Seagen Inc (SGEN) 2011 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Seattle Genetics Second Quarter 2011 Financial Results conference call. (Operator instructions). This conference is being recorded today, Thursday, August 4th, 2011. I would now like to turn the conference over to Peggy Pinkston, Director of Corporation Communications. Go ahead, ma'am.

Thank you, operator. I'd like to welcome all of you to Seattle Genetic's Second Quarter 2011 conference call. With me today are Clay Siegall, President and Chief Executive Officer, Todd Simpson, Chief Financial Officer, Eric Dobmeier, Chief Operating Officer, Tom Reynolds, Chief Medical Officer, and Bruce Seeley, Executive Vice President, Commercial.

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

Today's conference call will include forward-looking statements based on current expectations, including the projected commercial launch of ADCETRIS. 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.

It's been a busy past few months for Seattle Genetics, and we've made a lot of important progress. Today, I'd like to dedicate the majority of my comments to our lead program, ADCETRIS, or brentuximab vedotin. This is an antibody drug conjugant, or ADC, directed to CD30, the defining marker for Hodgkin lymphoma and anaplastic large cell lymphoma, or ALCL.

As a reminder, our PDUFA date is August 30th. ADCETRIS is the first in a new class of ADCs using our proprietary technology. This is an exciting time for the Company, as we prepare for the planned launch of ADCETRIS and focus on bringing this product to patients in need.

In July, we received two unanimous 10-nothing recommendations in favor of accelerated approval of ADCETRIS from the Oncologic Drugs Advisory Committee, or ODAC. The first vote was for relapsed Hodgkin lymphoma patients following autologous stem cell transplant, or ASCT, and the second vote was for relapsed or refractory systemic ALCL.

The discussion at ODAC also provided meaningful feedback regarding our confirmatory trial strategy, including our Phase 3 AETHERA trial. Since ODAC, we've had several productive interactions with the FDA, including a face-to-face meeting and teleconferences regarding our BLAs and confirmatory trials. While we can't comment on the specifics of these interactions, reaching agreement with the FDA on a confirmatory trial strategy and post-marketing requirements is our highest priority.

Our development strategy for ADCETRIS includes a broad evaluation of its therapeutic potential in earlier lines of Hodgkin lymphoma and ALCL treatment as well as in other CD30+ malignancies. We have two ongoing Phase 1 Front line trials from -- trials of ADCETRIS in combination with multi-agent chemotherapy, one in Hodgkin lymphoma and the other in systemic ALCL. These trials are designed to evaluate safety of the combination and to inform the design of future pivotal front line trials.

We are also aggressively pursuing evaluation of ADCETRIS in other CD30+ malignancies. There are three clinical trials planned for ADCETRIS in these settings. First, a Phase 2 trial in CD30+ non-Hodgkin lymphomas such as peripheral T-cell lymphoma and diffused large B-cell lymphoma. We are on track to initiate this trial during the third quarter.

Second, a Phase 2 trial in CD30+ non-lymphoma malignancies including leukemias, multiple myeloma and solid tumors such as sarcomas or melanoma. We expect to initiate this trial later this year. And third, a Phase 3 trial in cutaneous T-cell lymphoma, or CTCL. We expect this trial to start in the first half of 2012.

Physician interest in new investigational applications of ADCETRIS continues to grow, and we have received proposals for many investigator-sponsored trials, or ISTs. Patient enrollment has commenced in two ISTs for CTCL, and several other ISTs in different indications are planned to start in 2011.

Areas of exploration for future ISTs include novel frontline lymphoma strategies, salvage lymphoma settings, combination with other agents, other CD30+ malignancies, such as DLBCL and systemic mastocytosis and graph [graph burtos] disease. Through both corporate sponsored and investigator-sponsored clinical trials, we are committed to broadly exploring the potential of ADCETRIS.

With our PDUFA date less than a month away, I'd now like to switch to discussing the planned commercial launch of ADCETRIS. Our commercial group is fully established, and we recently completed hiring of our sales force. We've assembled a very strong team of sales reps, each with extensive oncology product sales experience.

Upon approval, they will be calling on a broad base of customers, including academic oncologists, community-based oncologists, as well as transplanters, pathologists and nurses. As Bruce Seeley mentioned last quarter, a key part of a successful launch will be rapidly educating our customers on ADCETRIS.

Our marketing activities are on track, including disease awarenesness, CD30 education and preparation of promotional materials. We are prepared to conduct our marketing and promotional activities in the context of accelerated approval. This includes the necessary interactions with FDA's Division of Drug Marketing, Advertising or Communications, or Ddmac. In addition, our managed markets and reimbursement team is currently working with distributors, insurers and oncology-purchasing networks to facilitate the introduction of ADCETRIS into the market.

We recently received a $5 million milestone payment from Millennium, the Takeda Oncology Company. Triggered by the European Medicine Agency acceptance of the ADCETRIS MAA. This is an important milestone for the program and reflects Millennium's commitment to bring ADCETRIS to patients in Europe as soon as possible.

In addition to Europe, Millennium has aggressive goals to expand ADCETRIS in the rest of the world, with plans for regulatory submissions and additional clinical trials in major markets worldwide. We look forward to continuing to collaborate with Millennium and maximize patient access to ADCETRIS.

While our top priority is the regulatory activities and planned commercial launch of ADCETRIS, Seattle Genetics is committed to investing in a robust product pipeline. I want to briefly highlight the progress we are making with the rest of our programs. We reported data at ASCO on SGN-75 and ADC targeted to CD70. The data showed that SGN-75 is generally well target and induces objective responses in heavily pre-treated renal cell carcinoma and non-Hodgkin lymphoma patients. The MTD was identified, and we are enrolling additional patients to further elucidate the safety and anti-tumor activity of SGN-75.

During the second quarter, we also announced that we have opted into co-development of a second program under our collaboration with Agensys, an affiliate of Astellas. The first joint program under the collaboration, ASG-5ME, is in ongoing Phase 1 trials for pancreatic and prostate cancer. Now, we are jointly developing a second program, ASG-22ME. This ADC targets the Nectin-4 antigen, which is expressed on multiple solid tumors. The first patient was recently treated with ASG-22ME in a Phase 1 clinical trial.

Our pre-clinical pipeline is also robust, and we are advancing several additional ADCs toward future clinical trials. Our CD19 targeted ADC, SGN-19A, is a 2012 IND candidate for B-cell hematologic malignancies. We are also conducting preclinical development of multiple other ADCs, including one for breast cancer and another for hematologic malignancies that we look forward to discussing in more detail in the future.

Given the strength of our product pipeline and our belief that ADCs have the potential to transform the way cancer is treated, we have decided not to pursue further development of our dacetuzumab and SGN-70 programs. We continue to believe in the potential of CD40 and CD70 as targets for cancer therapy, and we are pursuing approaches to empower the next generation of targeted therapies.

Our ADC technology is also being employed broadly by our collaborators. There are many ADCs in clinical development using our technology for a variety of hematologic malignancies and solid tumors. We believe these programs will generate data in the next one to two years that will benefit our ADC platform and further drive the potential of ADCs in the treatment of cancer.

At this point, I'd like to turn the call over to Todd to discuss our financials.

During the first half of 2011, we continued to make substantial progress towards the planned commercial launch of ADCETRIS and maintain a strong financial position. We have brought in approximately $225 million in cash so far in 2011, and ended the quarter with a cash position of approximately $424 million. This enables us to continue to aggressively execute on our research, development and commercial plans.

This afternoon, I will review our second quarter and year-to-date financial results. I will also provide a few updates on our outlook for the remainder of the year. Revenues were $13.1 million and $25.2 million in the second quarter and the year-to-date in 2011, compared to $36.9 million and $83.3 million in the second quarter and year-to-date in 2010.

As a reminder, 2010 revenues included approximately $30 million in the second quarter and $70 million in the first half of the year related to the dacetuzumab collaboration with Genentech that ended in June of last year. Excluding dacetuzumab revenues, collaboration revenues in 2011 have increased approximately 90% over 2010, reflecting higher revenues from both our ADCETRIS co-development agreement with Millennium and our ADC deals.

Driven by higher than expected ADC revenues, including under the Abbott agreement, the expanded collaboration with Genmab and collaborator milestone achievements, we are increasing our 2011 collaboration revenue guidance to now be in the range of $45 million to $50 million. As a reminder, this guidance does not include 2011 product sales.

Operating expenses were $64.8 million and $110 million in the second quarter and year-to-date in 2011, compared to $45.8 million and $81.3 million in the second quarter and year-to-date in 2010. These planned increases were driven by activities related to the FDA review and planned launch of ADCETRIS as well as activities under the broad clinical development plan for ADCETRIS that Clay described.

In addition to ADCETRIS-related activities, increased operating expenses reflect development activities directed towards our other ADC pipeline programs. Non-cash, share-based compensation expense for the first half of 2011 was $8.5 million compared to $6.4 million in 2010. We continue to expect that total operating expenses for 2011 will be within our guidance range of $230 million to $260 million. Of that amount, we now expect that G&A will approach 30% of total expenses, reflecting our fully staffed sales team in addition to expanded efforts intended to drive a strong launch.

As I mentioned, we ended the second quarter of 2011 with approximately $424 million in cash and investments. This reflects approximately $47 million in collaboration payments received this year, including upfront payments received under our new deals with Pfizer and Abbott in addition to development funding and the $5 million milestone payment from Millennium related to the EMEA -- EMA acceptance of its MAA submission.

Primarily as a result of new business development activities and progress under our collaborations, we are updating our cash guidance. We now expect that net cash used to fund our operating activities in 2011 will be in a range of $140 million to $160 million, and we expect to end the year with more than $300 million in cash and investments, $20 million more than previously guided.

As we approach the planned launch of ADCETRIS, our financial statements will begin to change in a few respects. This afternoon, I wanted to touch upon some of the changes that we expect upon FDA approval. First, we have created an efficient distribution model in which we will generally ship product to customers as they place orders, as opposed to filling the distribution channel with product. Under this model, orders will be fulfilled from our distribution center, and we will record sales upon product receipt by our customers.

Gross-to-net discounts can vary, depending on patient population and payer mix. Given the younger patient population in Hodgkin lymphoma, we anticipate a relatively high level of commercial payers. To a lesser degree, we do expect reimbursement through government-paid programs that we'd be subject to mandated discounts.

We will report product sales net of these discounts, rebates and other customary items. Based on our current assessment and payer landscape, we estimate a gross-to-net adjustment of less than 15% for ADCETRIS. Following launch, and as we gather sales data, we should be able to provide more insight into the level of discounts and rebates.

Collaboration revenues, including those under the ADCETRIS deal with Millennium, will continue to reflect an amortization of the cash received under the agreements recognized as revenue over the development term of the collaboration. In the case of the ADCETRIS agreement, the upfront reimbursement and milestone payments are currently being recognized as revenue, ratably over eight years.

We are also entitled to receive royalties on Millennium's sales at rates ranging from the mid-teens to mid-20s, based on sales level. These royalties will be recorded as revenue in the quarter reported to use by Millennium and broken out separately on our financial statements.

Finally, following approval, we will begin the capitalized ADCETRIS manufacturing cost as inventory rather than charging them to R&D expense. Our initial launch will be supplied from product that was primarily manufactured before approval and therefore has already been fully expensed. We expect that at least during the first year of launch, this will provide a benefit to COGS as this material is consumed.

While we are not yet commenting on price, revenues or projected margins, our COGS will include typical distribution costs, the production cost of the product, net of the benefit I just described, and a single digit royalty payable to our licensors.

We're excited about our transition to a commercial stage Company, and we believe that we have built the infrastructure needed for a successful launch. At this point, I'm going to turn the call back over to Peggy.

At this point, we will begin the Q&A portion of our call. We ask that you limit yourselves to one to two questions and then re-queue with any additional questions. Operator, please open the call for questions.

Thank you. (Operator instructions.) Matt Roden with UBS.

You talked a little bit about the patient population's skewed towards commercial payers, and I was wondering if you could comment a little bit on -- as you think about the transplant ineligible population, if you see any unifying characteristics in the type of patient that you might be able to achieve reimbursement for? That's the first question, then I have a follow-up.

Matt, we haven't broken that out yet at this point, and so I would defer that question. Bruce, would you have any comment on that question?

Sure. As we look at the transplant ineligible population -- and maybe Tom can add some color as well, generally those patients are going to be older. They are more likely to have co-morbid issues that could inhibit their ability to be able to receive a transplant.

When we look at those particular patients (inaudible) the ineligible population, we see that there is a very, very significant unmet medical need for those ineligible population. Maybe, Tom, you can talk a little bit more about the ineligible population in the study?

Yes. There's two classes of patients, as Bruce pointed out. There's the older group of patients that have co-morbidities, can't receive a transplant or the conditioning regimen, and then there's the younger patients who could often be refractory to all therapies and some of whom, in studies that we've done and presented data on, have been able to respond and respond well to brentuximab vedotin.

From a payer mix perspective, it's going to be like the regular population where there's going to be some of the older patients, maybe a few more of those in the ineligible population, but still a substantive number of those in the younger patient population. And I point you to the data that we presented at the European Hematology Association looking at some of the patients that we've studies, where we saw a number of good responders and, interestingly, a great duration of response in those patients that we followed.

We think we're well positioned for that, and -- but, the payer mix will just be -- maybe just slightly different than the overall population.

Okay. That's helpful. I guess, secondly, as you think about getting this drug out into the commercial setting here, can you help us with the number of patients that you would expect to be able to convert this fall to -- onto commercial drug? I think you have the expanded access program, and you probably also have a queue of patients who are waiting for the approval docs who are aware of it.

Is there any way that you can help us sort of quantify what that number of initial patients you would expect to convert? And where those -- what those pockets of patients are? And how you think about actually converting those patients?

Yes, Matt, this is Clay. The real purpose of the EAP is to provide drug for patients that really didn't have any other alternative and may not even be alive by the time the drug was approved. We started EAP early this year, and that was really our intention, was it was a patient-first plan, and it was the right thing to do.

We're not commented on the number of patients, because this really wasn't something for guidance. It was something for patients. At this point, to really comment on conversion of those patients is something that we're not prepared to do as part of that. But, I do understand your call -- or your question.

Okay. Just lastly, I think yesterday in the marketplace we saw an example of where a new therapy in oncology has run into some reimbursement headwinds. Is there anything that you saw from the results out yesterday from Dendreon that makes you think differently about the strategy that you guys are taking from a commercial launch or pricing or reimbursement perspective?

Yes, we also saw that. It's really impossible for us to comment on -- to reimbursement circumstances for other drugs and other companies. Lymphoma and prostate cancer are very different diseases, and if you really want to focus down on our drug, where we can make comments, ADCETRIS is a very highly active drug. We've treated and provided data in two settings, relapse refractory Hodgkin and systemic ALCL with high response rates and durable responses and high level of CRs.

We've -- we feel we're well prepared from a reimbursement prospectus -- perspective and, at this point, we're not commenting on pricing.

Okay. Thanks for your comments. Really appreciate it.

Jason Kantor with RBC Capital Markets.

I'm looking forward to the approval and launch. I wanted to ask a question about the pipeline, because you mentioned that opted in this new drug. Can you give us a better sense of where you're looking to take this? Is this -- was there -- is there an upfront cost for you opting in? Does it change your view of expenses going forward?

Yes, that deal was designed by -- and executed by Eric Dobmeier. Eric, would you like to comment?

Sure. Jason, the -- there was an opt-in payment. It's a modest payment, and we haven't given specifics. But, it's certainly, we believe, a favorable deal for us in terms of how it was structured. Basically, the specifics are once the IND was submitted, we had the opportunity to evaluate a data set from this program, which targets Nectin-4, which is an antigen that's expressed on many types of solid tumors.

We decided we liked what we saw, and we opted in, and we are going forward sharing development costs 50/50 joint decision-making and profit sharing, ultimately, on this program. We're excited about it. It's early days. We just treated the first not too long ago, and it's another ADC that we're excited to have in our pipeline.

If I may ask, you mentioned that you have a royalty -- a single-digit royalty. Who do you pay that to? And for what? Given your bullish outlook for the drug, is that something that Seattle Genetics could potentially buy back?

Jason, it's Eric again. The single-digit royalty is paid to a few licensors, including University of Miami, where the antibody came from originally, Bristol-Myers, which has a patent on the drug-linker technology, we have a Cabilly license from Genentech as well, and then there's a very small manufacturing royalty. So, the total amount is in the single digits.

There's always a possibility that we could -- I'm not going to comment on specifics, but it's certainly something that's not lost on us that there is an ability to potentially buy back some of those royalties. But, we think, overall, the amount of third party royalties are modest for the program.

Just one last question. How many salespeople are you launching the product with?

We're launching in the range of the low 60s is what we've said earlier.

Thank you.

And that's [just for] sales reps.

Cory Kasimov with JP Morgan Chase.

To follow up a little bit on what Jason was just asking, with these reps, how many docs do you plan to target with the launch? How many of them were previously involved in ADCETRIS trials?

Cory, thanks for the question. Bruce, would you like to talk a little bit about that?

Sure. The total target universe of physicians that the sales reps have is about 8,500. In terms of the numbers of physicians that have had experience with the drug, I mean, maybe I'll turn that over to Tom.

Yes. When we look at the thought leaders that have worked with us on this program in the Hodgkin and ALCL space, depending on how you calculate it, you'd figure it's somewhere around 30 that are the top thought leaders. I think the last time we did the math, we had -- actually 28 of them have been investigators. It's a pretty high proportion. On the next tier of people that are maybe national, maybe not internationally known, I think we've worked with a good percentage of those.

And the other thing, to remind you, is the sales guys are going to be out there soon once the product's approved. Right now, we've had an MSL team on the ground since last fall, and they really have worked with probably the top several hundred investigators and KOLs across the country to really make sure their questions are answered about the product and that they -- and they have been very instrumental in channeling ISTs that people are proposing and other indications or earlier lines of therapy.

We think we're really well prepared within that community and are looking forward to having the sales team on the ground and out there very soon.

Thanks helpful. My follow-up, I guess, is for Todd. Appreciate the initial insight into what the model might start to look like upon launch. Following up on the question on COGS, now I understand what goes into it, but can -- is it possible for you to put a little bit of numerical perspective around that? Like what type of percent margins we're talking about? Or at least a range?

Is it typical for a typical antibody? Or does the royalty you're paying [made] -- and this is going to -- the cost of goods would be a touch higher here?

Yes, I think you can think about this like a normal antibody. We talked about the royalty stack -- single-digit royalty stack. On the actual manufacturing cost side, again, I think it's safe to think about this as an antibody with maybe one or two adjustments. We do have additional manufacturing costs related to the conjugation of the drug linker to the antibody, so that adds cost.

But, sort of going the other way, we're dosing ADCETRIS in the initial settings and in our clinical trials at fairly low levels of protein. We're at 1.8 milligrams per kilogram dosed every three weeks. That's a lower dose of protein than what you'd typically see with a naked antibody.

Okay. Thank you very much.

Marco Kozul with Thinkequity.

Clay, I was wondering if maybe you could review the highlights of the expanded access program and -- or compassionate use programs? What have you said publicly?

I'll turn that over to Tom to talk about this, since it's -- his organization within the Company runs EAP [in] our clinical trials.

Yes. The first thing I'd start with is just reinforcing what Clay said earlier. We decided, once we saw our data and how this was impactful to the lives of patients, that we felt it was important for us to make this available to patients who couldn't wait for launch. That's the primary reason for doing the program.

We actually started this as a compassionate use single-patient treatment IND program in the fall before we had regulatory guidance on the suitability of our application for submission. Once we had that, we moved quickly to open an expanded access program here in the United States. It has initially focused on populations in our clinical trials and broadened out a little bit into the relapsed refractory space, generally in Hodgkin as well as for ALCL, and has been running well ever since.

It's opened at, I think, roughly 30 centers across the US for good geographic distribution with physicians that are experienced with the drug, and we've had a good response, and we feel that patients' needs are being met.

Just a follow-up related to this. At the ODAC panel, I don't recall much discussion over the EAP or compassionate use programs. Respecting that you can't comment on ongoing discussion with the FDA, can you at least comment on whether this is something that you maybe are considering in these discussions?

I guess a way to look at this is an expanded access program, as we've configured it, needs to be submitted to the FDA and reviewed and approved. Although the statutory language around that is not at the same high bar as for a drug approval, it does require that the FDA look to ensure that there is evidence of efficacy in the population as well as a reasonable safety profile that (inaudible) patients. And by approving this, we believe that we've met that bar.

That has gone into their thinking, and we've clearly had conversations with them along the way in the design and implement of this, so they're very familiar with it.

Perfect. Thanks for taking the question.

Thomas Wei with Jefferies.

I had wanted to just follow up on the discussions with the Agency about the -- about all that needs to get done before the PDUFA data. I didn't specifically hear you say this during the prepared comments, but do you still feel confident in reaching an agreement by August 30th?

Thomas, we are -- feel like we're working very closely with the FDA. We have a strong working relationship with the FDA. We feel that we are addressing every one of the different issues that have been brought up. We said in our prepared remarks that we met with them face-to-face, we've had teleconferences with them. And we think we're making excellent progress. We're well aware of our PDUFA date, and we are working very diligently toward that.

I guess, on the last call, though, you had actually just outright said -- We are confident in our ability to reach an agreement by August 30th. Should we interpret that as a change, now that you've actually sat down with them? Is there something maybe more complicated than before -- during the last call when you were willing to make those sorts of statements on the call?

I think you should not over-interpret any specific words that I am stating here. We are working very hard with the FDA. I think it is in the best interest of Seattle Genetics and the FDA and patients to try to get this product onto the market. It's an excellent product and really helps people.

Perhaps you listened in to the FDA -- the ODAC panels, excuse me, and heard some of the patient testimonials, which were very heart-warming. We hear lots of those, not only the ones that were just at the ODAC panels but we feel that we have an important product here that really helps patients.

It's our top priority, we're working very hard on this, and I hope you can appreciate us trying to not overstate anything and be focused with our nose down -- focused, get work done and be a little humble with what we're trying to say. But, please don't read too much into it.

No, that's very helpful. Maybe I'll squeeze one last one in ere. Can you remind us how many cycles of commercial drug supply you will have in inventory at the time of launch?

Todd, you take that?

Sure. We haven't tried to translate in this commercial cycles, but suffice it to say, this year, we have been very active in manufacturing to ensure that we have not only product supply for the launch, but bear in mind there were a number of preapproval inspection activities. So, substantial amounts of manufacturing, all of which will be able to be used as commercial drug supply.

We are very confident that upon approval, we'll have a substantial quantity of drug product and the raw materials, frankly, for additional drug product, to meet not only our commercial needs and clinical needs but Millennium's as well, when that time comes.

Thanks.

Howard Liang, Leerink Swann.

This is [John] in for Howard. Just had a couple questions. With regards to the platform and collaborations, it seems like there continues to expand, and now there appears to be milestones emerging beyond the upfront payments.

I think there's a huge amount of milestones remaining from these potential collaborations. Is this something that we're going to see a continuous flow of over the -- starting to grow over the near term? Or when should we start seeing a larger contribution from these collaborations?

Well, thank you for bringing this up. In our collaborations with potential partners using our technology, there's greater than $3.2 billion in potential milestone payments. So, it is a big number. Obviously, that is if everything works in every setting, which we all know is not normally the case, but, Todd, do you want to comment a little bit on how we would look at these milestones into the future?

Sure. First of all, we've had a number of collaborators that have now moved ADC's into the clinic. Those are -- those types of events are the types of events that start to trigger milestones. We're now, I think, at 11 collaborator programs that have advanced into clinical development.

They've generated a small but meaningful level of milestones. I think it's safe to assume, although it's hard for us to predict with certainty, since these are programs that belong to our collaborators, that there will continue to be a number of milestones that get achieved over the next year or two years, three years and beyond. But, it's a little hard for us to predict.

In fact, one of the reasons for the increase in revenue guidance is, while we try to predict as best we can where are partners are, sometimes our partners progress faster than we thought they would, and that was one of the reasons for the increase in revenue guidance.

That's great. Thanks. With regards to -- you've outlined the multiple trials and settings for CD30+ cancers. Are there any of these trials, either by their design or the settings, based on how the disease has progressed, that could or would be producing a signal that could be optimized and transformed into a more advanced trial? Is there any one of them, in particular, you'd like to select out?

I'm not exactly positive what you're saying. Tom, do you --?

Yes. I think what you're -- what I'm hearing is that we are -- we said we're going to be running a study soon on non-Hodgkin lymphoma [that's] CD30+, including PTCLs and a number of other diseases. We also were going to have a signal-seeking study that includes leukemias, myelomas and solid tumors.

I think that second study is very clearly signal-seeking. We're going to be surveying a lot of different tumors. There's not a lot known about the biology of these various things with respect to ADC, so that's really (inaudible). The PTCL or NHL study is going to -- I don't think we could think of that as a registrational study on its own, but we think it's providing very important data that will allow us to go ahead and design registrational studies, whether it be in the relapse refractory space in NHL or, in some cases, even in front line indications.

We expect those -- that study, really, to tell us relationship between expression and responses as well as what we see in terms of disease biology. I'd also point out that we have two ISTs currently running in CTCL, and we're working with our partner, Millennium, on a registrational study in CTCL that we anticipate starting some time in the next 6 to 12 months.

We did discuss, when we put our ALCL data out at previous ASH and ASCOs, that we had 15 patients that had cutaneous lesions that if they hadn't had systemic lesions of ACLC they would've been characterized under the CTCL banner. We had 14 out of 15 CRs in that -- in those patients.

We think we have a good insight into getting responses in CTCL patients, but we're now going to be doing trials in this and focusing on this. We're looking forward to that. Very much so.

Thank you very much.

Bret Holley with Oppenheimer.

I'm not sure if you can give us any color on this, but I'm wondering if, at this point, you're leaning towards the ALCL confirmatory trial being rolled up into one trial, potentially in Hodgkins. I guess what -- without asking the details of the trial, is that the way that the discussion with the FDA has gone?

I think you were right initially with your comment that it's not really appropriate right now for us to comment on the specifics of our interactions with the FDA. You can be assured that we are having robust discussions with them, and we're working forward to try to come up with the best way that we can move forward, including on the confirmatory studies.

We've previously stated that we have quite a number of other trials that we plan to conduct, and that these trials would be potential for use there. We talked about that in our last conference call, and they included some of the front line trials that we have discussed that are on our books that would cost us no additional dollars, such as our front line Hodgkin lymphoma, which we're in Phase 1 now, and our front line ALCL, which we're in now, in the Phase 1 settings.

We've talked about those in the past as trials that we're excited about, but other than that, I really don't want to talk about the specifics of our interaction with the FDA except to say that our relationship with them -- our working relationship with them on a regular basis is strong.

Okay. I guess, how do we think about -- I mean, obviously, you have to run the Phase 1 trials in the front line setting, and those aren't confirmatory in and of themselves. I guess how should we think about timelines and things you have to agree with, I guess, say -- Oh, well, if this goes well or if this regimen looks well in this certain front line setting, then we would go the confirmatory on that. Is -- how should we think about the timeline aspect of that?

Yes, that's -- you're asking about the specifics of our interaction with the FDA and looking at times and trials and etc. At this point, these are really good questions. We are very aware of these types of questions. And perhaps you're sitting in some of our executive team meetings that I'm not aware of, but we can't comment on it right now. But, you're on the money, Bret.

Okay. And then --.

One more thing, Bret. Tom may have a comment.

The only comment I'd make is if you look at some other approvals within the last couple of years -- I'll just point to Folotyn as one. They had clearly not completed a Phase 1 regimen that would allow a Phase 3 study to be started. But, yet, in their post-marketing letter, they -- it was very clear that the letter specified -- You will do a Phase 1 and, based on the results, then we will design a Phase 3, and you'll have to submit that, and some timing around that.

That's typically how FDA does this is, when you don't have all the data you need, there are some benchmarks and milestones put in, and those would be the kind of discussions, if we were entertaining things like that, that we would be having with them, because that's the way those letters typically look.

That's very helpful. One last question. What kind of data can you expect at ASH, including -- can we expect any [follow-up] retreatment data in Hodgkins at ASH?

No, we haven't yet guided for the type of data that we're expecting at ASH. Right now is the exact time where you have all the abstracts, and I don't even think they've been submitted yet. I mean, the submission time is coming up very soon for the ASH abstract. I think that we'll hold off on that except to say that we plan on having a good presence at ASH and submitting on multiple different topics and look forward to it.

Okay. I gave it my best shot.

Rachael McMinn with Banc of America-Merrill Lynch.

Just a couple of questions. Back to the financial side, can you help us understand why the gross-to-net would be anywhere near 15%? I understand Medicaid is in that 23% range, but you really shouldn't have an overabundance of that. What's contributing? Can you -- maybe you can just walk through a couple of the factors that would make it that high?

Yes. First of all, Rachael, I wanted to say we said it would be less than 15%. I'm going to turn it over to Todd.

Rachael, what we really wanted to do is to start to provide a little bit of context into how we're thinking about reimbursement with this drug. It's early, and we've been doing a lot of analysis and have been getting help in looking at this. But, again, if you go back to the Hodgkin lymphoma patient population, there's this bimodal distribution. We see a lot of younger patients. We think that's going to result in a high percentage of commercial insurers that will be less prone to heavy discounting as contrasted with some of the government pay programs.

One of the things that I think we and many in the industry are watching is what happens with this PHS discussion and how broad the PHS discounting will reach into, include some of -- even some of the private pay customers.

It's early. We've looked at some other launch-in logs and tried to read the tea leaves as best we can. We feel pretty confident that we'll be 15% or less. Hopefully it'll be as low as possible, but it's really going to depend on, ultimately, what the payer mix looks like.

Okay. But, you don't have particularly high exposure to Medicaid. It sounds like it's just -- it's a PHS concern. Where would those patients come from? Just --.

You're right in your thesis that it -- we're not particularly worried about anything. We think maybe around 1/3 of our patients might be covered under government pay programs. Bruce, do you want to maybe provide a little more color?

Yes, that's true. Rachael, I guess I would answer your question and say that where healthcare reform and where 340B discounting go in the future, those are probably two reasons why we may push a little bit higher. It's hard to tell where those programs are going to go, whether -- how much -- how far they're going to expand, but that's where in -- especially in the private pay setting, we might see a little bit more. But, right now, I think that we're in a good range in our assumption.

Okay. That's very helpful. Clay, you've talked about front line a couple of times. I'm just curious if you can give us any sense of just the updated safety profile in combination? It seems like it's pretty important. I know you're not willing to comment about what's been going into ASH, but can you tell us whether you're submitting an abstract in that setting? It seems like one of your more important trials.

I do appreciate the question, but at this point, we're just not being specific on the data ahead of presentations that we would be doing at ASH. Yes, our Phase 1 combination studies are important to us. Absolutely. But, we'll be releasing all the data in appropriate fashion.

Okay. I guess just onto the launch. Clearly, the market's just very focused on launches after yesterday and before that as well. Can you give us some high-level view of how you're thinking about the launch qualitatively? Is there a bolus of patients you think will come on? Should we expect a gradual uptake? What are you seeing in your market research?

That -- you're asking a lot of specifics there. We had a question earlier about the EAP and conversions, which we were unable to address at this point.

We think we're well situated for the launch. We have really -- we work with setting up patient assistance programs, we've worked with payers to talk to them, address their issues, address their questions. We think this is the type of drug that is good for patients and good for payers. It's a drug you have to be CD30+ for to get, and you can see if there's a response.

In most patients, it responds. If a patient gets a number of cycles of this drug and doesn't respond, they shouldn't be on the drug. And so, from a payer standpoint, they'll -- they're going to have a high level of knowing that there's patient benefit, and that's really important. Bruce, would you like to add some more color to that?

Sure. I mean, from a commercial perspective, we are prepared to launch this drug. Our -- as Clay mentioned in his earlier comments, the sales representatives have all been trained. We'll do some additional training, obviously, post-approval. They've also been trained in being able to manage some of the reimbursement questions, which will provide broad access to information for our customers.

You've also probably seen, most recently at ASCO, but looking in the journals that we've already started moving out with some of our messaging on CD30 and disease awareness, we are prepared, from a marketing perspective, to submit our launch materials under the regulations from Ddmac. All of that is in line and ready to go.

From a managed markets perspective, as Clay mentioned, we have had -- we have an excellent team that has preexisting relationships with many of the payers and providers that are out there. The preparation in terms of reimbursement support, patient assistance is all ready to go.

Really, from a commercial perspective, I feel very confident that we're going to hit the streets at a full sprint.

All right, thanks very much. Appreciate it.

David Miller with Biotech Stock Research.

Is -- people have been asking about this around the edges, and so I'm just going to ask it direct. Is there any indication from the FDA that they're going to delay their decision until you have confirmatory trials at the IRBs? Or even underway or designed?

David, we're not really talking about specifics of anything. But, I think you're reaching a little bit there. There's really no -- nothing like that that's going on.

Perfect. Are you going to provide sales guidance at launch? If not, when do you think you'll be able to provide some sales guidance to the street?

Thank you for that question. It's an important question. We're not planning on providing guidance in early stages of this -- of ADCETRIS launch until we have more information that -- on the trends and on the uptake of the drug.

Okay. Can you talk a little bit about the number of patients in Hodgkins lymphoma with a label that is just post-ASC patients and doesn't address patients who don't have ASCT -- haven't had prior ASCT?

Sure. Bruce, would you like to take that question?

Sure. In -- we've done quite a bit of modeling, quite a bit of market research that -- and have produced a very extensive patient flow model for our forecasting purposes that combines the incidence and prevalence in the relapse refractory Hodgkin lymphoma and ALCL settings.

The total number is roughly 8,000 to 9,000 patients in the US, and that consists of about 6,000 to 7,000 patients in Hodgkin lymphoma for those markets. When you look at those patients that fail front line therapy, they -- the primary goal of the treatment, at that point, is to transplant.

And so, the physician, if they can, they're going to try to get that patient into a transplant, and roughly half of those patients, post-transplant, will fail, and that will represent the post-transplant setting.

As we spoke about before, there is a population of patients that Tom mentioned that are ineligible for transplant, and those patients, for us, would be off-label -- Tom mentioned that there are data from EHA -- Tom, I don't know if you want to provide some additional comment there?

Yes, so, just -- we've looked at that both from the data presented from the European Hematology Association, which is largely derived from our Phase 1 studies, but we have had additional patients in a variety of other settings, and that'll be coming out for publication as well.

We would be providing all the data that's available to organizations such as NCCN. They would evaluate that and determine whether they would consider it [per Compendia addition]. So, that is another route that physicians could gain information through guidelines and those kind of agencies. We are actively working on ensuring that all the data that we have is in the domain but can be accessed, irrespective of what's [on] the label.

When you're talking with the FDA, I mean has this kind of dual strategy question come up? Is the FDA at least made noises at the ODAC panel that they're not interested in a label that includes people who aren't transplant eligible?

You're clearly going to be submitting to NCCN for Compendia decision on that population, however. So, is this -- I mean, I know you don't want to talk about what you're talking about with the FDA, but is this at least been a subject of conversation?

It's really better for us not to give you the specifics on the interaction. I could tell you that --.

I understand that.

There's a lot of interaction with the FDA on many, many topics. They include things that we brought up today. The confirmatory trials, they include our CMC, which wasn't asked today. They include label, they include everything. Those are all under discussion, and we feel that the discussions with the FDA are strong, and we feel our relationship with the FDA is strong.

Okay. Great. Thanks for answering my questions. I appreciate it. Look forward to the launch.

George Farmer with Canaccord.

Bruce, just want to touch on that patient number you threw out there, the 8,000 to 9,000 patients. Were you saying that that was the total front line patient population, and we should think about the post-transplant as being 50% of those who failed -- 50% of that number and those who fail? Is that how we should think about the population?

No, the number that I was suggesting is a combination of incidence and prevalence for the relapse refractory setting for Hodgkin lymphoma in the US.

And of those patients, how many do you believe have progressive disease at any one time?

I mean, those are all of them. Technically, our --.

Yes.

Those are the patients. Yes, George, those are the patients that have --.

Active --.

Active lymphoma. I mean, the prevalence population is much, much higher than that, but those are the ones.

[Those] include anyone who's responded and not relapsed.

Right.

Okay. Bruce, you mentioned interactions with Ddmac. Did you say you have your materials ready to submit to Ddmac? Or they've already approved them?

No, what I'm saying is that we are prepared to manage our marketing materials under the regulations from Ddmac.

So, is there a 120-day waiting period as per accelerated approval guidelines?

The regulations for Ddmac include various submission dates, depending on when those materials need to be available. We will have a variety of materials available at time of launch for our sales representatives to educate our customers on.

Okay. Thanks very much.

Jason Kantor with RBC Capital Markets.

Yes, real quickly, what is -- what kind of milestone can we expect in terms of regulatory approvals outside the US when you -- and when do you expect to hear back on [your] approval?

Well, certainly, Millennium is running the EU approval traction, if you will, and there are different milestones that we receive based on approval in different areas. Todd, would you like to comment?

Yes, Jason, to give you a little bit more context, under the Millennium deal, we talked about total milestones of about $230 million. Most of those are development -- or, I should say, clinical and regulatory and approval-based. There are some sales milestones there.

We are expecting milestones upon Millennium's approval [and] launches. We have not given specifics, but just as a point of reference, let me just call out the milestones that occurred here in the second quarter, a $5 million milestone. That was on the acceptance of the MAA submission. So, that -- $5 million for the acceptance of a submission, so that, I think, gives you a little context.

Let me also, though, point out -- and one of the points I was trying to make in the prepared remarks is these milestones will not cycle through revenue upon achieving the milestone. There will be a portion that comes into revenue, but they're going to be deferred and amortized over the eight-year development period of the collaboration. So, don't think about these milestones as necessarily coming in as one big slug of revenue.

Would there be --?

Matt Roden with UBS.

Great. Thanks so much for taking the follow-up. It's on SGN-75. I think, if I understood you correctly on the prepared remarks, you mentioned that now that you have a maximum tolerated dose, that you're further dosing that drug in patients to get a better sense for the efficacy and tolerability.

Was wondering if you could tell us a little bit more about where you are with that trial? What the dosing regiments look like? Whether or not this is a treatment-to-progression phase of this trial? Lastly, when we should reasonably expect to see an update from the trial? Thanks.

Yes, Tom -- we're not prepared to do a full, specific download on everything there. We could give you a little bit. Tom, would you like to give a little bit of the outline?

Yes. We evaluated two different schedules, a weekly schedule and the Q3 week. We think the Q3 week [is the best] schedule. We have the flexibility in our studies to look at one or more doses at or below the MTD, and we're currently executing on that. We've had really good interest by our investigators and physicians. It's enrolling well, and when we have a substantial quantity of data that's -- that comes in, then we would put this out in the peer review venue so that we can share it with everybody as a complete data set.

It's going well, and we're pleased with the interest on the patients and the investigators.

Great. Thanks so much.

There are no further questions at this time, so I will return it to management for any closing remarks. Go ahead, please.

Thank you, operator, and thanks, everybody, for joining us this afternoon. Have a good evening.

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