Seagen Inc (SGEN) 2011 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Seattle Genetics Third Quarter 2011 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, there will be a question-and-answer session and instructions will be given at that time. (Operator Instructions) And as a reminder, this call is being recorded today, November 3, 2011.

I would now like to turn the call over to Peggy Pinkston, Senior Director of Corporate Communications. Please go ahead.

Thank you, operator. I'd like to welcome all of you to Seattle Genetics third 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.

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

I'll now turn the call over to Clay.

Thanks, Peg. And thank you all for joining us this afternoon. The past few months have been exciting for Seattle Genetics, with the US approval and launch of ADCETRIS and our transition to a commercial organization.

ADCETRIS received accelerated approval from the FDA prior to our PDUFA date with two indications. The first indication is for the treatment of Hodgkin lymphoma patients who have failed autologous stem cell transplant or who have failed at least two prior multi-agent chemotherapy regimens and are not autologous transplant candidates. The second indication is for the treatment of systemic anaplastic large cell lymphoma or ALCL, patients who have failed at least one prior multi-agent chemotherapy regimen.

This was a transformative milestone for the Company. Because of our pre-approval planning, we were able to shift the first vials of ADCETRIS to customers on Monday, August 22, the next business day after our approval. For the six weeks ADCETRIS was on the market, during the third quarter we generated $10 million in net product sales. This is a testament to our commercial preparedness, effective launch execution and the unmet medical need of patients in the approved indications.

Most importantly, the approval of ADCETRIS provides a new therapeutic option for eligible patients with lymphoma. Prior to ADCETRIS there had not been a new drug approval for Hodgkin lymphoma in more than three decades. And ADCETRIS is the only drug approved specifically for systemic ALCL. The many testimonials we receive from patients and their families are heartwarming and reinforce our commitment and responsibility to this patient community. A passion for helping cancer patients is a core corporate value and is one of the key factors that motivate us at Seattle Genetics to work hard every day.

Today, Bruce will update you on our ADCETRIS commercial activities. Todd will provide an overview of our third quarter and year-to-date financial results. Tom will describe our ongoing and planned clinical development activities for ADCETRIS, and I will end with highlights from our earlier-stage pipeline and recent business development activities.

At this point, I'll turn the call over to Bruce.

Thanks, Clay. I'm pleased to update you on our ongoing commercial activities for ADCETRIS. The response among physicians has been positive and we are encouraged by the initial uptake of ADCETRIS into the marketplace. But it's also important to acknowledge that we are early in the launch. There are several factors that positively impacted the first partial quarter of ADCETRIS sales.

First, at the time of approval, more than 200 expanded access program patients were in ongoing treatment with ADCETRIS and we estimate that greater than 80% of these patients converted to commercial drug after launch. And second, there was also a pent-up demand for ADCETRIS. We know of a number of physicians who were aware of the timing of our PDUFA date and had lined up patients in advance to receive drug following our approval.

The factors I just mentioned are contributing to a strong start to sales. But it's also important to note that the contribution of these factors to sales are temporary. Future growth will be driven largely by eligible newly relapsed Hodgkin lymphoma and systemic ALCL patients and accessing patients in the prevalent pool of these diseases. Educating doctors on appropriate duration of therapy is also a commercial priority. Longer-term expansion of ADCETRIS will be driven by additional approved indications in earlier lines of therapy and other CD30 positive malignancies. Tom will discuss our broad clinical development program later in this call.

We've been executing on a commercialization plan that is focused on four key areas, ensuring broad awareness of ADCETRIS and its benefit risk profile, identifying appropriate patients, providing access to ADCETRIS for patients in need and supporting appropriate utilization. Our sales force is highly qualified with significant oncology product sales experience. Our entire field force was fully staffed and trained at the time of launch. Since approval, they have been executing on our strategy of calling on both large institutions and smaller cancer centers.

In the first six weeks post approval, we were encouraged by the uptake among both academic and community-based oncologists. Our marketing initiatives were designed to enhance awareness and understanding of ADCETRIS among our target customers. We successfully met the review deadlines required by FDA for promotional materials on products approved under the accelerated approval guidelines and our sales reps had sales materials in hand at the time of launch. We are also conducting disease awareness and CD30 educational program.

From a reimbursement perspective, our early experience has been positive. As expected, the majority of claims to date have been from private insurers. At this point, some commercial payer policies have been published describing reimbursement parameters for ADCETRIS in accordance with the label or other treatment guidelines. ADCETRIS was recently added to the NCCN Clinical Practice Guidelines for both Hodgkin lymphoma and ALCL.

Customers are currently using a miscellaneous J-code for reimbursement. We expect a permanent J-code will be approved in early 2013. For outpatient hospital customers, we recently were assigned a C-code that will go into effect in early 2012. As previously described, we are offering extended payment terms to customers to facilitate the introduction of ADCETRIS and mitigate typical reimbursement concerns associated with new products.

Our SeaGen Secure program is also in place to assist providers and patients with reimbursement-related issues. We're still early in the launch of ADCETRIS and recognize that there is a significant amount of work in front of us. Our commercial team is strong and well prepared and we're proud to represent the Company in getting this exciting new drug to oncologists and patients in need.

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

All right, great. Thanks, Bruce, and thanks to everyone for joining us on the call this afternoon. The past few months have been important ones for the Company, as we've implemented the commercial infrastructure in systems that now allows [approval of ADCETRIS] to the market.

Our commercial preparedness and execution have resulted in solid initial sales results. ADCETRIS net product sales for the third quarter of 2011 were $10 million, bringing total revenues for the quarter to $20.7 million, an increase from $16 million in the third quarter of 2010.

For the year-to-date in 2011, total revenues were $45.9 million, a decrease from $99.3 million reported for the year-to-date in 2010. However, remember that 2010 revenues included $70 million recorded in the first half of the year related to the dacetuzumab collaboration with Genentech that ended in June of last year. Excluding this amount, collaboration revenues increased for the year in 2011.

Now, regarding the ADCETRIS launch, we've created an efficient distribution model in which we generally ship product to customers as they place orders as opposed to filling the distribution channel with product. Under this model, orders are fulfilled from our distribution center and we record sales upon product receipt at the treatment facility, which generally occurs the next business day. We don't believe that there is significant inventory stocking at sites. Based on our initial experience, we believe that our distribution process is working well with sites placing orders through their normal process and product being delivered in time for patient treatment.

We have well-established distribution partners, each of which is processing orders. Our gross to net discount in this initial quarter was less than 5%, however, we expect that this will increase over time. The level of discounting will vary depending on the patient population and payer mix. Given the younger patient population in Hodgkin lymphoma, we anticipate a relatively high percentage of commercial payers for ADCETRIS.

To a lesser degree, we do expect reimbursement through programs subject to government-mandated discounts. We entered into our Medicaid drug rebate agreement in late September and we're finalizing our federal supply schedule listing in our pharmaceutical pricing agreement. Each of these will broaden patient access to ADCETRIS, but at discounts ranging from 23% to 24% of wholesale acquisition cost.

As patient accesses expanded into these programs, we anticipate an increase in our gross to net discount. And while it's still early in the launch based on the current payer landscape and patient demographics, we expect that the gross to net discount for ADCETRIS will increase from the current levels, but be less than 15%.

In the third quarter of 2011, our cost of goods sold was approximately $724,000, which is less than 10% of net product sales. COGS includes manufacturing cost, license and royalty expense, and distribution cost. As discussed in earlier calls, product being used to support the launch was primarily manufactured before approval. As a result, the cost of this product was charged to R&D expense. During at least the first year of sales, this will result in a benefit to cost of goods sold as this product is consumed. We expect that over time ADCETRIS COGS will increase into the teens.

Selling, general and administrative expenses increased to $19.8 million for the third quarter and to $47.7 million for the year-to-date in 2011. For the nine-month period just ended, SG&A represents approximately 28% of total cost and expenses. This is in line with our guidance of approximately 30% for the year in 2011 and reflects growth in our commercial team to support the launch.

In February, we plan to provide our 2012 expense guidance for both SG&A and R&D. Research and development expenses were $41.1 million in the third quarter and $123.2 million for the year-to-date in 2011, compared to $44.3 million and $113.9 million for the same periods in 2010. 2011 R&D expenses continue to be driven by ADCETRIS-related activities, including product approval and the clinical development activities that Tom will describe next. These expenses also though reflect the increased investment in our other ADC programs.

Non-cash share-based compensation expense for the first nine months of 2011 was $14 million, compared to $10.1 million in 2010. At this time, we're not providing ADCETRIS sales guidance due to the significant unknowns related to product adoption and the timing and trajectory of revenues.

Regarding our sales data, we've worked with our distributors to keep this information confidential for competitive reasons. We are aware though that some incomplete data were recently reported through aggregation services. We've taken steps to ensure this type of inadvertent release does not happen in the future and we believe that data from aggregation sources on ADCETRIS should not be considered accurate or informative.

Lastly, we continue to maintain a strong financial position with approximately $374 million in cash and investments as of the end of the third quarter. This reflects approximately $58 million in collaboration payments received this year and $168 million in proceeds from our common stock offering in February.

At this point, I'm going to turn the call over to Tom.

Thanks, Todd. The accelerated approval of ADCETRIS in the United States for relapsed Hodgkin lymphoma or systemic ALCL patients is only the first step toward realizing the drug's full potential. We believe this product could transform the range of treatment options for a broad range of cancers that express CD30 driving an entire pipeline of opportunities.

Today, I'd like to update you on our development strategy for ADCETRIS and CD30-positive malignancies and in earlier lines of lymphoma treatment. I'll also touch on the ex-US activities that our collaborator Millennium; The Takeda Oncology Company is conducting.

I'll start with our efforts to evaluate ADCETRIS beyond Hodgkin lymphoma and systemic ALCL. In the past few months, we have initiated two phase II clinical trials in the US for other CD30-positive malignancies. These are first, a trial in CD30-positive non-Hodgkin lymphoma, which includes peripheral T-cell lymphoma and diffuse large B-cell lymphoma.

According to published literature, approximately 30% of PTCL cases and up to 20% of DLBCL cases expressed CD30. This phase II trial is designed to enroll up to 55 patients. Second, a trial in CD30-positive non-lymphoma malignancies, which include leukemias, multiple myeloma and solid tumors such as sarcomas or melanoma. We recently initiated this phase II trial and plan to enroll approximately 40 patients. Eligible patients will be identified through a screening protocol that facilitates high-throughput assessment of CD30 expression in patients' tumors.

In addition to assessing the safety and activity of ADCETRIS, these two clinical trials will provide important information on the expression profile of CD30 in many different types of cancer, as well as the correlation between CD30 expression and antitumor activity.

We're also planning a phase III clinical trial in cutaneous T-cell lymphoma or CTCL, where up to 50% of patients' lesions express CD30. As previously disclosed, there were also two investigator-sponsored trials or ISTs ongoing for CTCL. We expect investigators to report data from these two trials during 2012. We're excited about this disease state for ADCETRIS based on data from our pivotal trial in systemic ALCL where 14 of 15 patients with skin involvement experienced complete regression of their cutaneous lesions.

Next, I'd like to update you on our work to bring ADCETRIS into earlier lines of Hodgkin lymphoma and systemic ALCL treatment. Two phase I front-line clinical trials of ADCETRIS in combination with multi-agent chemotherapy are ongoing. These trials are designed to evaluate the safety of these combinations. In our front-line Hodgkin lymphoma clinical trial, we have been evaluating the addition of ADCETRIS to ABVD, the standard chemotherapy combination that newly diagnosed patients receive. We are also evaluating the addition of ADCETRIS to AVD, which removes bleomycin from the regimen.

Bleomycin is associated with significant pulmonary toxicities and oncologists are eager for alternatives that would mitigate its negative effects on their patients. Recent data from the ABVD plus ADCETRIS arm of our trial, which will be presented at ASH in December, has demonstrated an approximately 40% incidence of pulmonary toxicity. This compares to historical data of 10% to 25% incidence of pulmonary toxicity with ABVD alone. As a result, we have concluded that ADCETRIS should not be combined with bleomycin.

In contrast, while we are early in the study evaluation period, there have been no pulmonary toxicities absorbed in the AVD plus ADCETRIS arm of this trial, which is consistent with the lack of significant pulmonary toxicity for ADCETRIS monotherapy. The AVBD plus ADCETRIS data demonstrate the challenges, the field to space in combining agents with bleomycin containing regimen. These data also reinforce our plan to focus our front-line Hodgkin lymphoma development strategy on the use of ADCETRIS in combination with AVD, consistent with physician interest in developing effective, but less toxic regimens with curative intent.

One of our confirmatory phase III trials of ADCETRIS employs this strategy and we'll compare ADCETRIS plus AVD versus ABVD in front-line advanced Hodgkin lymphoma patients. The primary endpoint will be progression-free survival with overall survival as a key secondary endpoint.

In front-line systemic ALCL, we recently amended our phase I study to include all newly diagnosed CD30-positive mature T and NK cell malignancies, including ALCL. Patients in this trial are treated with ADCETRIS sequentially or in combination with either CHOP or CHP, which removes vincristine from the chemotherapy regimen.

The amendment will allow us to explore ADCETRIS in a broader array of related CD30-positive lymphomas and aligns the phase I trial with our future development strategy. Our planned phase III confirmatory trial will evaluate ADCETRIS in combination with CHP versus CHOP as front-line therapy in patients with CD30-positive mature T and NK cell lymphomas. The primary endpoint will be progression-free survival with overall survival as a key secondary endpoint.

We believe the clinical profile of single-agent ADCETRIS allows us to consider these new approaches that could redefine front-line therapy. In addition and as previously described, either of our planned phase III front-line trials could serve as a confirmatory trial for ADCETRIS, which could result in conversion of accelerated approval to regular approval for both indications.

Our phase III AETHERA trial evaluating ADCETRIS versus placebo in Hodgkin lymphoma patients at high risk of residual disease post autologous transplant is ongoing. AETHERA will provide important data to clearly distinguish the safety profile of ADCETRIS when compared to placebo. And in addition, AETHERA will provide information on the use of ADCETRIS earlier-stage Hodgkin lymphoma patients. We expect to complete enrollment to this trial in 2012 and the primary endpoint is progression-free survival.

We are continuing to receive many proposals from physicians interested in evaluating ADCETRIS through ISTs. In addition to the two ongoing investigator-led CTCL trials that I described earlier, we anticipate multiple ISTs in different patient populations and lines of therapy to start in 2011 and 2012. And as mentioned, we plan to report data from our phase I front-line Hodgkin lymphoma trial at the American Society of Hematology or ASH Annual Meeting in December.

In addition, several other ADCETRIS data presentations are planned, including updated durability of responses in the pivotal trial in systemic ALCL, findings from patients receiving an [alginative] transplant after treatment with ADCETRIS, and data on patients receiving more than 16 cycles of ADCETRIS. In addition to conducting the broad array of clinical trials that I've just described, we're also executing on the steps necessary to seek approval of ADCETRIS outside of the United States.

We are preparing our regulatory application for submission to Canadian health authorities in the first half of 2012 for relapsed Hodgkin lymphoma and systemic ALCL. In parallel with our ADCETRIS activities in the United States and Canada, Millennium Takeda is making strong progress on the global front.

The European Medicines Agency accepted the ADCETRIS MAA in June. In addition, Millennium Takeda announced in October that they have opened a phase I/II clinical trial in Japan in patients with relapsed or refractory Hodgkin lymphoma or systemic ALCL. Millennium Takeda has aggressive goals to expand ADCETRIS in the rest of the world with plans for regulatory submissions in major markets worldwide.

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

Thanks, Tom. Before we open for questions, I'd like to briefly highlight the status of our other pipeline programs and recent business development activities. As evident from our data with ADCETRIS, we strongly believe our ADC technology has the ability to provide significant patient benefits and may potentially transform the way many types of cancers are treated. We are investing in our pipeline of ADC product candidates, as well as our ADC platform to research into new linkers, chemo types and antibody formats that can further enhance the efficacy and tolerability of our ADCs.

With respect to the specific status of our pipeline program, SGN-75 is an ADC that is in phase I trial for patients with CD70-positive malignancies, most notably renal cell carcinoma. We are also developing two clinical ADC programs in collaboration with Agensys, an affiliate of Astellas. The first joint program ASG-5ME is in ongoing phase I trials for pancreatic and prostate cancer. The second program ASG-22ME is in an ongoing trial for solid tumors.

Our preclinical pipeline is robust and we are advancing several ADCs toward future clinical trials. Our CD19 targeted ADC, SGN-CD19A is a 2012 IND candidate for B-cell hematologic malignancies. We are also conducting preclinical development of other ADCs, including one for breast cancer and another for hematologic malignancies that we look forward to discussing in more detail in the future.

From a business development perspective, during the third quarter, we entered into a new research collaboration with Oxford BioTherapeutics or OBT. Under the collaboration, OBT is generating panels of monoclonal antibodies against novel tumor-specific antigens identified using its proprietary database. The antibodies generated by OBT will be screened for activity using our ADC technology. Each company will then have alternating options to pick from the pool of ADCs for further development and commercialization. This collaboration strengthens our early-stage product pipeline and provides us with access to novel targets.

Our ADC technology is also being employed broadly by our collaborators. We recently achieved another milestone under our collaboration with Genentech when they submitted an IND for an eighth ADC using our technology. Across our pipeline and our ADC collaborations, there are approximately 15 clinical development stage programs using our technology for a variety of hematologic malignancies and solid tumors.

The third quarter marked a major milestone for Seattle Genetics and our vision of bringing innovative new drugs to cancer patients in need. Our early ADCETRIS launch experience is encouraging, but this is just the beginning. In parallel with continuing to execute on our commercialization strategy, we are conducting a broad clinical development plan with ADCETRIS and we are advancing our pipeline of other ADC programs. We look forward to keeping you updated on our progress.

At this point, I'd like to turn the call over to Peggy to begin the question-and-answer portion of our call.

Okay. Thanks, Clay. At this point, we will open the lines for Q&A. We ask that you limit yourself to one to two questions and then [move to queue] with any additional questions. Operator, please open the call for questions.

(Operator Instructions) Jason Kantor, RBC Capital Markets.

I want to talk about the pulmonary talks in the phase I. And I guess the question is, will you be actually presenting this interim safety data from the AVD portion of the study at ASH and is there anything you can say about the kind of clinical activity it might be absorbing in that study currently?

Jason, thank you for the question. We're not going to outline the specifics of everything we're going to be presenting in a upcoming conference on this call. Our principal investigators will be specific with a lot of information at the ASH conference.

Okay. And it seemed like you guys chose your words carefully in terms of saying that some of the strength this quarter was due to a lot of pent-up demand. And I guess what is your expectation in terms of duration of treatment for the patients that might have started on commercial drugs this quarter and how much of those patients you would expect to see carry through into Q4 or beyond?

We've not provided any specific guidance on the duration of treatment for patients. We have discussed the specifics of our clinical trials and our pivotal trials, which had a range depending if it was Hodgkin lymphoma or ALCL depending and whether you looked at median or mean of somewhere between 7 and 10. So, that was the range that we saw in our pivotal trials of two different diseases. So, that's the data that we do know, we've not provided any guidance any more than that at this point.

Just one last question if you could, the 200 patients who are in the expanded access and I guess 80% of them switched to commercial. Can you give us any sense of on average, how many doses those patients might have got before they switched over, so we can kind of think about how much more therapy they might receive on commercial drug?

Yes, what we said just to be clear was that, over 80% converted into commercial patients, first of all. Second of all what, we're not providing specifics on the amount of cycles they had prior to converting. We're just not providing guidance on that.

I mean one thing, Jason, this is Bruce, that I can add is that, EAP patients were enrolled over the course of the program, which began in January and ended with approval in August. And we can't really predict how long these patients from EAP will continue to receive ADCETRIS treatment. As Clay mentioned, we know the data from the clinical trial, but it's not uncommon for use in clinical practice post approval for that duration to vary from use from the context of the clinical trial.

Okay, thank you, and congratulations.

Thank you.

Ted Tenthoff, Piper Jaffray.

Great. Thank you. Can you hear me okay?

Yes, we can.

Excellent. Well, congratulations on a fantastic start to launching ADCETRIS. It's really very exciting to see and the whole approval process was really exciting in the summer. Since we can't look at IMS, how many patients and I apologize if you did say this, how many patients have you treated with ADCETRIS to date or as of the end of the third quarter?

Ted, thank you for the congratulations note. We're delighted with where we are, albeit we're early on in the launch, but we're very excited. We have not provided guidance on the specific number of patients and that's not something we're planning on doing at this time.

Okay, good. Now, I appreciate and we've been seeing all the new studies that you guys are rolling out on. When do you think we can start to see some of that data report either for the full approval and what's your expectation there or also some of the other CD30-positive indications, the phase II study?

Yes, well, we just talked about the two trials that just began for the two different -- the lymphomas and the non-lymphomas. And so, those have just began to enroll patients. So, we're not planning on putting data out in any of the near future on those. We have to let those trials mature. We have a variety of trials that are ongoing, we'll be putting out more data at various times at different meetings.

And as far as the front line and the pivotal trials, we're really -- we haven't actually been -- haven't provided specific guidance at this point of time. But we're very keyed up to really get into those trials and move them forward. We think this drug has a chance to really change front-line therapy and we're really excited to get there. I think the doctors are excited to do this as well. Tom, would you like to add anything?

Yes, the area where I think we potentially could have some near-term data are some of the investigator-sponsored studies. As we talked about, CTCL was one that came out of the gate pretty quick. And our understanding from our investigators running those studies was that they are moving along well and they're intending to try to present data at a number of forums that will be occurring in 2012.

So, I think that's probably our nearest-term opportunity. The only other color is on the -- clearly on the CD30-positive non-Hodgkin lymphoma study, we feel good about how that one is running and I guess that would be maybe the next near-term opportunity for other indications because it's not a very large study, it's 55 patients and there's been quite a bit of interest from physicians and patients in enrolling.

Great. Well, thank you very much.

Thomas Wei, Jefferies & Company.

Thanks. Just a few questions on the ADCETRIS sales. I'm just trying to understand a little bit more about the commentary on pent-up demand. Should we interpret from that that the pace of what you're seeing in new patient starts in the fourth quarter has started to slow down relative to the fullest in the third quarter or does the pace look relatively consistent and you were just referring in a kind of theoretical future sense about what might happen with demand?

I think to your first, it was couple of questions there and your first question is, you should not over-interpret our comments as to anything related to the fourth quarter. So, please do not over-interpret that. And as far as the fourth quarter, we're not providing guidance at this point. So, I'm sorry to that, but please don't over-interpret any of our comments about pent-up demand to, I don't know exactly how you talked about it, but -- that's not an interpretation what you just said that we would make.

Okay. That's helpful. And then I wanted to know if you had a sense of how many physicians out there have used ADCETRIS so far?

That also at this point is not something we're planning to release. A lot of patients have gotten on this drug and there's been many, many physicians both from the community, as well as from major cancer centers that have used this drug. We've been delighted with the uptake of the drug at centers around the United States. And we're really thrilled at as both community and major centers and not just a major center. So, that's been really fun for us to work with those doctors and we're also really excited to provide this drug for cancer patients.

This drug has really had a dramatic impact on many patients with cancer. And it is just -- it's amazingly important to us, heartwarming, drives us and continues driving our passion when we get these many different letters and e-mails and testimonials from patients about how we've affected their lives or from grandparents talk about their grandchildren and from that EAP, I mean it's been really exciting.

And then maybe if I could just squeeze in a couple on EAP, you had said -- currently about 80% of those patients rolled over onto commercial drug. For those who did not, was that because they were nearing the end of their treatment course anyways or is it because they fall into this group of patients who need government reimbursements. And so, they did not continue therapy in the absence of reimbursement. Can you help us understand that a little bit better?

Yes. Bruce, can you take that?

Sure. And there were -- within the EAP population, some patients that were from other countries, there were patients that were uninsured, so that contributes to something less than 100% conversion.

Thanks.

And, Thomas, let me emphasize that our words were that, it was greater than 80%. And you just said 80%. So, we're not providing an actual number except for greater than 80%.

Thanks. That's very helpful.

John Sonnier, William Blair.

Hey, thanks for taking the question. And congrats on a really strong start, Clay.

Thank you.

I guess, this is probably, the first one is probably for Bruce. I know in any new product introduction, right out of the gates are always things that go as expected and some things that go I guess just weren't really expected. And it's really that that I want to focus on, what do you see as having been at this point in the launch the key challenge, kind of the key prospect from your sales team?

Thanks, John, for the question. We, as you know, spent quite a bit of time in the pre-launch setting in getting prepared. All of the sales representatives were on board, fully trained, not just on product until these days, but also on reimbursement and account-level knowledge. And so, they were fully prepared in to get out there on the day of launch, the marketing team had the materials ready for them to go, so they can be effective in the field and we've done quite a bit of market research ahead of time to have a good understanding of the marketplace.

Also very importantly, we had a reimbursement structure that was built that we literally flipped to switch on the day of launch. All of that in my mind has been fantastic launch execution. And I can tell you that that we planned for a lot of contingencies about what could happen and I can tell you that the launch is actually running very smoothly. We're very excited about the [executional] components from the commercial team in making sure that that patients are getting rapid access to the products.

If I had to put my finger on one thing that is likely to be a speed bump for us, it's typical for all new oncology product launches in early stages that there may be some reimbursement challenges. And initially because predominantly of the lack of a permanent J-code or the fact that it's got a miscellaneous J-code, that some claims may take longer to be paid, as it's going to take some time for the peer community to become more familiar with processing the claims for ADCETRIS.

But as I mentioned before, we've been fully prepared and our team has been proactive, in fact, not only do we have a reimbursement-based field team, but the sales representatives, as I mentioned before, are highly educated on reimbursement issues at the local level. And so as expected, for any new oncology product, there are likely to be a little bit of choppiness in the early time for reimbursement, but I feel that we have that situation under control. We're being very proactive and we've got a great team out there handling it.

That's helpful. And just I guess one other commercial question and that is now that you're out there, engage with physicians commercially, is there any change in thinking on the reachable size of the prevalence pool or even the rate at which you might gain access to those patients? Thank you.

Yes. We've talked about this in the past. We've provided guidance that we saw approximately 8,000 to 9,000 patients in our incidence and prevalence models for the two disease indications that we were looking at. Certainly with time you can envision that some aspects of the prevalence pool can get depleted, but we're not really -- at this point we're not prepared to make any statements in that regard. We know we're helping a lot of patients out there. We're delighted with that. And I think this is a drug that's really made a big difference in people's lives.

I would add on to that, I mean ADCETRIS has the opportunity to really meaningfully change the treatment paradigm for our eligible patients. And I think we'll just have to sort of play, it will have -- it will need more time to see how that plays out. The things that are going to impact the prevalence pool, of course, are the penetration rate, the ultimate duration of therapy that we see, re-treatment, other factors that may come into play for individual physician and patient treatment decisions. So, time will tell.

Thank you.

Cory Kasimov, JPMorgan.

Hey, good afternoon, guys. Thanks for taking the questions. First one is maybe way too early for this, but do you have any idea on how initial utilization is trending between post-transplant and transplant in eligible patients?

Thanks for the question. No, we really at this point -- we're evaluating this and we're looking really closely at it, but we're not prepared at this point to start discussing it. But it's something that is of big interest to us we're looking at. We talk to the physicians and we're trying to understand this as best as we can. But it's a little too early in the launch for us to start making comments about it.

Okay. And then a question for Todd. On the gross to net adjustment for ADCETRIS, you commented it's less than 5% now and over time will be somewhere less than 15%. What kind of timeline do you suspect this is over?

Well, that's a great question. If you think about what's in gross to net, it's the chargebacks that we've talked about is the fees to our distributors and to a lesser degree, our commercial co-insurance program under SeaGen Secure, our patient assistance program, and a few other things.

As I mentioned earlier, just at the end of September, we entered into our Medicaid drug rebate agreement. That will allow patients that are Medicaid patients to begin to get treated with the drug and we're in the process now of finalizing our federal supply schedule listing in our pharmaceutical pricing agreement that will give access through 340B and PHS qualified sites. So, I think it will probably migrate over the next year to be less than 15% from where we are now, which is as you saw pretty low.

And then lastly for Tom, you had mentioned the phase III, the pending phase III trial in CTCL? Do you have any specifics as to when you're starting that? Are you going to wait for the IST data first to inform the trial design?

Yes. So, Cory, we're actively working on that in conjunction with our partner Millennium. It will be a global trial. We are working hard to get regulatory feedback to make sure that this trial can support labeling if appropriate worldwide. So it's -- we are getting that all aligned. Our hope is that, that that can be relatively soon, but as part of our collaboration, I can't give you an exact date today, but we are working very hard on this. It is one of our top priorities in the clinical development arena.

Okay. Understood. Thank you, and good job at the initial launch.

Thank you.

Thanks.

Howard Liang, Leerink Swann.

Thanks very much, and congratulations on the good launch. Given the information you provided, is it safe to say that at least half the sales in the third quarter came from de novo patients outside EAP, because they were only five to six weeks in the quarter, so each patient could not have received more than two cycles and with 200 patients or so, the EAP could not -- it should account for at most $4 million to $5 million by my math. Does that sound all right?

Howard, you're a quick study in math, so I'll give you that. I think that your thoughts there are close enough. I don't want to give you anything more specific than that, but I would say you're pretty close.

Okay. And then if I could ask you about reimbursement, what are you seeing? What does the peer require in terms of the documentation and also are you aware of patients being denied a reimbursement? If so, what are the typical reasons for that?

Sure. I'm going to turn that question over to Bruce who can give you some color on that.

So, obviously, it's early right now. From a reimbursement perspective, we know that, for example, some insurers are requiring prior authorizations at this point, some are not. The prior authorizations that we've seen thus far have universally been very consistent with or absolutely consistent with the package labeling or the NCCN Guidelines.

And therefore, we don't feel that there are any barriers to usage at this point from a reimbursement perspective. So, from a reimbursement perspective, everything is going very smoothly. It's still early right now from a pay claim perspective. We're not aware of any paid claims in third quarter, but we may not know of all of the reimbursement opportunities that have occurred.

Thanks very much.

Bret Holley, Oppenheimer.

Thanks for the question. I guess I had a follow-up on the reimbursement side. I was wondering if there's any struggle with peers on the definition of which patients are not transplant eligible, because what strikes me is that there could be, I guess, a bit of a grey area there for them?

I think it's an interesting question and certainly there were new guidelines that came out or the label I should say from the FDA and then we had guidelines from the NCCN, which are now published. And they're not identical, they're similar. And so maybe, Tom, do you want to describe a little bit about the NCCN Guidelines and how they're a little different and maybe that could help address what Bret's question is. Bret Holley.

Bret, we got who that was. Okay. So, the label is in the package insert for Hodgkin is for patients who are post-transplant or who essentially are transplant ineligible. The NCCN looked at the data and what they've issued for their opinion is either post-transplant or at least two prior chemotherapy regimens for all patients regardless of their eligibility for transplant. So, that's where that physician group came to.

So, I think a lot depends on how insurers and payers use the various sources of information to make their own decisions. But we were encouraged by NCCN's interpretation of the data and as well as we are encouraged by the FDA's interpretation of what our label was.

And so, I guess as a follow-up is, have you had any I guess experience on what percentage of the payers were actually accepting the NCCN Guidelines and I guess what would be your expectation there?

Yes. That's not something at this point that we are prepared to comment on. Good question though.

All right. Fair enough. Thank you.

Matthew Roden, UBS.

Many thanks for taking the question and congrats to the entire organization on the launch. I'm going to ask a variation of a question you've already gotten, but I want to try to make it easy for you guys to at least give us broad-brush strokes, but I think it's probably fair to say at this point our expectations are fairly low in terms of what you'll say.

So, the question was on what are the segments of patients that you're seeing in treatment and I guess, if you think about the broad label that you guys have and in Hodgkin's you also have ALCL and then I suppose it's possible you could be seeing some other types of tumors in there as well in the commercial side. So, if you look at the EAP patients and if you look at the de novo patients, can you say whether or not the patients that you're seeing in therapy are practically proportional to the sizes of those opportunities for you?

Well, Hodgkin lymphoma is a bigger opportunity than ALCL. And so that's we see more patients in our EAP. In that regard, we've seen more patients in our commercial experience to date. That's not a hard question to answer. We're not going to make any comments about anything off of our label, so you understand that. Yes, I mean, still more Hodgkin patients than ALCL, but any more color than that we're just not -- at this point it's just -- our data is too small to really make any comments on it.

Okay. And then, I guess, you guys commented on not giving any sales guidance at this point. So, the question would be, what would you need to see -- at what point in the launch would you feel more comfortable to finally issue guidance?

And as you look forward to the year-end or maybe in January, February call, do you think that you might be in a position at that point given probably several months under your belt at that point to provide some outlook in terms of sales guidance or perhaps even a profitability forecast?

Thanks for the question. It is a good question. And certainly at some point it's our intention to provide guidance. We want to really understand this launch, the trajectory of it and really understand fully where we are before providing guidance. Certainly a number of other companies have done that and thought about very clearly where they are, what they're doing before providing guidance. And I think that's a good model for us. I don't think that puts us hanging out there as unique.

And I think that it does make a lot of sense for us to really fully understand this. Now, you're asking a specific like, are we ready in February versus the quarter after that or whatever? I can't right now speculate exactly what it is, but our intention is at the soonest time that we feel very comfortable with where we are that we would provide guidance to the Street. And so, we look forward to that. We very much look forward to that. We're really not trying to hide anything. We're just trying to understand our launch and understand the specific issues of it before starting to come out with guidance.

Okay. Thanks, Clay, and congrats on the great start.

Thanks.

Rachel McMinn, Bank of America Merrill Lynch.

Yes. Thanks very much. Can you clarify whether all of the EAP patients were converted in August?

Bruce, do you want to take that?

Sure. I can do that. I mean we were well prepared to -- prior to approval to assist the sites and the patients using our reimbursement team, particularly SeaGen Secure to transition patients from EAP to commercial drug.

We've worked with all of the EAP sites, working with the providers, giving patient materials, making sure that they were aware that the PDUFA date was coming and that the EAP would be closing down. We've not disclosed the exact timing, but greater than 80% of the EAP patients converted to commercial drug between approval and the end of the third quarter.

Okay. But it sounds like it might have been a bit little more -- it sounds like you guys are pretty prepared for it. So, it sounds like it maybe was a little bit earlier on.

We were prepared for this. We're a patient first and patient-friendly company. So, we didn't want any patient to not be able to get drug and we were actually concerned with that. We didn't want to have a rough end to our EAP and cut people off, that was not our intention. That's not where we are. We're trying to really help patients out here. So, you could imagine the further back they were in EAP, you probably get less converting and the closer they were to approval the more you get. And so that's an easy statement we can make.

And our goal is just to make sure we got everybody that we possibly can to stay on the drug that could get benefit from this drug. And we converted a large substantial majority of the patients to this commercial plan and for some that we couldn't, there were reasons that included the government programs or that maybe they had been on drug for a long time or other reasons. But I think we did -- I'm happy with the job that we did in making sure that we took care of our patients. And that was first and foremost.

Great, great. That's helpful. And then just two other questions. One is on the preliminary toxicity that you saw, just how do you -- I understand your strategy has been to release bleomycin from the regimen, but it is the standard of care right now with the chemo. Do you have a sense of how physicians are going to view that? It seemed like they might have been [split up] in the middle of whether they wanted ADCETRIS combined with ABVD or just AVD?

And then my second or I guess my last question is just on the competitor blocking the IMS and (inaudible) data. Can just give me an example of who that is? I guess I'm still a little bit confused on who you're blocking the data from on a monthly basis?

Let me comment a little bit on the consolidators and then I'll turn it over to Tom to talk a little bit about your first question. But we view that there are competitors out there. There are a lot of different companies that want to know what we're doing, they want to know what we're doing in different diseases. We're studying ADCETRIS in many diseases.

There are drugs in a variety of different diseases that we are currently and looking at for the future. And we have very exciting products here in ADCETRIS. We're really helping patients a lot. And so we've just made a corporate decision that for competitive reasons that we're working with our distributors to prevent the release of information.

As was mentioned earlier, there were some inadvertent release of some information. But you should expect going forward that -- we hope that there is not inadvertent release of information, there shouldn't be and not to look at those services as something that is reliable for getting information about our sales. So, we believe internally that the competition is a real thing and that's a decision we made and we're sticking with it. Tom?

Yes. So, what we've seen over the last 12 to 18 months is a real change in physician attitude about the front-line approach. We went and started this study with ABVD plus ADCETRIS and wanted to really explore the safety. As we moved into that before we saw what we think is a threshold of pulmonary toxicity, we had physicians, including our key investigators, really pushing because of the activity of ADCETRIS to drop the bleo, which is the most problematic and perhaps the least usual part of the regimen.

Bleo has been a notorious partner for difficulty with combining with other agents, including gemcitabine. So, we've seen that ground swell over time and it's interesting that we've seen it both here and Millennium has acknowledged it with their key opinion leaders in their territories. So, we do not see this as a big formidable problem in the future. And we have regulatory buy-in at least here in the US, as well as information from Europe that an ABVD versus AVD ADCETRIS is a very viable trial design and so that's what we're going forward with.

Okay. Thanks very much.

Sapna Srivastava, Goldman Sachs.

Hi. This is Yogesh on behalf of Sapna. Thanks for taking my question and congrats on the quarter. Just wondering if you could provide some greater detail, again, just on the pulmonary toxicity, if it was the same type of toxicity you'd seen with bleomycin in the past so that you would expect from it in terms of near and more intermediate term toxicities?

Yes. I mean it was the same bleomycin type of pulmonary toxicity that you would get from ABVD alone. So, really no difference than that, it's just we saw it in a higher percentage of patients than we were comfortable with. And so our goal for a while has been to evaluate what's best for the patient and we started the trial with ABVD plus ADCETRIS and actually the key opinion leaders and the doctors actually came to us and were very excited to say, hey, we don't like bleomycin, we want to do an AVD plus ADCETRIS arm. And we added that as an amendment to the trial. It wasn't even initially in the trial.

And then as we were moving forward, it was pretty apparent to us that we had more pulmonary toxicity in ABVD plus ADCETRIS than AVD. We didn't see any in AVD. So, we were really thrilled with that, but as we went forward we determined that there was just a little bit more than we were comfortable with and we decided to focus it on the AVD. And I hope that gives you the color that you wanted.

Okay. Great. Thanks.

David Miller, Biotech Stock Research.

Great. Thank you very much. Excellent quarter and thanks for talking my questions. Do you have any data so far on what your average out of pocket is for your customers?

Todd, I don't know that we do or ready to talk about it, but Todd, you could comment on this if there is --

No. So, what do you mean by average out of pocket?

I mean the patients that you have, have insurance and they have copayments and other things like that. So, what is that running for your customers at the moment?

It averages roughly, depending on the plan that an individual insured would have. It's generally a few thousand dollars, it's an annual. And so we would expect that at the beginning of the year those would reset, but they'll blow through the annual requirement pretty quickly.

Okay. And then in terms of reimbursement, can you talk about how your payers are thinking about the number of doses? Are they just allowing the physician to make the determination about the number of doses or do you have any payers who are capping the number of doses that they are paying for?

There's only limited answers to that that we want to disclose at this point. Bruce?

Yes. I can tell you that the payers are effectively sticking to the package labeling, which notes the treatment up to a maximum 16 cycles.

Okay. All right. Those are my questions. Thank you very much. Congrats again to the team.

Thank you.

Thank you.

George Farmer, Canaccord Genuity.

Hi, good afternoon. Thanks for taking my questions. I want to touch on [just on the] phase I data that you talked about, specifically with ABVD, did you see any increases in peripheral neuropathy by any chance?

So, we have felt for this conference call that we were going to go forward and talk about the bleomycin data and get that information out, because it's pretty important not only for you all to think about, but also for clinicians in the field who may be planning studies.

The other data are all subject to ASH presentation, so that the full context of the number of patients exactly what was seen and all the information that we have continually provided over the many years for peer-reviewed forums will come out. So, that's about five weeks away and there'll be a full presentation there of both the safety and some early activity data.

Okay, Tom. And thinking about use of the drug in combination with AVD, it's my understanding and please correct me if I'm wrong, that AVD is typically reserved for patients, elderly patients or more frail patients. Can you remind us in your phase II registration trial, what sort of response rates did you see with AVD? And then one more follow-up question, which I'll get out of the way, maybe if you can comment if you've seen any incidence of PMLs since the drug was launched?

First of all, your question on AVD, I mean we did not do that in our pivotal study. We don't have any response rates. We got nothing to tell you on that. So, I'm not even sure what your question is.

No, I mean, how many patients in your phase II study were elderly that may have been the more appropriate group for receiving AVD therapy going forward?

Yes, so perhaps there is a difference of opinion here. Our belief -- the investigative community both here and in Europe has come to us very strongly feeling that bleomycin is a toxic component of the current regimens. And it's probably the least active. They feel that ADCETRIS, maybe the most active agent someone could get in front line in combination with other agents. So, that's a goal of the substitution.

And not -- our belief is that AVD ADCETRIS will apply to all age ranges. That's our belief. But the other piece is elderly patients, we had a number of elderly patients in the pivotal study. I can't tell you the exact number off my hand. But it's a good handful of them and their response rate was essentially identical to that of the general population. We did not see age-related differences.

We are running up into a deadline that we have. We have two more folks on the line that have not asked a question yet. So, I'd like to move on and give each of the two folks one question each. And I know we have more in the queue that were secondary questions and we'll be happy to entertain them offline and please feel free to call Peggy to arrange for a talk -- discussion with any of the management team. But we have two folks in line, so I'm going to try to give each one of them one question, but we really have a deadline and we're past actually our deadline, so we're extending this.

So, operator, if we can go to the next person and do the last two and give them one question each.

Marko Kozul, ThinkEquity.

Hi, good afternoon and congrats to the team on your progress and a very robust initial launch. One follow-up to the last question, I understand that the German co-op groups have been working on AVD as a study that's potentially changing standard of care and there could be some publications coming 2012 or beyond. I wanted to ask you first to comment on that.

And then actually my question was, if I follow up Howard's math, from a question earlier about 200 patients receiving roughly two cycles in the third quarter, it comes to about $4.6 million in revenue. And by my math, which is probably not very good, just wondering if the new patients represent roughly 470 or so, [some at all close] in my calculation? Thanks.

So, I'll talk about the German situation and then turn it over to Clay -- back to Clay for your second question. So, our understanding is the German study that's running permutations of ABVD where they've taken out the bleomycin should be reading out within the next few years. We don't have -- we know that it's a PFS study. We know that it's getting close to the last number of events. They have announced the data, but we anticipate seeing that probably within the next two years, but it could come any time. We just don't know.

And as far as your calculations go and the question we had earlier, we're not giving you exact numbers, but you're close. You both are very close with what you're saying. So, you're quick studies in math and calculating. We had quite a number of EAP patients stay on, we had quite a number of new patients. We're helping a lot of patients out there. So look, overall, we're really delighted with the uptake of this drug so far. And we're very pleased with our quarter. We're trying to be careful and do the right thing by our patients, our doctors and our investors. And we're making great progress.

Thanks again, and look forward to your continued progress. Thanks.

Ling Wang, Summer Street Research Partners.

Thank you for taking my questions and congratulations on a great launch. So, I was wondering whether you can comment on your --the more detail on your revenue recognition method? Whether that's a [sale] to wholesalers. And also have you realized -- I mean, for our physicians, especially the high prescription physicians, do they tend to store some of the SGN-35 or are they most likely -- I mean, mostly order the drug in time once they have the patients lined up? Thank you.

Great. Thanks for those questions. We'll call those the last two we'll get and I'm going to turn it over to Todd to answer both of them.

Okay, great. So, I think as I talked about, the distribution model that we've put in place is one that actually doesn't have any drug in the hands of distributors. So, orders are placed through distributors. We drop-shipped drug directly to the site providing care to the patients. So, the distributors actually don't touch the drug.

With respect to storing of product at sites, we don't believe there is a lot of that, but there may be some particularly at perhaps some of the larger sites. But the model that we've built we think really sort of blends itself to a just in time type of process where I think as sites have gotten comfortable with being able to order drug and it shows up the next day, they're likely not going to be stocking a lot of product in their pharmacies.

Great, thank you.

And at this time, I would like to turn the call back for any closing comments.

Okay. Thanks, operator, and thanks everybody for joining us this afternoon. As Clay mentioned, we will be around to any caller questions that we weren't able to get to on the call today. Have a good evening.

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