 2009 financial results continue to be in line with our expectations and reflect the investment being made in our product pipeline as Clay described, most notably around the b-vedotin program that is gaining momentum.

Revenues were $9.4 million in the second quarter of 2009 and $18.6 million for the year-to-date. Revenues continue to primarily be driven by our Dacetuzumab collaboration with Genentech but also reflect amounts earned under our ADC collaborations that now total eight, including our newest collaboration with Millennium/Takeda.

Revenues were down slightly in the second quarter of 2009 from a year ago, reflecting the earned portion of ADC milestones achieved in 2008, otherwise, year-to-date revenues in 2009 increased by approximately 9%, driven by the Dacetuzumab collaboration.

Operating expenses for the second quarter of 2009 increased to $32.7 million from $27.6 million in 2008. For the first six months of 2009 total operating expenses were $70.1 million, up from $53.7 million in 2008. These increases reflect higher R&D expenses which were $62 million for the first six months of 2009 compared to $45.7 million for the first six months of 2008.

The increases in 2009 expenses are as planned and driven by clinical development and manufacturing activities of b-vedotin. These include the ongoing pivotal trial that has been accruing rapidly, manufacturing of clinical material and commercial CMC activities in preparation for regulatory submissions and launch. The goal of our CMC activities is to lock down our commercial scale manufacturing operations and to begin conformance campaigns later this year.

Total operating expenses also include non-cash, share-based comp -- expense of $5.4 million for the year-to-date in 2009 compared to $5 million in 2008.

We ended the second quarter of 2009 in a strong financial position with approximately $190 million in cash and investments. This is down only slightly during the quarter and reflects the $4 million upfront payment from Millennium as well as $11.5 million in proceeds from a private placement of common stock to Baker Brothers, which was approved by our stockholders at our annual meeting in May.

As Clay mentioned, patient accrual into the b-vedotin pivotal trial has been robust, exceeding our expectations. We now expect to complete patient accrual in the third quarter of this year at approximately six months ahead of our initial timeline. To align our clinical and manufacturing timelines, we have accelerated several CMC activities. This is expected to result in an acceleration of costs for this program into 2009 that were previously slated to occur in 2010.

As a result, we now expect that our 2009 expenses will be near the top end of our guidance range which was previously set at $125 million to $140 million.

We had previously guided to a year-end cash position of more than $120 million. As a result of the Baker Brothers placement in the Millennium ADC collaboration payment, partially offset by the higher spending on the b-vedotin program that I described, we now expect that our year-end cash position will be greater than $130 million.

To wrap up, the quarter has been strong both in terms of progress on our key products as well as our financial performance. We continue to be focused on rapidly advancing our pipeline, in particular driving b-vedotin towards commercial launch while at the same time continuing to be very careful with our resources.

So with that I'll stop and turn the call back over to Clay.

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

Thank you sir. We will now begin the question and answer session. (Operator Instructions) And our first question comes from the line of Cory Kasimov with JPMorgan. Please go ahead.

Hi, good afternoon. This is actually Mona for Cory. Congratulations on the progress. I had a couple of questions. One is now that the enrollment with SGN-35 is accelerate -- is going to be complete in 3Q and you'll have data in the first half, I'm wondering how this influences your partnering plans for the x-US opportunity. With the data coming earlier than you expected, is a partnership something that we can expect maybe afterwards or how do you think about this?

Mona, thank you. This is Clay. Thank you for the question. First I want to clarify one point. What we said on the call was that the enrollment indeed you got was correct. The enrollment will be completed in third quarter of this year. But we said that we will provide -- the date is expected in the second half of 2010, not the first half.

Sorry, yes.

Okay. And as far as partnering, I think that we have previously stated that we are evaluating partnerships, especially looking outside of North America, and that continues. So --

Okay.

Eric, perhaps you want to add something to that?

Sure, yes. As we said before, we've got discussions ongoing for x-US deals. There's a lot of interest from potential partners and you know our focus is to build a US-based sales and commercial infrastructure in oncology, so an x-US deal could make a lot of sense for that strategy.

In terms of timing, it's going to depend on what type of deal we can get. We're not pressed to do a deal sooner than we want to. We've got -- we're well capitalized and we're not giving any set time on deals, but we are in discussions and if the deal terms are right with a strong partner who can actually help us execute on getting this drug launched outside the US well and quickly and ramping up well, then that's something we'd certainly consider.

Okay, great. And then I just had some additional questions on SGN-35, the additional opportunities here, so on the retreatment study, is it the same dosing schedule that would be tested in these patients?

I think Tom that would be a great question for you.

Yes, Mona, we are testing treating patients with 1.8 mg/kg Q3 weeks, which is our pivotal trial dose.

Okay, and then what are your thoughts, I know you haven't disclosed the details, but in terms of sort of going after other opportunities such as in the front line setting? Have you narrowed -- have you selected a patient population? I think in the past you had talked about the elderly subset or maybe I should just stop there.

So Mona, we have been looking at a lot of opportunities and we're actually trying to hone in on exactly what we're going to execute. We believe b-vedotin will be useful in all sorts of front line patients whether they be elderly or just in combination with ABVD and we're really working on our strategy of how to best execute those trials to get the drug out to patients.

We are also looking at some other opportunities including other aggressive T-cell lymphomas and the patient population that is not eligible for transplant but continues to require therapy after failing front line, so we think there are a lot of ways to evaluate expanding the market opportunity beyond simply Hodgkin lymphoma.

We also are cognizant of the fact that this drug could be active in autoimmune disease and are exploring ways to bring that to fruition as well.

And are these trials, these opportunities that you mentioned, are these trials that you would embark on later this year or down the line perhaps?

We are still finalizing that. We'll be providing more guidance on that later this year and I will say we've had a lot of interest both from individual investigators and international and national cooperative groups in conducting some of the larger studies. So stay tuned for that later this year.

Great, thanks so much.

Thank you. And the next question comes from the line of Mark Monane with Needham & Company. Please go ahead.

Hi, good afternoon from New York City where it's quite cloudy here. It looks like the sun is setting early. And indeed this is consistent with the b-vedotin trial, which seems to be setting -- the sun is setting on that trial early as well. I guess another alternative would be to lengthen the trial or have more patients on the trial. Could you discuss how many patients you expect to be in the trial at the end and what information would be available when you open up the trial results at the end of next year?

Well Mark, what we have said previously and we'll say again that the trial is a 100 patient trial that's being done under an SPA and I think you mentioned something about more patients or you speculated on that. This is being done under an SPA that was negotiated with the regulators at the FDA and that's not something that we're eager to change, so we're going to keep it at the 100 patients and fulfill that as our SPA.

Now we do understand there are a lot of different, as Tom said, there is a lot of physicians that are looking for using this agent in different settings. We're excited about the front line opportunity as Mona asked the question. That's something that we plan on doing in the future. We're not giving the specifics today but we are excited about it.

And so we are going down that pathway and we intend to offer this as opportunity for more patients in different ways, in different diseases and clearly we're trying to get this to be a marketed product as soon as possible to help the most amount of patients.

Tom, I don't know if you want to expand on that.

Yes, I think just to go back to the pivotal study, we believe that 100 patients will be, as part of an NDA package as the pivotal study, will be sufficient the way we've designed it and worked with FDA to provide compelling activity and efficacy data as well as an appropriate safety population to command approval. So we think we're moving in the right direction on that and we don't think we'll need any additional patients.

That sounds good then. And how about the duration of response, you reported the median. Did you report a little bit about some landmark analyses, about how many patients might be alive -- excuse me, might be responding with -- excuse me, might be responding a year or longer?

So Mark, we reported simply median duration. We also have reported and showed some data on PFS as that continues to evolve. Those numbers do continue to evolve. We do have a number of patients that have been on therapy for up to a year and we have patients that have been in response for up to a year or more. We will -- my hope is that we will, as of now we've finished that first phase I study, be turning that into manuscript form and getting really the final data out there, which would include those kind of landmark analyses.

Very good, and it seems like b-vedotin is a drug that can be used every three weeks and potentially be used every week. How do you think about the different strategies in terms of either the refractory Hodgkin's patient or first line? How do you think about that?

So at this point the weekly data is still emerging and I know we've said that for now several times. What we think is really important is to really understand how best to use this drug is to have some data that's a bit more mature than we have. We have had exceedingly good enrollment on that weekly dosing study. We're very pleased with the data that we shared at ASCO. We expect to share more data later this year on b-vedotin.

We believe that one possibility may be to think about an induction maintenance approach where you push patients into very good or complete remissions very quickly and then maintain them on the Q3 week schedule and we're evaluating how we might look at that.

Very helpful. Thanks for the added information. Congratulations on your progress.

Thank you, Mark.

Thank you.

Thank you. And our next question comes from the line of Bret Holley with Oppenheimer. Please go ahead.

Hi, thanks for taking my question. Let me add my congratulations on the progress here guys. My question concerns the EU approach with b-vedotin. Have you had substantive conversations with the EMEA on the potential approvability of the 100 patient trial?

Bret, we are in active discussions with the Europeans as well as the US regulators, absolutely. And we expect to have more specifics later in 2009 on that. Or goal is that the pivotal -- the approach to our pivotal study is going to work both in the US and in the EU and we're working hard on that and we're confident and working hard on that but we'll be updating more specifics a little later.

Okay and could I just ask, I mean what is the precedence for approval on small, open label trials in Europe versus the United States? Obviously there is a clear precedence for approval in the US on these types of studies and I'm just wondering if you have any historical information on approvals on open label trials in the EMEA.

Yes Bret. This is Tom Reynolds. There are a number of -- there's two processes you can use in Europe. One is something called "exceptional circumstances." There have been a number of oncology drugs that have been approved under those usually in fairly orphan populations.

A new process that's been put into place in the last few years is called "conditional medical authorization," which is very similar to accelerated approval here. There have been very few drugs that have had an opportunity to go through that process but it is a process that the EMEA is willing to consider for this type of drug in this type of population with the trials that we have designed and as Clay said, we will tell you more about that later on this year as those discussions continue.

In the "exceptional circumstance" clause, I'm just wondering if there's any -- are there any therapies that are commonly in use in Europe that aren't in use in the United States that might argue that for a relapsed-refractory population in Hodgkin's disease that it's not quite as unmet of a medical need in Europe as it is in the United States?

No.

Not that we are aware of.

The work we've done on how patients are treated with Hodgkin's in Europe versus the US is pretty consistent. The one difference is that upfront patients in Germany often receive BEACOPP instead of ABVD, which is a more intensive regimen, but in the salvage therapy area they're treated with GEMZAR and various other chemic therapy agents similar to how they're treated in the US.

Okay. That's very interesting. Congrats again. Thanks.

Thanks Bret.

Thank you. And the next question comes from the line of George Farmer with Canaccord Adams. Please go ahead.

Hi, thanks for taking my question. I have a couple actually. Regarding your registration strategy for b-vedotin, why are you filing under the NDA process instead of BLA? Is there some nuance there and is that to your advantage do you think or does it really matter?

So George, this is Tom. They FDA requested. We asked them whether we could do this under and BLA and they actually asked that this be done under an NDA because there's a small molecule component. On the CMC side, the biologic guys that we are used to dealing with on antibodies are very involved in evaluating the antibody part of the drug, but it appears that ADCs will be handled by FDA going forward under the drug laws.

And a question about the peripheral neuropathy actually that you saw in, I don't know if it was the Q3 weekly or the Q1, but what grade neuropathy was that and do you think that could be a concern?

So in the Q3 week study virtually all of the neuropathy has been grade one or two with a single case of grade three. That patient ultimately went off study and my understanding is that that patient's neuropathy has resolved back down to baseline grade one.

Okay. Regarding Lintuzumab and AML, what do you think is a meaningful magnitude of effect in that study?

We believe -- so the study is sized to see a clinically significant event -- effect, which is a move from median survival of 5.5 months, which is modeled on Alan Burnett's Ara-C data to 7.5 months. We think that's clinically meaningful to see a 30% improvement in survival.

Okay. What if you see 6.5 months? Do you think it's worth filing?

We would need to look at the quality of the data there, George. I think one of the issues is do we have a tail of patients who actually survive for very long periods of time. Even if that's only 10% or 20%, that could well worth be -- well be worth filing on. But we will have to wait and see the data.

Okay. Regarding the MARINER study, you got it at 2010 day report. Has that guidance moved up from previous guidance?

No. I believe that as what we've been saying for quite some time now. This is going to be 2010.

Are you thinking back half or front half? Second half?

We're second half.

Second half.

Yes.

And regarding SGN-70, the outcome of your phase I trial with healthies, did you hit a DLT and what was it?

We've not reported data on SGN-70 yet, clinical data.

That's correct.

Will you be?

At an appropriate time, absolutely.

Okay. But can you say if you did hit a DLT?

We've really not reported the data at this point, George. We'd rather not discuss it.

Okay, thanks very much.

It's really appropriate to report clinical data on new products in the right way, and do it with the investigators that are doing the trials and not just do it on quarterly calls.

Right, but you are moving forward into effective patients then.

We are.

So you're happy with what you saw then in that healthy volunteer study.

Yes.

Okay. Great. Thanks very much.

Thank you and our next question comes from the line of David Miller with Biotech Stock Research. Please go ahead.

Okay, thanks for taking my call and good job on another great quarter.

Thank you.

You were talking about on b-vedotin about a $300 million to $400 million annual revenue and I was having technical difficulties on my side so can you walk through that again on how many indications that $300 million to $400 million represents?

Sure, David, this is Eric. That represents relapsed and refractory Hodgkin lymphoma and ALCL. That's what we're talking about when we talk about $300 million to $400 million. And as Clay said during the call, the additional indications we could move into include front line therapy, other CD30 positive lymphomas such as PTCL and subsets of some B cell lymphomas that have CD30 on them, as well as some other settings like relapse prevention post-transplant or post-chemotherapy.

So our initial market is really what we're describing for $300 million to $400 million is really pegged to the trials that we're running now for approval, the Hodgkin's trial and the ALCL trial.

Okay, because I've asked this every conference call for several now, just a question on if you're seeing any differences in the SGN-40 in terms of commitment or time that you're getting with -- since the Genentech acquisition.

Since the acquisition has happened there certainly have been some changing of some of the chairs there with some of the employees as you know, but the commitment and the spending on the program and all the trials are still going full force.

Okay, and so nothing in the way of timing while they do a re-evaluation that they've talked about?

Nothing that we are aware of. It's going full force with our five clinical programs and we're planning on really seeing data from our trials in late 2009 as well as in 2010.

Okay. and the last question I have is you talked about doing CMC activities and locking down and starting your performance. Can you talk about where you are in terms of the current scale up as compared to where you want to be for production of the commercial scale targets?

Well what I could tell you is, without all the specifics, which would take hours, we are manufacturing at the scale for commercial presently. Things are going well. There's still more to do. We're not done with everything. We think the timelines for our clinical as well as our CMC are coming together very nicely, but we are at the commercial scale right now and feel confident that we'll be able to commercialize this product with the manufacturing, supply chain and activities that are going on right now.

Okay. And has some of the -- have you used lots in the commercial scale up yet in the clinic?

That's something we haven't really discussed at length and I think that we'll be giving more guidance out in the future but I think what I can say is we're spending a lot of time and effort on that aspect. We've hired some incredible talent that have gotten other products approved and I think we're in great shape there.

Okay. Are you doing manufacturing yourself or are you working with a contractor?

We are working with a few different contractors on our supply chain. We create the sell lines. We create the methods, both biology and chemistry methods for conjugation and we use many different contractors in our supply chain. And I can give you an example of one just for discussion purposes. The antibody is manufactured at Abbott at their facility in Worcester, Massachusetts where they launched Humira out of so it's an FDA approved launch facility.

Right.

And we have -- every contractor that we are using in here, whether it's making antibody or fill finish, are all approved -- very strong, approved types of contractors so we're not taking risks there by not using really strong contractors.

Okay. And so all of those contractors, are they actually all launch facilities?

Yes.

Okay. Good. That was my next question. All right. That's all I've got. Like I said, keep up the good work and congratulations again on another great quarter.

Thank you.

Thank you and the next question comes from the line of Jason Kantor with RBC Capital Markets. Please go ahead.

Great, thanks and good news on the enrollment timeline. A lot of my questions have been answered but could you walk us through how response are assessed in the pivotal SGN-35 trial, that is how frequently do patients go in for scans and is there a point in time where you say if a patient hasn't responded by a certain date, or does it just go on forever. I mean, what is the drop dead date for getting data once a patient's started treatment?

Yes, so Jason, this is Tom. It's a fairly complex schedule of assessments that involve both CTs and PET scans at a number of different intervals. The scanning frequency is weighted more heavily at the beginning where a large number of responses are seen. However, in our phase I data, what we have seen is that responses mature over time. We have patients with SD that then become PR or CR and we have a number of patients who have gone from PR to CR.

We've seen that occur both early in the study as well as at later points in the study, so we are expecting to follow patients until they stop receiving treatment and their last scan where we could capture additional efficacy is at that end of treatment visit.

So what that means is all patients can receive therapy for up to a year and the last opportunity to see the best response is at that end of treatment visit. And we think that given what we've seen in phase I, there are a number of responses that occur relatively late in the game and we want to capture those as well as to maximize our ability to discern how the durability is doing.

So let me understand this in terms of the timing of the data. If the last patient enrolled in the study is in stable disease on drug, 11.5 months into the study, you're going to wait until that patient has been on drug for a year before you can call the results of the study?

So the way this is going to work is because it's an independent review is we're going to wait until all patients complete their end of treatment visit. The scans will be being read although we won't have access to them in batch mode as the trial progresses. And then as those last patients comes off, and as you can imagine, it's probably not just one. We've had a lot of enrollment and 100 patients in five or six months, there's quite a few coming at the end.

All of those patients at the end will go to the -- the scans will go to the independent review facility. They will be read. The other data will be cleaned, locked and loaded and then so I think we're very much on target, as Clay said, to have data in the second half of 2010.

Now most of the responses come early with this drug. I mean, if you have 60% of your patients responded six months into the study, the trial will still go for a full year before we know the results?

That's correct. We have no access to the independent review facility data until the database is locked. We don't have the data.

The only way the data could come any earlier is if every patient has either had a response or progressed, as long as there's at least a stable disease that could turn into a PR.

The only way the data can come earlier is if patients complete treatment earlier because patients can go from stable disease to a response after the last dose of drug.

Okay. And then one last question, Clay, nobody knows the inner workings of the ADC thinking at Bristol as you do. They just bought Medarex today. They cited the ADC technology is the reason for doing that. You guys actually spun out of Bristol. Any thoughts on why they would decide to go with the Medarex technology?

You know, I think you're asking a lot of questions built into that. If you're getting at that they prefer the Medarex technology versus --

No, I don't think they do. I was just wondering what your thoughts are.

I think that -- I mean when you look at Medarex, they're a great company. I think this was a great deal for Medarex. They have a phase III program, ipilimumab, that Bristol owned half of. They have some substantial royalties coming in including SIMPONI, that are very valuable.

They have one of the best antibody -- best ways to make human antibodies there is on the market. It still an exciting technology. Well it's no longer new. It's still a great system to make fully human antibodies.

And then they -- Medarex has certainly come out and they've talked a little bit about their drug conjugate technology. There's not a huge amount of data and there's no clinical data out there. We have an enormous amount of data out there so it's hard for us to fully assess their ADC technology but I can't imagine that that was a large driving force of the deal. I think it was other reasons and I think that they just had -- the technology was there and but I think Bristol is doing the right thing.

Bristol is getting more heavily involved in antibodies and we believe that antibody therapy is something that can strongly help patients so I think Bristol made a good move to diversify their pipeline and add more antibodies into it. So for us looking at it, it's a great move.

Yes, I think it's great for the whole field and good for you guys too. Terrific, thanks a lot for answering my questions.

Thank you and the next question comes from the line of John Sonnier with William Blair. Please go ahead.

Thanks, Clay. Congrats on a lot of good progress and I really do appreciate all the detail on your development program. Mine was also really more of a platform question. I do think that the Medarex transaction kind of draws attention to the enabling platforms including yours. And so talk a little bit about how we should think about the future of your ADC deals. Obviously the technology itself has been validated I think to a large extent and is arguably more valuable.

And maybe overlay on that a discussion about how we should think about the evolution of the ADC platform at Seattle Genetics.

Sure. Well you know, when we think about these deals and we've generated more than $75 million to date, which keeps our cost to capital down, it's -- the working with other companies on these deals has been helpful because we do learn something from other companies. Everyone has a different way of looking and developing different drugs and even if you're using the same technologies, so our relationships have been excellent with other companies and so that's been really good for Seattle Genetics as we've gone forward.

Now when you think about our strategy for partnering, we've never gone out to try to partner this over and over and over. That's never been our main focus. Our main focus has been to develop products so that's our main focus, products and our pipeline. Our drug conjugate technology has been a secondary focus partnering that.

Now having said that, we are in discussions with companies about doing some drug conjugate deals and they could represent the kind of deals where it's one or two targets but it could be a deal that's a little broader. So both types of deals are being discussed. We're not -- it's not our main focus like I said. Our main focus is getting SGN-35 approved. Getting SGN-33 pushed along, et cetera.

But we're very excited with our platform and maybe your last part of that question was the evolution of the drug conjugate technology within Seattle Genetics and perhaps within the field, if you look back at the beginning of Seattle Genetics 11 years ago, we had a drug conjugate that we developed in clinic called SGN-15 that we closed as a commercial -- as a clinical development program many years ago.

What we learned from SGN-15, and that was targeted to solid tumors, what we learned was that the linker was a hydrazone and it wasn't very stable and we were using a drug attached to it, which at the time was doxorubicin, which was potent but not highly potent. And what we really took away from that trial is that we knew we needed a more stable linker and we knew we wanted a more potent drug and we knew we did not want to use a natural product drug. We wanted to use a synthetic drug so that we can make it really simply in two steps - conjugating an antibody to a drug linker unit rather than conjugating with a separate linker, a separate natural product drug and a separate antibody.

So we knew we wanted to have a more stable linker, an easier way to manufacture, fully synthetic with a more potent drug than doxorubicin. And we've accomplished all that and I think the evolution is that we've accomplished and built a system with orstatin as our antimycotic drug and with stable linkers that are -- is ready for prime time and it's showing that with SGN-35 that our data is excellent.

We have two additional new drug conjugates that will start in the clinic within the next 12 months so we're putting our money where our mouth is to move forward on those conjugates both in hematologic and in solid tumors and we're working with our partners.

And as far as in our research labs, we continue to stare at our drug conjugate technology and try to improve, improve, improve anything we possibly can. So we're -- we feel we're in a leadership position in this field and we're investing to be the leader and to stay as the leadership position in the field.

Thank you.

Thank you. (Operator Instructions) And we have a followup question from the line of Cory Kasimov with JPMorgan. Please go ahead.

The followup, just one quick one. I'm wondering if you're getting the phase II Dacetuzumab data in the first half of 2010, is there any possibility that you could file later in 2010, essentially put the filing in before the SGN-35? Or are you constrained by the CMC aspects which have to -- which you have to get through?

I think you've touched on what's critical there with the CMC aspects, so that's a very appropriate question. Thank you.

And how long would that take?

Well at our last conference call we discussed this. So we didn't discuss it a lot today because we did emphasize at our last one and what we said was we made a corporate decision since both data sets were not that far apart, we talked about how it -- with our resources and our team that it would be very -- it would be difficult for us to go forward with two CMC parallel development paths so we decided to do them in sequence rather than at the same time. And we made a corporate decision to do SGN-35 first and make the SGN-33 CMC guided based on our data.

So we have not come out with timelines that are specific for it. We certainly are working and looking -- we're looking at this very closely to try to find, identify the most rapid path that we can take toward getting SGN-33 approved pending the data looking appropriate for filing.

So we are working on that, but we have not given guidance on that yet except to say that SGN-35 is in the lead in our CMC organization.

Great. Thanks a lot.

Thank you and the next question is a followup from George Farmer, Canaccord Adams. Please go ahead.

Thanks. Clay, I just want to follow up on some comments that you had just made regarding the ADCC technology. While the response rates in Hodgkin's, in your Hodgkin's disease trials certainly are excellent, not everyone is responding. Why do you think that is? Is it due to a level of antigen expression or is there something about the technology that you think could be improved upon, kind of getting back to that point where you were saying that you were constantly thinking about and improving upon a technology, what could be done to make it better at this point do you think?

Well it's a good question. We've been trying to improve this technology now for two years and haven't been able to simply improve it. So I would say that that is something that we're working hard on but I don't have an easy -- there's no easy answer of how to improve it. It's pretty good -- when you make something that works pretty darn well, it's hard to prove in the laboratory setting that you can make something a lot better.

We are working on -- what you could say is you could look at alternative chemo types to see if there's other chemo types that could look good or other linkers or things like that and that certainly is -- we're working on that but we've not come up with something that is obviously better than the orstatin drug linker we have now.

Going back to the first part of your question about Hodgkin lymphoma, let me make sure that it's clear that less than 10% of the cells are Reed-Sternberg cells in a Hodgkin tumor and those Reed-Sternberg cells express CD30 in high density but the infiltrating lymphocytes associated with such a tumor that are not necessarily tumor, but they're part of the nodule, those don't necessarily express CD30.

So we're not -- we're targeting a disease population which as a very heterogeneous expression profile, very heterogeneous and when we look at T cell lymphoma, T cell lymphoma have a very homogeneous expression profile and what we've said so far is that six out of seven patients has complete responses, which may be a reflection of its histology.

So I think that school's a little out yet. We're not fully there. We don't have all the data but it might be reflective of histology and it might suggest, which I think we knew based on research in the laboratory was that one of the important aspects of having a targeted therapy work is the expression level. And I think this correlates well with it.

Thank you and the next question comes from the line of Mark Monane with Needham & Company. Please go ahead.

Thank you. Followup question, Todd, how many people at the Seattle Genetics now and what's the appropriate number for 2009-2010 going forward?

Good question. So we're at about 275 right now. Most of those are in our clinical and development teams. Kind of the right size we think over the next 12 months would have us adding 20, 20 to 30 people and that would give us also starting with some of our commercial activities.

Very helpful and speaking of commercial, maybe you could opine, the team can opine a little bit about any changes in healthcare reform and how they can affect the choice of targets as well as the combination drugs. Clearly some of the drugs that you're combining with in example for the Lintuzumab for generic drugs, so that would be much less expensive than the Dacetuzumab study, which is an antibody with Rituxan. Are you thinking about these considerations at this point and at this point what are your thoughts there?

Absolutely we are thinking about these strongly. I think that the most important thing is getting strong patient benefit, added survival, great responses in patients and I think that having great drugs that are targeted therapies with what we're doing is critical to it. I think that great data with targeted therapy where you can select patient populations will get you reimbursements under any of the health proposals that we've seen, so we think that that's where we need to focus on.

As far as the commercial team, I want to assure you that we are -- we're doing a tremendous amount of pre-commercial activities already including market research and branding. We're working with key opinion leaders in developing them. We are looking at initial reimbursement assessments and so all of these things are underway. We brought in a lot of expertise from outside to help Seattle Genetics and we're currently recruiting for head of commercial operations to be an internal person and we've started to interview a number of people and when we do hire that person we'll certainly announce it.

Very good, thank you.

Thank you and I'm showing there's no further questions in the queue. I'll turn it back over to management for any closing comments.

Okay, thank you operator and thanks everybody for joining us this afternoon. Please have a good evening. Good night.

Thank you. Ladies and gentlemen, that does conclude today's Seattle Genetics second quarter 2009 financial results conference call. If you would like to listen to today's replay, please dial (inaudible) 3-590-[3030] or 1-800-406-7325. Enter the passcode 4114066.

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