Seagen Inc (SGEN) 2011 Q4 法說會逐字稿

Welcome to the Seattle Genetics fourth-quarter 2011 financial results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Monday, February 13, 2012.

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

Thanks, operator. I'd like to welcome all of you to Seattle Genetics' fourth-quarter and year-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. Our intention today is to conclude the call by no later than 2.30 PM Pacific or 5.30 PM Eastern time. Following our prepared remarks, we will open the line for questions. If you're unable to get all of your questions, we will be in the office and available after today's call.

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. It's been nearly six months since the approval of ADCETRIS, and I'm delighted with the robust launch of this drug and our Company's successful transition to a commercial organization. More importantly, I'm gratified by the impact we are having on the lives of people with relapsed Hodgkin lymphoma and systemic anaplastic large cell lymphoma, or ALCL. The letters we get from ADCETRIS patients and their families illustrate that we are providing hope and making a positive difference in their lives.

Seattle Genetics is focused on developing innovative new therapies to treat cancer. The approval of ADCETRIS is just the beginning for this drug in the treatment of CD30-positive malignancies. Importantly, we have a significant and ongoing clinical development effort to expand ADCETRIS into a wide range of tumor types and therapeutic settings.

For the fourth quarter of 2011, we generated $33.2 million in net product sales of ADCETRIS. We are very pleased by these results. During 2011, more than 500 accounts ordered ADCETRIS, including nearly 100 new accounts in December. We have seen increasing adoption amongst community physicians, establishing a strong foundation for future growth.

We are also pleased with the reimbursement landscape for ADCETRIS. Insurers are paying for ADCETRIS, and all coverage policies issued to-date of both public and private payers have been consistent with the label or NCCN guidelines. Many factors have contributed to our strong sales trajectory for ADCETRIS in 2011, including the positive clinical data that supported approval, the unmet need among patients in our labeled indications, our solid commercial execution, the rapid conversion of expanded access program patients to commercial drug, and some immediate demand amongst physicians and patients upon FDA approval.

We know there is more work to do to continue expanding ADCETRIS use with oncologists and their eligible patients. Our commercial objectives in 2012 will be -- one, expanding our base of prescribers, particularly in the community setting. Two, driving new patient starts, including reorders among existing accounts. And three, continuing to educate physicians on appropriate duration of use.

Another important component of building our ADCETRIS franchise is investing in its clinical development. We believe there is a broad opportunity for ADCETRIS across CD30-expressing malignancies, including in earlier lines of Hodgkin lymphoma and mature T-cell lymphomas.

Over the past few months, we have reported encouraging clinical data that reinforce the significant potential for this drug in front-line lymphoma. In our Phase I front-line Hodgkin lymphoma trial, we reported data from patients who received ADCETRIS either in combination with ABVD or in combination with AVD, which removes bleomycin from the regimen. 36 of 37 evaluable patients had negative interim PET scans, which indicates no evidence of active disease after two cycles of therapy. That included 22 out of 22 in the ABVD cohort, and 14 out of 15 in the AVD cohort. No pulmonary toxicity was observed in the ADCETRIS plus AVD cohort, compared with pulmonary toxicity observed in 10 out of 25 patients, or 40% in the ADCETRIS plus ABVD cohort. We are planning a Phase III trial utilizing ADCETRIS combined with AVD, to redefine front-line Hodgkin lymphoma therapy.

In mature T-cell lymphomas, we reported encouraging interim data from our Phase I trial, evaluating sequential administration of ADCETRIS with CHOP, the standard front-line regimen for patients with newly-diagnosed T-cell lymphomas, and concurrent administration of ADCETRIS with CH-P, which removes vincristine from the regimen. Among 20 patients treated with the concurrent regimen, all five who had completed the full course of six cycles of multi-agent induction treatment, and were evaluable for response at the time of data analysis, achieved a complete remission.

The most common adverse events, regardless of severity or relationship to study drug were nausea, fatigue, and peripheral sensory neuropathy. We are planning a Phase III trial utilizing ADCETRIS combined with CH-P to redefine front line mature T-cell lymphoma. On a personal note, I'm very excited that we are positioning ADCETRIS to redefine front-line therapy in these two disease settings after decades of the same non-targeted multi-agent chemotherapy regiments. We believe we have an opportunity to make an important difference in the lives of patients newly diagnosed with these cancers.

Turning to new diseases, data were recently presented from an investigator-sponsored trial in cutaneous T-cell lymphoma, or CTCL. The trial, which is being conducted at MD Anderson Cancer Center, has demonstrated a 65% objective response rate, with a manageable safety profile among 23 relapsed CTCL patients. We are planning a Phase III trial in patients with relapsed CTCL to begin by mid-2012. We have a broad array of clinical trials planned and ongoing to explore the therapeutic potential of ADCETRIS. Our goal is to establish ADCETRIS as a CD30-directed therapy in multiple disease settings.

Before I get into additional details on our ADCETRIS clinical activities and pipeline updates, Bruce will update you on our ADCETRIS commercial activities, and Todd will provide an overview of our fourth-quarter and year-2011 financial results, as well as provide 2012 financial guidance. Bruce?

Thanks, Clay. We've had a strong introduction of ADCETRIS into the marketplace, and I'm very pleased with our commercial execution and the progress we've made so far. The response to ADCETRIS among our target customers has been positive, based on its clinical benefit and ease of administration, as well as a favorable reimbursement environment.

Since approval, our commercial efforts have focused on ensuring broad awareness of ADCETRIS and its benefit/risk profile, communicating on appropriate duration of therapy, and providing access to patients in need. We had good success across these priorities in 2011. We've expanded our sales and marketing activities beyond physician customers to include nurses and patients in order to communicate the importance of appropriate dose and duration to a broader audience.

From a reimbursement standpoint, no on-label ADCETRIS treatment has been denied insurance coverage, and as Clay noted, all of our current payer policies are consistent with either our label or NCCN guidelines. Customers are currently using a miscellaneous J code for reimbursement, and we expect a permanent J code will be assigned in early 2013. In the outpatient hospital setting, a C code is in place.

Based on our early market research findings, the majority of ADCETRIS use in the fourth quarter was in the post-transplant Hodgkin lymphoma setting. We also saw use in both the transplant-ineligible Hodgkin lymphoma setting, as well as in relapsed ALCL, consistent with our label. We continue to see opportunities for growth in all of these settings.

For 2012, our commercial focus will be on bringing new patients onto ADCETRIS, and educating physicians on the appropriate duration of therapy. This is particularly important as we continue to push into the community setting, where proactive outreach is important, because there are smaller patient volumes and less experience with ADCETRIS among oncologists relative to the academic setting.

In closing, I'm very pleased with how we've executed on the ADCETRIS launch so far. It's early days, but our commercial team continues to be excited to represent the benefit of ADCETRIS to patients and the medical community every day.

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

Great. Thanks, Bruce, and thanks, everyone, for joining us on the call this afternoon. We had a very strong fourth quarter, driven by exceptional execution by our commercial team, and solid ADCETRIS sales. We enter 2012 with more than $330 million in cash and investments, which reflects approximately $70 million in collaboration payments received last year. We are well positioned to execute on our ambitious set of goals in 2012, which are focused on getting ADCETRIS to patients in need, expanding our clinical program to explore the drug's potential in additional applications, and advancing our ADC pipeline.

Today, I will highlight our fourth-quarter and 2011 financial results, as well as provide our financial outlook for 2012. ADCETRIS net product sales for the fourth quarter of 2011 were $33.2 million, bringing total revenues for the quarter to $48.9 million. This is an increase from $8.1 million in total revenues for the fourth quarter of 2010. For the year in 2011, ADCETRIS net product sales were $43.2 million, and total revenues were $94.8 million. This is a decrease from $107.5 million in total revenues reported for the year 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 2010. Excluding this amount, revenues from our ADC collaborations increased by 23%, and revenues from our ADCETRIS collaboration with Millennium increased by 64% in 2011.

ADCETRIS gross-to-net discounts in the fourth quarter were approximately 5%, and these discounts continue to trend upward as planned government programs come online. As we've discussed in prior calls, we expect that gross-to-net discounts will ultimately increase into the range of 10% to 15% of gross sales. This estimate is based on the current payer landscape and patient demographics.

We now have our Medicaid drug rebate agreement, our federal supply schedule listing, and our pharmaceutical pricing agreement in place. These will each expand coverage options for patients, and align with our efforts to broaden patient access to ADCETRIS. Going forward, it's important to recognize that quarter-over-quarter net sales growth will be impacted by these increasing discounts. This will be particularly apparent in the first quarter of 2012, as the pharmaceutical pricing agreement became effective in early January.

In the fourth quarter of 2011, our cost of sales was $2.4 million, which is, again, less than 10% of net product sales. Cost of sales includes manufacturing costs, license and royalty expense, and distribution costs. Product being used to support the launch to-date was primarily manufactured before approval, and as a result, the cost of this product was charged to R&D expense prior to approval. During at least the first year of sales, use of this product will result in a benefit to cost of sales as this product is consumed. We expect that over time, ADCETRIS cost of sales as a percentage of net sales will increase into the teens.

Research and development expenses were $40.2 million in the fourth quarter, and $163.4 million for the year in 2011. This compares to $32.5 million, and $146.4 million for the same periods in 2010. R&D expenses in 2011 were driven by ADCETRIS-related activities, including product approval, pre-approval manufacturing, and clinical development efforts. These expenses also reflect the continued investment in our ADC programs.

Selling, general and administrative expenses increased to $25 million for the fourth quarter, and to $72.7 million for the year in 2011. SG&A expense in the fourth quarter was approximately 38% of total expenses, excluding cost of sales. This was driven by our ADCETRIS commercialization activities. Non-cash share-based compensation expense for 2011 was $20 million, compared to $14.3 million in 2010.

Net loss in the fourth quarter of 2011 includes an $8.7 million valuation adjustment for our holdings in auction rate securities, reducing the carrying value to $5.8 million. We updated our valuation to reflect the potential that we may now sell the investments rather than continue to hold them to maturity. This adjustment was based on a number of factors that we considered as part of our periodic review of our investment portfolio.

Moving now to guidance. We anticipate that revenues from collaboration and license agreements will be in the range of $55 million to $65 million in 2012. This will be driven by amounts earned under the Millennium collaboration, as well as our ADC collaborations. At this time, we're not providing ADCETRIS sales guidance, however, this is something we are evaluating on an ongoing basis, as we continue to assess product adoption and sales patterns.

We will receive a royalty on product sales outside of the US and Canada under our ADCETRIS collaboration with Millennium Takeda. The percentage of royalty rate ranges from the mid-teens to the mid-20%s on Millennium sales. As Millennium launches ADCETRIS in its territory, we will begin to report these amounts in our financial statements, but bear in mind that we will reflect these royalties once they are reported to us by Millennium, so they will appear one quarter in arrears. Total R&D and SG&A expenses in 2011 are expected to increase modestly from 2011 to a range of $245 million to $270 million. ADCETRIS-related activities will continue to be the primary driver of our expenses, including commercial initiatives and clinical trials.

Expense guidance includes non-cash amounts projected to be in the range of $30 million to $33 million, the majority of which relates to share-based compensation expense. This estimate is based on a number of assumptions including future stock prices, and the number and timing of grants, and therefore, may change. As a reminder, 50% of joint ADCETRIS development costs are funded by Millennium Takeda under the collaboration. 2012 R&D expenses will also include clinical trials for SGN75, ASG5ME and ASG22ME, as well as costs associated with advancing our pre-clinical ADC programs, including SGN-CD19A. In 2012, we expect SG&A expenses to represent approximately 35% of total operating expenses, excluding cost of sales.

Lastly, we expect to end 2012 in a strong financial position, reflecting our significant starting cash position of $330 million, and the expected cash flows from ADCETRIS sales. 2011 was a year of significant accomplishments, and we look forward to continuing this momentum into 2012 by aggressively executing on our business plans to expand our ADCETRIS market opportunities, and advancing our other programs.

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

Thanks, Todd. Building ADCETRIS beyond the initial indications is a key priority for Seattle Genetics. I'll review these opportunities in several core areas. Our strong interest in CTCL was based initially on data from our pivotal systemic ALCL trial, in which most patients with skin involvement experienced complete regressions of their cutaneous lesions.

Additionally, as I mentioned earlier, data were recently reported from an investigator-sponsored CTCL trial of ADCETRIS, indicating a 65% objective response rate, with a manageable safety profile. These data continue to reinforce our enthusiasm for clinical development of ADCETRIS in CTCL patients. We are planning a randomized Phase III clinical trial in CTCL to begin by mid-2012. We also expect additional CTCL results from investigator-sponsored studies to be reported later this year.

A second area for ADCETRIS clinical development is in other CD30-positive non-Hodgkin lymphomas such as peripheral T-cell lymphoma, or PTCL, and diffuse large B-cell lymphoma. Data were reported in January from two case studies of PTCL patients who had been treated on ADCETRIS clinical trials. Both patients were heavily pre-treated. One achieved a complete remission and the other a partial remission, with a safety profile consistent with our overall ADCETRIS experience.

While this is only anecdotal evidence, we believe these two case studies suggest a broader potential for ADCETRIS. We are conducting a Phase II clinical trial in CD30-positive non-Hodgkin lymphoma that is planned to enroll about 50 patients. We are assessing activity and tolerability, as well as correlating activity with CD30 expression. We anticipate reported interim data from this trial during 2012.

A third area of opportunity for ADCETRIS is non-lymphoma malignancies including solid tumors, leukemias and multiple myeloma. We are conducting a large screening protocol that facilitates high through-put assessment of CD30 expression in patients' tumors. We plan to screen at least 2,500 patients. Those patients who express CD30 are eligible for a Phase II treatment protocol, onto which we expect to enroll more than 50 patients. Again, we will evaluate activity and tolerability, as well as correlate activity with CD30 expression. We also expect to report interim data from this trial during 2012.

Another key area of ADCETRIS clinical development is in earlier lines of therapy for Hodgkin lymphoma, and mature T-cell lymphomas including systemic ALCL. During the past few months, we reported interim data from both of our ongoing Phase I safety trials of ADCETRIS, in combination with multi-aging chemotherapy for front line patients. I described earlier the encouraging data from our Phase I trial that provides evidence that ADCETRIS could redefine the way front-line Hodgkin lymphoma is treated.

We plan to initiate a Phase III clinical trial to evaluate ADCETRIS plus AVD, compared to ABVD, in front-line advanced Hodgkin lymphoma patients. The primary end point will be progression-free survival, with overall survival as a key secondary end point. We expect the trial to begin late this year or in early 2013. This trial is part of our post-marketing requirements for the FDA, and is designed to confirm the clinical benefit of ADCETRIS to enable conversion from accelerated to regular approval for both of our labeled indications.

In mature T-cell lymphomas, the interim data I highlighted earlier from our Phase I trial support our plans to initiate a Phase III clinical trial that will evaluate ADCETRIS in combination with CH-P versus CHOP as front-line therapy in patients with CD30-positive mature T-cell lymphomas. The primary end point will be progression-free survival, with overall survival as the key secondary end point. This Phase III trial is planned to begin in late 2012 or early 2013, and could also serve as a confirmatory trial for ADCETRIS in the US.

Two other key ongoing clinical trials of ADCETRIS include our Phase III AETHERA trial, which is evaluating ADCETRIS versus placebo in Hodgkin lymphoma patients at high risk of residual disease post-autologous transplant. We expect to complete enrollment to this trial this year, and to reach the required number of events for the progression-free survival primary endpoint in 2013. Our goal is to determine whether ADCETRIS can extend remissions and delay relapse in high-risk patients undergoing an autologous transplant.

Second, our Phase II re-treatment trial is designed to assess the therapeutic potential of ADCETRIS administration in patients who have relapsed after previously responding to ADCETRIS. We previously reported data demonstrating that objective responses were achieved in 7 out of 11 retreatment experiences, and that ADCETRIS was well tolerated in the retreatment setting. This broad set of corporate trials is augmented by investigator-sponsored trials, or ISTs. There are currently five ongoing ISTs, and we anticipate an additional 8 to 10 ISTs in different patient populations, and lines of therapies will be initiated during 2012 based on continued physician [excitement].

On the regulatory front, we are preparing our submission to Health Canada in the first half of 2012 for relapsed Hodgkin lymphoma and systemic ALCL, which could lead to regulatory approval in Canada by late 2012 or early 2013. 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 2011. We anticipate a decision from EMA in the second half of this year.

Millennium Takeda also has aggressive goals to expand ADCETRIS approvals in the rest of the world, with plans for regulatory submissions in major markets worldwide. The accelerated approval of ADCETRIS in the United States for relapsed Hodgkin lymphoma and systemic ALCL patients is only the first step toward realizing the drug's full potential. We believe this product could transform the treatment of a broad range of cancers that express CD30, driving a pipeline of opportunities.

Next, I'd like to briefly highlight the status of our other pipeline programs and recent business developments activities. SGN-75 is an ADC targeted to CD70, and we recently completed enrollment to a Phase I dose escalation clinical trial. While SGN-75 demonstrated objective responses in both non-Hodgkin lymphoma and renal cell cancer, we believe the best path forward for this agent is as combination therapy. We've decided to conduct a Phase IB trial evaluating SGN-75 in combination with everolimus, an mTOR inhibitor approved for the treatment of renal cell cancer. We have observed synergistic activity in pre-clinical models of auristatin ADCs combined with mTOR inhibitors, and we look forward to initiating this trial in the second half of 2012.

We are also developing two clinical ADC programs in collaboration with Agensys, an affiliate of Astellas. The first joint program, ASG-5ME is in Phase I trials for pancreatic and prostate cancer. We recently completed enrollment in the pancreatic clinical trial, and are continuing treatment and follow-up in these patients. In the prostate cancer trial, we are continuing to dose escalate and enroll additional patients. The second program, ASG-22ME, is in an ongoing trial for solid tumors. We have completed enrollment in the first several cohorts of this trial, and are continuing to treat patients and dose escalate.

Our pre-clinical pipeline is robust, and we are advancing several ADCs toward future clinical trials. We expect to submit an IND for our CD19-targeted ADC, SGN-CD19A, this year for B-cell hematologic malignancies. We are also conducting late-stage pre-clinical development of two other ADCs, one for breast cancer, and another for hematologic malignancies that are 2013 IND candidates. Our ADC technology is also being employed broadly by our collaborators. We have received milestone payments recently from several collaborators, including Pfizer, Abbott and Agensys. Across our pipeline and our ADC collaborations, there are 15 clinical stage programs using our technology for a variety of hematologic malignancies and solid tumors.

2011 was a year of great progress for Seattle Genetics, and we have entered 2012 with significant momentum and continued focus on helping people living with cancer. We are continuing our effort to support the successful launch of ADCETRIS, evaluating the broader potential for ADCETRIS through clinical trials and advancing our ADC pipeline. I 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.

Thank you, Clay. At this point, we will open the line for Q&A. We ask that you limit yourself to one to two questions, and then re-queue with any additional questions.

Operator, please open the call for questions.

Thank you, ma'am.

(Operator Instructions)

Our first question is from the line of Jason Kantor with RBC Capital Markets. Please go ahead.

Congratulations on the ongoing launch. Looks great. You spent a lot of time talking about the expansion opportunities and the trials that you're going to run. Could you give us a little -- could you quantify a little bit for us the -- what you think the expanded market opportunities there are relative to the current on-label opportunities, and perhaps some sense of when you might expect some read-outs from some of these major studies?

Sure. When we look at the whole world of CD30 expression in different diseases and in front-line disease, we think it is substantially past what our two on-line approvals are. Those are in the relapsed refractory setting, as you know, with specific patient populations, Hodgkin lymphoma, anaplastic large cell lymphoma. We believe that the different potential front-line indications in those diseases, the other diseases, other lymphomas, non-lymphomas, really represent a very large opportunity for the Company. I don't want to give specific numbers at this point. As we get into some of these other trials and we get deeper into trials, there will be a lot of good opportunity to present specifics of what we're thinking about for these diseases, but at this point, I think I'd just like to say that it is very substantial opportunities.

As far as time lines, we will present, through the year, many different pieces of data for a variety of different clinical trials that we're doing. I think I mentioned four or five different times in my scripted presentation, that we were planning on presenting data in 2012 on different clinical trials. So I think this year you'll see a lot of different pieces of data coming out, and also, we discussed our first Phase III with ADCETRIS which we called AETHERA, which we said we would complete enrollment this year and so that should be our first Phase III that would be coming out with data, and we think could represent a strong opportunity for us to really expand our market size, because it really looks at post-transplant and almost a maintenance type of approach and that's we think a very important setting for us.

But in addition to that, our first Phase III reading out on ADCETRIS, the AETHERA trial as we call it, our intention is to initiate during this year, through the beginning of next year, three more Phase IIIs that really give us the opportunity to expand ADCETRIS with real label indications. So these would be studies focused on gaining additional and broader labels.

Okay. Just if you allow me one other question. You're talking about this screening and treatment study with 2,500 patients you're going to screen and hope to treat about 50. That would imply about 2% CD30 positivity. Are you seeing -- are you finding CD30 in other tumors? What are some of the other tumors you're seeing it in, and is that the right amount? 2%?

I wouldn't put too much connection to the number of patients on that trial to the number we're screening, and so to answer, you have multiple questions within there, absolutely we're finding expression in different areas, and we're very excited about it, and we look toward to presenting that later this year in a suitable-type conference setting and talking about it. It's not expressed. CD30 is not expressed in every tumor type we've looked at, absolutely not. I wouldn't think of it in terms of a percentage, like you're saying.

As we look at tumor types, we may screen a whole bunch of one tumor type, and then realize that's not an appropriate area to go to, and not pursue that any more and actually focus on different tumor types. So the percentages that you're coming up with, in what we said greater than 50 patients we want to treat in a Phase II, out of the 2,500, and really not a direct reflection at the present time. It's more of an overall, that we want to screen a lot of patients, and then in Phase II we want to put greater than 50. Keep in mind not every patient that's positive will necessarily opt into the trial. It's a screening trial, and a treatment trial separately and we're really excited about it.

Thank you.

Thank you. Our next question is from the line of Marko Kozul with ThinkEquity. Please go ahead.

Congrats on a strong quarter. My first question is for new commercial patients that initiated ADCETRIS treatment in the third quarter, and might be facing their fifth or sixth cycle, do you have any feedback from docs in terms of how long they plan on continuing therapy for these patients?

Marko, thank you for that question about duration, if you will. We've only been out about six months, or even less than that. It's still a little too early for us to really predict duration of therapy. You can imagine, we're looking at it very close. In our pivotal trials, if you look at median or mean of our pivotal trials, the range was 7 to 10, roughly, so that's been always our expectation, 7 to 10. We understand that transplanters may use shorter duration, because their focus in the world is getting patients into CR, they're really excited with ADCETRIS. It puts them into transplant, gives them a chance for cure, and that's where AETHERA comes in. That's a very important study, because that could provide them with an opportunity to go back to ADCETRIS.

That's on one hand. On the other hand you have the non-transplanters, and they may use it longer than 7 to 10 cycles. So it's a mixture of how doctors use it, and how they see fit to treat their patients, whether their background is a transplanter, whether they're not. When you look at the community setting, you have largely non-transplanters. In the academic setting, you have maybe a mix of them.

Maybe just a quick follow-up. I was wondering what proportion of patients that were in the expanded-access program and converted to commercial drug, what proportion of them are maybe still on drug, or how they fared during the fourth quarter? Thanks.

Thanks for the question. That's something, a piece of data that we're not releasing. I appreciate the question on that. But one thing to keep in mind, patients that generally go on to expanded-access programs for almost any drug, as well as patients that are immediately waiting for FDA approvals, they tend to be the worst prognosis of patients. So just please keep that in mind, as you're looking at our initial studies and initial duration. As you get patients that are healthier, diagnosed earlier, able to get on this drug early because the drug exists, it's there, it's not -- they're not waiting for it, they're going to tend to become better patients, and that probably translates into increased duration, but that's something we're watching.

Great. Thanks for taking the questions, and I'll jump back in queue.

Thank you. Our next question is from the line of Thomas Wei with Jefferies & Company. Please go ahead.

Thanks. I had a couple of questions on the fourth-quarter numbers. I guess I'm curious to hear how you would characterize what you calculate as the new patient starts in 4Q relative to 3Q, so this would be stripping out patients who are on expanded access and rolled over. When I sit down and do some of the preliminary math, I haven't had a lot of time to do this, but it maybe looks like the pace of new patient adds in the fourth quarter was very similar to the third quarter, a little bit higher, but not out-of-line. Is that a fair calculation?

Thomas, I see what you're calculating, but we're -- at this point, we're really not providing specifics on new patient starts, versus third, versus fourth quarter and how many were EAP and how many stayed on and how many went off and new patients. We're really excited with the patients that we're getting on, the anti-tumor activity we're having in patients, the relative ease for this to be used within doctors' settings, how well doctors are embracing it, how many accounts are opening up. We feel we've had a very strong launch here, and only a couple of months ago if I had told all of you, all the analysts out there listening, that we were going to do $33.2 million in our first full quarter, you guys would have said oh, no way, that's way more than we think, only a few months ago. And so we feel we did -- the quarter's been excellent. We've been helping a lot of patients, and we're moving forward.

And I guess I wanted to ask a little bit about the pace during the quarter. It sounds like you're excited that you saw more than 100 new accounts order in December. Should we think of this as something that actually accelerated during the last part of the quarter, and just to put into context, what does that mean 500, 100 new accounts, how many target accounts do you think there are in the US?

That's a really good question. There are thousands of target accounts. So we're really not penetrated where we want to. We know the challenge ahead of us, especially in the community setting. We need to penetrate much more broadly into the community setting, and we're out there and our reps are getting what -- I'm learning a new term here called windshield time. They're out there, they're really pounding the pavement, getting out, getting this drug to patients in need. So we have a long way to go to really get to all the different accounts.

What the 100 in December means, it wasn't like we got 500 accounts when we first got approval, and then it fell off. I could tell you that even looking forward past December, we're still getting more accounts, more new accounts, and of course existing accounts, and we're getting more and more new accounts every week, and it's pretty steady and it keeps on moving forward. At some point, and those new accounts are largely in the community center because the major centers like MD Anderson or Memorial Sloan Kettering, these kind of centers signed up immediately, but our accounts that keep on signing up are largely community.

It's consistent. We expect that to stay for some time period, and I mean, it's really good. At some point in the future, as we get to thousands of accounts, there will come a time in the future where we won't be expanding accounts as rapidly as we are now. And we look forward to that time.

Thank you. Our next question is from the line of Cory Kasimov with JPMorgan. Please go ahead.

First of all, wanted to follow up on the duration question. You said a couple of times in your prepared remarks how you want to educate physicians on the appropriate duration of treatment. Does that mean you think that doctors are currently not using the drug long enough, or is there some issue that's out there with that?

Cory, this is a really good question. What I could tell you is that the standard way that oncologists, for a long time, look at cytotoxic therapy, is they go to best response plus two cycles, or something like that. This is a paradigm that doctors have had for decades. This is what they do. And when they think about biologics sometimes, they've had to learn. It's been a changing paradigm for them.

They think about Rituxan, and that's a biologic, they get on Rituxan, they come back to Rituxan, they come back again to Rituxan. It's different than a cytotoxic that you can't do that due to toxicity and other reasons, and the drugs stop working at some point, because you have basically -- they don't function anymore, and you get multi-drug resistance to a lot of these cytotoxics. But when you have a biologic like ADCETRIS, and they just need to -- we need to educate to them that they need to think like it's a biologic, because it is. It comes in, it targets CD30. It delivers the drug right inside the cell.

It's very different. The drug is not just delivered systemically. And what they have to for the patient's best interest, is they have to continue treating the patient as we showed in our trials, that you can get 75% objective response in Hodgkin lymphoma and 87% objective response in ALCL, if you keep the patients on the drugs. So it's really important for us for the best interest of patients to educate the doctors, that this is not your standard non-targeted chemotherapy.

Okay. That's helpful. Then as a follow-up, can you just comment on how quickly you expect the gross to net to get to that 10% to 15% level you're talking about from the 5% currently?

Sure, this is Todd. Good question. So, as I mentioned on the call, we now have all of our government discount agreements in place. The last to go effective for us was the pharmaceutical pricing agreement that enables PHS-eligible sites to get that discount. That happened in early January. We would expect that in the first quarter, we'll now see all these programs up and online, and by the time we get to second quarter, it should be at full stage.

Okay. Thanks for the clarity.

Thank you. Our next question is from the line of Sapna Srivastava with Goldman Sachs. Please go ahead.

Hi. This is Yogesh on behalf of Sapna, thanks for taking my question. Congrats on the quarter. Just a quick question. Did your expense guidance account for the two front-line Phase III trials to start in the end of 2012, or could we expect a little bump-up if those do get started in 2012 and not in 2013?

We're expecting both those trials to start kind of end of 2012, early 2013. We will start to see expenses hit this year for both those trials, so we have included that in our guidance.

Okay. Great. Thanks.

Thank you. Our next question is from the line of Matt Roden with UBS. Please go ahead.

Congrats on the progress this quarter. I have a long-term question, then a short-term or near-term question. First on the long-term, when you think about the CD30 expression that you're screening for, can you help us with some of the methods that you're using there, what sort of criteria you're using to set the bar for whether or not a patient is positive or negative? How much CD30 expression do you think that patients need to express in order for them to be sensitive to ADCETRIS? And how broad the tumor types are that you're testing? And then I have a follow-up with a short-term question.

Okay, thanks for the question. I'm going to turn this question over to Tom Reynolds, our Chief Medical Officer, to talk a little bit about diagnostics and how we're thinking about this.

Matt, in general, for most of the solid tumors and for the solid-tumor phase, we are using an immunohistochemistry assay with a very conventional antibody that's widely available in the community. We've done this in a way that we can quantitate quite a bit of what's going on. The amount of CD30, the percent positive, CD30-positive cells on individual tumor cells, as well as the intensity. So we're looking at all of those parameters.

For our screening study that we're doing, we set a very low bar on what we're letting in, because we actually don't know the expression response relationship, and I think as Clay pointed out earlier in one of our investigator-sponsored studies that was presented at T-cell Lymphoma Forum, there was quite a range of CD30 expression, yet responses in both high expressers and low expressers. We actually don't know how this is going to pan out, which is why we're doing this as a screening study.

One other point I forgot to mention. The other assay that we are doing is for leukemias and other marrow-based diseases, we're allowing flow cytometry to be used, and we have a separate assay for that. So we've got a robust way to look at this, we don't know what the correlations are going to look like yet and whether they're going to be broad-based or by disease. But we're looking forward to sharing the data with you, as it emerges over the next year and two.

So Matt, this is Clay. Let me add one more piece there. As Tom said, we're using this, an existing CD30 screen that's in all centers, everywhere, it's very commonly done for our existing approvals. But when we start getting into things like screening out solid tumors or other lymphomas or things, what we're doing is, we have developed internally a more modern diagnostic tool, and we have decided to work with a major diagnostic company which we have not announced yet. At some point we will. But we're working with a major diagnostic company who is going to take the kit that we developed internally, and turn it into a validated, approved kit to get out in the market. It's going to be simple, straightforward and it will give us much more modern data than what we've had, and we were pleased we were able to get approval with the existing plus-minus CD30 screening. But as we get further into looking at CD30 in many diseases, we really want to use a more modern diagnostic tool, and we're working on it.

That's great. Thanks for all the color. Second question is, I wanted to give you guys the opportunity to address the perception that there's pent-up demand for this product in the marketplace and you guys have talked about the market research on past calls, this suggests that there's a large, prevalent relapse refractory Hodgkin's population out there. My understanding is that these patients represent reachable patients sort of in the system so-to-speak. One of the things that we struggle with, that we're hoping you could comment on, is if these patients are in the system and obviously sick with relapsed refractory disease, is there a particular reason why all of those patients shouldn't be treated within, let's say, a year of drug approval or so?

So Matt, first of all, let's talk about pent-up demand. You had two parts to that question. Pent-up demand. ADCETRIS is a really good drug. It's meaningful for patients. It affects their lives. And prior to approval of this drug, certainly there were patients that were waiting.

We told you guys that on our last conference call. We said there were patients waiting for approval. That's a one-time phenomenon. That's done. Those patients were waiting, they had the opportunity, they're being treated with ADCETRIS and things are going really well there. I'm very, very pleased. We were able to provide hope and opportunity and a new therapy for those patients that needed immediate ADCETRIS. As far as the prevalence pool, we've talked a lot about the prevalence pool. Absolutely, there's a substantial prevalence pool there. Not every patient's ready for drug today. They rotate in and out of the pool. Sometimes they're on different drugs, or different trials, or in different configurations.

But we think that it's a substantial pool. You used a term, would everyone get treated within one year? We're hoping to keep on getting out in the community centers where they don't even know about ADCETRIS yet. I mean, it's -- yes, ADCETRIS is an amazing drug. If I had Hodgkin lymphoma, relapsed Hodgkin lymphoma, or if someone I knew did, of course I would recommend this to them. But some people, believe it or not, don't know about the drug yet. We have to get out there and we have to pound the pavement and educate and get way more than 500 centers that this is in, and we're doing that and this is going to take time and effort and hard work and our commercial team is determined to do it, and they're out there doing it every day. So to say that this is all in one year, everyone will get treated in one year, we'll wrap it up, put a bow on it, we just don't see that.

Appreciate your comments, Clay.

Thank you. Our next question is from the line of Bret Holley with Oppenheimer. Please go ahead.

Yes, I just wanted to clarify something you said to, I guess in response to an earlier question. Clay, I'm wondering about the AETHERA results. Is it your intention to actually file before you have the confirmatory data, or did I misunderstand what you were saying?

Well, Bret, thanks for the question. Just to make sure you get it right, I'm going to turn it over to Tom Reynolds to give you that answer.

Okay. So Bret, for AETHERA, what we've guided is that we will compete enrollment this year, and that the read-out, the primary end point's PFS. We expect that to be coming the following year, in '13. Based on those data, if those data are strong, and we anticipate given how well ADCETRIS works, and that this is a placebo-controlled study that we could really benefit patients. We're going to take a look at that, and crank together a regulatory filing as quick as we can to deliver to the FDA, to expand the label into this indication, and we're assuming strong results, but it's a blinded study, so we won't know until then but that's our timing.

Okay. My second question was regarding time lines for the front-line Hodgkin's and ALCL trials. I guess, what's gating on that? You note the initial results. Why is it going to take you almost a year from now to get those protocols up and running?

I have to say, Bret, that maybe you're listening into management meetings, because I pound my fist on the table and say the same thing you just asked every day. There's a lot of logistics. These are international studies, and we have agreements with us and our partners, Millennium Takeda. We're working well on this. We're still finishing our Phase I trials. Keep that in mind. They're not even done yet.

We've given you interim data. I know once we release interim data, everyone goes okay, those are done, let's move on to the next thing, but we're not actually done with those Phase I trials. We're still working with the regulatory agencies to lock down all the specifics. The generalities of the studies are all there. There's a lot from the FDA that's in writing already.

We have post-marketing requirements on the two big Phase IIIs. One in Hodgkin, one in mature T-cell lymphoma, so there's a lot of information out there already on that, but we're finishing that up, making sure we put together the best protocol that we can, making sure that multiple US and international regulatory agencies buy into it and move forward as fast as we possibly can. We are pounding hard on getting those trials started as soon as possible.

Okay. Thank you very much.

Thank you. Our next question is from the line of Rachel McMinn with Bank of America-Merrill Lynch. Please go ahead.

Thanks very much. I had two questions. One, I wanted to go back to duration. You mentioned that on balance, there's going to be the transplanters that want to use shorter durations, and I just want to make sure that I have the gist of what you're saying. Should we be thinking about maybe four cycles of duration for transplanters, and 7 to 10 for non-transplanters? And I guess the corollary there is that that would kind of negatively impact duration over the next couple of quarters until you have a bigger mix of transplanters, that's the first question. And then the secondly, I guess as related to that, when you think about quarter-on-quarter, you mentioned pricing contracts that would be starting that would hit the growth rate in the first quarter versus 4Q, but I guess I just also wanted to get your sense of the demand considerations and the duration, should we be thinking about a flat or just modestly up 1Q versus 4Q? Thank you.

Yes, there's a bunch of stuff in there. Maybe I'll just mention one thing and turn it over to Tom to talk a little bit more. When I said transplanters are likely to use shorter, that's a true statement. But keep in mind, transplanters' goal is to get patients into CRs. If that CR happens in four cycles, they're very happy, they may give the patient another one cycle or two, and put them in the transplant. If that CR doesn't happen until cycle -- they're in a really good CR, let's say, in cycle four, that transplanter will try to keep going and going and going to get them into that CR.

It's really the function is getting patients into CR for the transplanter. That's not necessarily scripted, that it always happens at the same cycle. Unfortunately, patients are all different. But the goal was that once transplanters see that CR, see, they're so used to treating with cytotoxics, where the duration of the CRs are short, that they get their CRs and they hustle into transplant, because they're used to losing that CR. We have shown in our data that once we get a CR, that CR sticks around for a long time.

And that's one of the things we're working on with these transplanters, that they don't have to be in the biggest rush that they were before. It may be better for patients to really wipe out all the tumors, and then they can consider transplant rather than just trying to hustle there because they've had some cytotoxic that has two months of duration once they're in CR. That is not what we've shown. We've shown very long durability in CR. So it's different. It's educating the doctors that this is different. This isn't your same old tired chemo. Tom, do you want to add to that?

I just wanted to add two pieces of information. To recollect, probably the best example of this is what we saw in the pivotal ALCL study, where we had a high percentage of patients go on to transplant. When you look at it, the duration of those patients that went on to transplant on ADCETRIS pre-transplant was about eight cycles, pre-transplant. And those that did not go to transplant the average duration was about 12. Okay. So these are all the CR patients. So clearly there's a difference, but it was still eight cycles.

And then the second thing I would tell you is we're getting a fair number of questions from transplanters about their patients, and their question is this. They're in a CR, do I transplant them or not? And the reason they're asking that is if you look at the PFS of CR patients, whether they went to transplant or didn't go to transplant, at this point, they're indistinguishable. They're approaching two years.

So right now, it's an open question if you're in a CR, whether you should get a transplant or not. And I think that -- those data, as those continue to mature and as we get that out there to the community, that may change some thinking and at least encourage longer durations. So Clay, back to you.

And as you all know, transplantation comes with a very high cost and some high risks. And so it's not like transplantation is a panacea and very easy to use either. So there's definitely some thought that will have to come into this, and as we get more and more experience using ADCETRIS and using it over different durations, it will provide doctors with more data to make their decisions upon.

Okay. And then the question about the growth rate, the 4Q versus 1Q, with pricing and demand and duration?

Yes, it's a very interesting question. We're not providing guidance onto that at this point. As Todd said with guidance, that we're not providing guidance right now, we really want to understand all of the different factors of guidance. Now, I want you to know that we absolutely want to give guidance. We absolutely want to help the investment community understand the dynamics of our launch, and provide guidance, but we want to have enough experience in the marketplace to confirm, then we will fully understand the launch trajectory before committing to the guidance.

We just think committing too soon is not the right thing to do. Other companies have gotten in trouble by committing to guidance too soon, and so I want to say that we hope, our hope is that we can start providing sales guidance later this year. So we're not talking way in the future. We're just talking sometime in the not too distant future, and really start providing you some tangible guidance. Todd?

Rachel, just to amplify one thing. The point I was trying to make earlier on the call is, if you look at our gross net trending, we were about 3% in Q3, about 5% in Q4, and we're expecting this to go into the 10% to 15% range, and we'll likely get there starting in Q1, because as I also mentioned, now the third of the three agreements are in place and effective.

Okay. That's really helpful. Thanks.

Thank you. Our next question is from the line of Alan Carr with Needham & Company. Please go ahead.

Hi, thanks for taking my question. Can you give us a breakdown in sales between community and academic centers or transplanters? And I guess a qualitative sense on response from those two settings? Also, I know it's early days, but any lessons that you learned from the launch that have prompted you to change strategy, marketing strategy? Thanks.

Yes, with the community and academic centers, it's roughly half and half that we have right now. Now, keep in mind that there's many more community centers than academic centers in the world. But right now, the initial adopters, what happens is you get more of the academic centers pretty quickly, because they know about this or they've been in trials. They've seen the power of ADCETRIS, so they immediately start using it more. With the community centers, you have to get out there as we've said, over and over. But already, we're seeing it about half and half, which we are pretty excited with. We did not know when we started, we thought we would be very heavy on the academic side and more light on the community side for maybe a few quarters, but that's really not what's happened.

We've had more adoption in the community, probably because ADCETRIS is the real deal and so we're pretty excited with that. As far as things like that we have learned and changed strategy in our launch, I really can't point to anything where we had a wrong strategy that we switched. I think our strategy has been spot-on. The strategy was to hire the best and brightest and experienced commercial team that we possibly could, because this was our first product launch, and as a Company, we've never launched a product. So what we did is we erred on hiring people that have launched lots of products, so that we had experienced staff and I think they've done great. They've given us a lot of insight, a lot of suggestions and I think we're on the right track.

Great. Thanks very much.

Thank you. Our next question is from the line of Howard Liang with Leerink Swann. Please go ahead.

You indicated most of the current ADCETRIS patients are in the post-transplant setting. What are the challenges in getting transplant-ineligible patients on the drug, either for reimbursement or clinical reasons?

So Howard, this is Tom. I'll start, and then probably turn it over to Bruce for the next part for the commercial. So there's actually not that many challenges for the transplant-ineligible patients. It's really an educational piece, with the transplanters and with the physicians. So if they cannot get them to a transplant, they can't get them into a durable remission, there are really no other alternatives. So it's really incumbent on us to make people aware that this is available. What they need to do to get there, and then we think that there is quite a bit of adoption in this area, but the bulk, as you would expect from our population, is the prevalence pool that are post-transplant. Bruce, do you want to comment on that?

I think you're absolutely right. The only thing I could add is that the unmet need in that population is so significant, that physicians really don't hesitate to use the drug in the ineligible population, just because there's just very few options available for those patients.

And second question, just going back to the screening study, what were the tumors you screened in the 2,500 patients? Because depending on what patients you screened, even 2% could be a lot.

Yes, thanks for the question, Howard. We're not releasing that information yet, about which patient types. What we said is solid tumors, it's myelomas, sarcomas, melanomas, all sorts of different diseases. We're really excited with what we have seen and it's just -- the goal of it was to find out where CD30 was, that we could maybe help patients, and where it's not that we could then steer away from. And we will -- our plan is to put data out this year.

Thank you.

Operator, we're coming up to the end of our time here so we'll take one more question.

Our final question is from the line of David Miller with Biotech Stock Research. Please go ahead.

Hi. Thanks for taking my questions. Just have two short ones. Do you have any kind of year-end 2012 cash projections, or what kind of net cash you might use during the year?

Yes, thanks for the question. This is Todd. We're not giving that guidance, because we would in essence be giving sales guidance. What I can tell you is that we ended last year in a very strong cash position, with more than $330 million on the balance sheet, and we're expecting to end this year also in a strong position, based on cash flows that are coming in from our collaborations, our ADC deals, the Millennium deal, as well as now, very importantly, ADCETRIS sales.

The question was asked previously about what the rate-limiting step was for starting the front-line trials and I understand your answer. And Clay, you had talked about that we're still running the Phase Is, and we have seen interim data from that. What else are you looking from in terms of data, and what else are you looking to learn from those Phase I trials to help you come up with your final protocol?

I did mention that we still have these running. I think that that's not the biggest of the rate limitations. I'd say just getting regulatory agreements, all the contracting done, getting this positioned for a worldwide global trial, that we're going to do with our partner is what matters, and regulatory agreements are incredibly important. I don't want to go through specific regulatory possibilities that there are.

I don't want to make any promises but we're excited with what we're doing, with what we're doing on our own as well as what we're doing with our partners at Millennium Takeda. We think the partnership is very exciting to look forward, the drug has a bright future, and we're really helping patients. We're going to give you times that we're going to get this going, and as you know, David, you've been watching us for a long time. We provide times, and then our goal is to go beat them.

Yes. I understand that. And then the final one, I guess I would add one more is also for Todd, is do you anticipate raising money at all or needing to raise money at all in 2012?

Well, this is Clay. I think I should probably take that. It's something that I never want to say never. It's just not something that -- in 14 years with this Company, we've never said never. But we are in a position that we don't need to raise capital, and it is a very exciting position to be in, that we have a strong position in cash ending 2011, as Todd says. Todd said he expects a strong cash position ending 2012. So we're really in good shape, and I would think that if we were interested in raising capital at some point, we better have a very good story to tell you guys. It's not something I would be counting on.

Great. Thank you very much.

Thank you. That does conclude the question-and-answer session. I would now like to turn the call back over to Management for closing remarks.

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

Ladies and gentlemen, this concludes the Seattle Genetics fourth-quarter 2011 financial-results conference call. If you would like to listen to a replay of today's conference, please dial 1-800-406-7325, or 303-590-3030, with the access code of 4509854. AT&T would like to thank you for your participation. You may now disconnect.