Seagen Inc (SGEN) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Seattle Genetics first quarter 2012 financial results conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions.

(Operator Instructions).

Today's conference is being recorded May 8, 2012. I would now like to turn the conference over to Peggy Pinkston, Senior Director of Corporate Communications. Please go ahead.

Thanks, operator. I would like to welcome all of you to Seattle Genetics first quarter 2012 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 Chris Boerner, Senior 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 be opening the line for questions. But if we are unable to get to all of your questions, we will be in office and available after the conclusion of the 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 will turn the call over to Clay.

Thanks, Peg, and good afternoon, everyone. Thank you for joining us. We have made substantial progress so far in 2012, having entered the year with significant momentum, and continued focus on making innovative therapies available for people with cancer. Our commercialization of ADCETRIS for relapsed Hodgkin lymphoma and systemic anaplastic large cell lymphoma or ALCL, continues to be strong. In parallel, we are investing in the clinical development of ADCETRIS to broadly explore CD30 expression in other hematological malignancies and solid tumors, and to assess the activity and tolerability of ADCETRIS in these patients.

Beyond ADCETRIS, we have a robust product pipeline of clinical and pre-clinical Antibody-Drug Conjugate or ADC programs. Today, I will highlight key activities and areas of focus. Chris Boerner, our head of Commercial will then provide details on our commercial activities. Chris was a key strategic leader in the launch of ADCETRIS, and was appointed to head up our commercial organization in February. Todd will then overview our financial results, and Tom will provide additional details on our clinical progress. Afterwards, I will close, and we will open up the line for your questions.

I am pleased with the growth and uptake of ADCETRIS in the market place. We regularly hear stories about the impact of ADCETRIS is making on the lives of relapsed Hodgkin lymphoma and ALCL patients. For the first quarter of 2012, we generated $34.5 million in net product sales of ADCETRIS compared to $33.2 million in the fourth quarter of 2011, an increase of 4%.

Gross sales of ADCETRIS increased by 12% compared to the fourth quarter of 2011, although this was offset by a substantial increase in gross-to-net discounts in the first quarter, due to public health services discounts that became effective in early January. The primary discount programs that impact our gross-to-net are now in place. And we do not expect to experience another significant increase like this, in gross-to-net discounts in future quarters.

We are seeing increasing adoption of ADCETRIS among academic, as well as community physicians, establishing a strong foundation for continued growth. The reimbursement landscape for ADCETRIS has also continued to be favorable, with no insurance denials for on-label ADCETRIS treatment. Although we are still assessing the dynamics of the marketplace, our goal is to drive sequential quarterly revenue growth of ADCETRIS during 2012. We expect total ADCETRIS net sales in 2012 to be in the range of $140 million to $150 million. In the longer-term, we believe that the commercial opportunity for ADCETRIS exceeds $1 billion annually in the United States and Canada.

We are continuing to invest aggressively in the clinical development of ADCETRIS for earlier lines of Hodgkin lymphoma and ALCL therapy, retreatment, maintenance, as well as other CD30 positive lymphomas and non-lymphoma cancers. With progress in each of these areas, we move closer to achieving our vision of ADCETRIS as a foundation of therapy for patients with CD30 positive cancers. Tom will more fully discuss specifics of our clinical development plan later in the call. But highlights of our work include first, redefining front-line Hodgkin lymphoma therapy. Our goal is to increase the overall response rate and reduce relapses, while decreasing the significant side effects of current treatment regimens.

Positive interim data from our Phase I trial indicate tolerability and anti-tumor activity of ADCETRIS when combined with AVD. And we expect to begin a Phase III trial in advanced Hodgkin lymphoma by late this year or early in 2013. Second, improving the effectiveness of treatments for front-line mature T-cell lymphoma patients. While targeted therapy, notably Rituxan, has had a significant impact on the treatment paradigm for B-cell lymphomas, there has not been a similar advance for patients with T-cell lymphomas. We are encouraged by our data with the ADCETRIS plus chemotherapy, in a Phase I front-line trial that were presented earlier this year. We expect to begin a Phase III front-line trial of ADCETRIS plus chemotherapy later this year or early in 2013.

Third, expanding into other CD30 positive non-Hodgkin lymphomas. We recently initiated a randomized Phase III trial in relapsed cutaneous T-cell lymphoma or CTCL to evaluate ADCETRIS versus physician choice of methotrexate or bexarotine We are also conducting a Phase II trial of ADCETRIS in other CD30 positive non-Hodgkin lymphomas, such as diffuse large B-cell lymphoma and peripheral T-cell lymphoma. We plan to report interim data from this trial at ASCO in June. And fourth, exploring the potential of ADCETRIS in non-lymphoma malignancies. We are conducting a screening protocol, which is now planned to evaluate up to 3,000 tumor samples for patients with multiple myeloma, leukemia or solid tumors. Patients with CD30 expressions are eligible for the Phase II treatment protocol. We also plan to report data from our screening protocol in non-lymphomas at ASCO.

Millenium/Takeda, our collaborator on the development of ADCETRIS is making progress toward ADCETRIS approvals in Europe, Japan and many other countries. A decision is expected from the EMA in the second half of this year, and activities are underway to expand ADCETRIS into Asian and South America countries in the near-term. Not only will these efforts benefit patients worldwide, but Seattle Genetics is also entitled to receive substantial milestones and royalties based on ADCETRIS sales outside the US and Canada.

Finally, another priority for Seattle Genetics is to continue advancing our clinical and preclinical pipeline of ADC's. We believe our ADC technology has the potential to significantly impact the way many types of cancers are treated. Our three clinical ADC programs, SGN-75, ASG-5ME and ASG-22ME are being evaluated in a variety of solid tumors. We plan to move another ADC, SGN-CD19A into the clinic this year for B-cell malignancies, and we have two additional INDs planned for 2013.

Our leadership in ADC technology was highlighted at the recent AACR conference, where we presented data from an ADC using a potent new cytotoxic agent, a method to produce uniform drug-loading on antibodies with enhanced stability, and a novel preclinical ADC targeted to solid tumors. Our research team continues to make significant discoveries that complement and augment our auristatin-based ADC platform. At this point, I like to turn the call over to Chris to provide a commercial update.

Thanks, Clay. I am pleased to report that in Q1, we saw solid growth of ADCETRIS. Use of ADCETRIS increased across all targeted segments, with particularly strong growth in the number of community accounts using the product. While volume in Q1 was split evenly between academic and community accounts, 75% of the over 200 new accounts ordering ADCETRIS in the quarter, were community accounts. In total, more than 750 accounts have ordered ADCETRIS since approval. We believe this represents less than 50% of total potential target accounts. Importantly, we continue to see very strong enthusiasm for ADCETRIS. Approximately 90% of physicians surveyed in market research in Q1 report having a positive impression of the product. Overall, we continue to be very pleased with the pace of launch, and the progress we have made commercializing ADCETRIS.

In thinking about the Q1 results, and what to expect in the coming quarters, it is important to keep in mind, a few underlying dynamics. First, as we discussed on a previous call, at the time of approval approximately 200 expanded access program patients quickly converted to commercial drug. We estimate that by early 2012, most of these patients had discontinued ADCETRIS. Second, although it is still early in the launch, we are gaining a more robust understanding of how ADCETRIS is being utilized by physicians in the commercial setting. Based on our market research, in Q1 approximately 70% of ADCETRIS patients were in Hodgkin lymphoma, and 30% were in ALCL.

The research also indicate higher than expected usage of ADCETRIS in Hodgkin lymphoma patients, who are not candidates for autologous stem cell transplant. This suggests enthusiasm among physicians to utilize ADCETRIS in earlier lines of therapy, which is supportive of our overall vision for the drug. However, duration of use in the pre-transplant setting is likely to be shorter than in the post-transplant setting.

This dynamic highlights the importance of our ongoing Phase III AETHERA clinical trial, where we are evaluating the ability of ADCETRIS to prevent relapse in patients following an autologous transplant. Data from this trial will inform the potential use of ADCETRIS in this setting, with the opportunity to provide a treatment option for patients, both prior to, and as maintenance or consolidation following a transplant. Tom will speak more to our ongoing development activities later in this call.

Looking forward, our commercial focus is on ensuring use of ADCETRIS at the labeled dose and duration in it's approved indication. Ultimately, we believe the duration of use will depend upon a number of factors, including the specific patient segment, line of therapy, and potential for use in retreatment or maintenance settings. In addition, we are working with physicians to identify new on-label patients for ADCETRIS treatment. We have seen rapid penetration in both Hodgkin lymphoma and ALCL, but we continue to believe there is growth room for growth in both settings. While we continue to target academic institutions, we have also aggressively expanded the community-base of ADCETRIS use. We believe that driving use of ADCETRIS in the community setting, not only benefit patients, but also establishes a solid foundation for the long-term commercial success of the product.

Finally, we continue to focus commercial efforts on appropriately supporting physician reimbursement. The payer policies that have been issued to date, for both commercial and government payers are consistent with our label or NCC end guideline. Since approval, we have experienced no on-label denied claims, when those claims were properly billed and coded. The C code for ADECTRIS, which was issued on January 1 of this year should further facilitate claims processing and payment in the hospital outpatient setting.

To close, in Q1 we furthered our efforts to establish the basis for continued growth and the long-term commercial success of ADCETRIS. We have a very experienced team of sales, marketing and managed markets professionals, focused on driving broad awareness of, and experience using the product. We continue working to ensure that patients are treated consistent with our label, and that no on-label patients are denied access to ADCETRIS due to reimbursement. We believe we believe these efforts position us well looking forward. And with that, I will turn the call over to Todd.

Great. Thanks, Chris, and thanks, everyone for joining us on the call this afternoon. We had a solid first quarter, driven by revenue growth, from both ADCETRIS sales and from collaborations. We're in a strong financial position, and continue to invest in expanding ADCETRIS into earlier lines of therapy in other CD30 positive malignancies, in addition to advancing our other ADC programs. Today I will highlight our first-quarter results, and then provide some additional financial context around our progress.

Total revenues for the first quarter 2012 were $48.2 million, which includes ADCETRIS net product sales of $34.5 million. This is nearly 4 times the amount of revenue earned during the first quarter of 2011, and reflects ADCETRIS sales, as well as 13% growth in collaboration revenues. ADCETRIS net product sales increased approximately 4% in the first quarter of 2012, over the fourth quarter of 2011. And as Clay mentioned, this growth includes an increase of 12% in gross sales, partially offset by an increase in gross-to-net adjustments, reflecting government program discounts.

ADCETRIS gross-to-net discounts in the first quarter increased to 12%, compared to 5% in the fourth quarter of 2011. And as discussed on our last call, this is consistent with our expectations, and was the result of our pharmaceutical pricing agreement becoming effective in early January. This agreement extended government discount pricing to sites that are eligible under the Public Health Services Act. PHS adjustments are the primary component of gross-to-net discounts for ADCETRIS. With this agreement now in place, we expect gross-to-net discounts to stabilize in future quarters, with quarter-to-quarter fluctuations being mostly attributable to site utilization.

In the first quarter of 2012, our cost of sales was approximately 9% of net sales. Bear in mind, that this reflects the benefit of using product manufactured prior to FDA approval, which was previously charged to R&D expense. This benefit will diminish as the product is utilized, and we expect that over time, ADCETRIS cost of sales as a percentage of net sales will increase into the teens. Research and development expense in the first quarter of 2012 were $38.5 million, compared to $32.4 million in the first quarter of 2011.

R&D expenses were driven by ADCETRIS-related clinical development activities, and continued investment in our other ADC programs. Selling, general and administrative expenses increased from $12.7 million in the first quarter of 2011, to $22.2 million in the first quarter of 2012, and reflect ADCETRIS commercialization costs. Non-cash share-based compensation expense for the first quarter of 2012 was $6.1 million, compared to $4.3 million in the first quarter of 2011.

Lastly, the increase in investment and other income for the first quarter of 2012, includes amounts recovered from a former broker, in connection with the settlement of an arbitration related to our previous holdings in auction rate securities which were sold during the quarter. We ended the first quarter in a strong financial position, with approximately $309 million in cash and investments. Our guidance today for ADCETRIS sales, along with previous guidance for collaboration revenues, creates a combined guidance range of $195 million to $215 million. The launch continues to go well, and significant amounts of cash flow are now coming in from ADCETRIS sales. This positions us well to grow the ADCETRIS franchise in it's current indications, invest in a broad ADCETRIS clinical development program, and to advance our pipeline of other clinical and preclinical programs. With that, I'm going to stop and turn the call over to Tom.

Thanks, Todd. As Clay said earlier in the call, expanding ADCETRIS beyond the initial indications, is a top priority for Seattle Genetics. We are pursuing this goal in four key therapeutic areas, earlier lines for Hodgkin lymphoma, earlier lines of T-cell lymphomas including ALCL, other non-Hodgkin lymphomas, and non-lymphoma malignancies. Today, I'll update you on each of these areas.

In earlier lines of Hodgkin lymphoma, there are two major areas of focus. First, is our Phase III AETHERA trial, which is evaluating a 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 the primary end point is progression-free survival. Our goal is to determine whether ADCETRIS can extend remissions and delay relapses, in high-risk patients undergoing an autologous transplant. With this event-driven end point, we currently project that data will be available in late 2013 or early 2014.

Second, is front-line therapy for Hodgkin lymphoma. At ASH, we reported encouraging interim data from our Phase I trial that provides evidence that a ADCETRIS could redefine the way front-line Hodgkin lymphoma is treated. We expect to report additional data from this trial during 2012. In parallel, we are on track to initiate a randomized Phase III clinical trial to evaluate ADCETRIS plus AVD, compared to ABVD in front-line advanced Hodgkin lymphoma patient's. The primary end point will be progression-free survival, with overall survival as a key secondary end point. We expect this trial to begin later this year, or in early 2013.

Switching now to mature front-line T-cell lymphomas, including systemic ALCL, we are aggressively pursuing our goal of redefining CHOP chemotherapy as the standard of care for these patients. We reported interim data earlier this year from our Phase I trial that support our plans to move rapidly into a Phase III randomized clinical trial of ADCETRIS in combination with CHP versus CHOP. The primary end point will be progression-free survival, with overall survival as a key secondary end point. This Phase III trial is planned to begin in late 2012 or early 2013.

Next, let me update you on our work in other types of non-Hodgkin lymphoma. We recently initiated a randomized Phase III trial for relapsed CD30 positive cells cutaneous T-lymphoma or CTCL. In this global trial, we are comparing ADCETRIS to investigator's choice of methotrexate or bexarotine in 124 patients with CD30 positive CTCL, including primary cutaneous ALCL, or micosis fungoides. The primary end point is overall response rate lasting at least four months. This trial conducted under a special protocol assessment with the FDA, and we have also received a scientific advice on this protocol from the EMA.

In addition to this corporate-sponsored pivotal trial, investigators are conducting studies with ADCETRIS in CTCL patients. Data were presented earlier this year from an investigator's sponsored trial or IST conducted at MD Anderson, and data will be reported later this week at the Society for Investigative Dermatology Annual meeting from an IST in progress at Stanford. Both ISTs have demonstrated objective response rates of greater than 60%, with a manageable safety profiles of an heavily pretreated CTCL patients.

In addition to CTCL, our clinical development in other types of the CD30 positive non-Hodgkin lymphomas is also under way. We are conducting a Phase II trial in lymphomas, including peripheral T-cell lymphoma, and diffuse large B-cell lymphoma. The trial is planning to enroll about 50 patients, and we are assessing activity and tolerability, as well as correlating activity with CD30 expression. Enrollment to this trial is progressing very well, and we plan to report interim data at the ASCO annual meeting in June.

A fourth area of opportunity for ADCETRIS non-lymphoma malignancies, including solid tumors, leukemias, and multiple myeloma. We are conducting a screening protocol to assess CD30 expression in patients tumors. We have screened more than 1,500 patients so far on this protocol. Those patients who expressed CD30 are eligible for a Phase II treatment protocol, onto which we expect to enroll up to 80 patients. Again, we will evaluate activity and tolerability, as well as correlate activity with CD30 expression. We also plan to report interim data from the screening protocol at ASCO.

In addition to these two data sets planned for ASCO, we will also be presenting data from our Phase II retreatment trial. This is a study designed to assess the therapeutic potential of the ADCETRIS administration in patients who have relapsed, after previously responding to ADCETRIS. We reported preliminary retreatment data at ASCO 2010, showing that the use of ADCETRIS in this setting resulted in additional objective responses in relapsed Hodgkin lymphoma and systemic ALCL patients.

Demonstrating the ability to retreat patients could provide an important option for addressing the medical needs of these patients. The many ongoing and planned corporate-sponsored trials of the ADCETRIS are complemented by ISTs in multiple areas of medical interest. There are currently 7 ongoing ISTs, and we anticipate multiple additional studies in different patient population and lines of therapy will be initiated later this year.

On the regulatory front, we are in the process of seeking approval to market ADCETRIS in Canada for relapsed Hodgkin lymphoma and ALCL, and we -- excuse me -- we expect a regulatory decision by Health Canada in late 2012 or early 2013. In addition, Millennium/Takeda is making strong progress on the global front. The European Medicines Agency accepted the ADCETRIS MAA for review in June 2011. We anticipate a decision from EMA in the second half of this year, and Millennium/Takeda also has aggressive goals to expand ADCETRIS approvals in the rest of the world, with plans for regulatory submissions in Japan, Australia and other major markets worldwide.

As Clay outlined, in addition to ADCETRIS, we are advancing several other clinical and preclinical pipeline programs. These include, SGN-75, which is an ADC targeted to CD70. We are planning a Phase Ib trial evaluating SGN-75 in combination with Everorlimus, an mTOR inhibitor approved for the treatment of renal cell cancer. We have observed synergistic activity in preclinical models of auristatin ADCs combined with mTOR inhibitors, and we look forward to initiating this trial in the second half of 2012.

ASG-5ME, an ADC that we are co-developing with Agensys, an a affiliate of Astellas, that is in Phase I trials for pancreatic and prostrate cancer. We plan to present interim data from the prostrate trial at ASCO. We recently completed enrollment in the pancreatic clinical trial. And we are also evaluating the potential for exploring ASG-5ME in patients with gastric cancer, based on preclinical expression and activity data. ASG-22ME, a second program we are developing in collaboration with Agensys, that 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 to dose escalate.

And SGN-CD19A., the next ADC we plan to advance into clinical development. We expect to submit an IND later this year for B-cell hematologic malignancies. We are also conducting late stage preclinical development of two other ADCs, one for breast cancer, and one for hematologic malignancies, which are both 2013 IND candidates. Our aspiration at Seattle Genetics is to improve the lives of people living with cancer. We believe that through our robust set of ADCETRIS clinical trials, and our multiple ADC programs in the clinical and preclinical development, that we are making significant strides toward achieving this goal. And with that, I'll turn the call back over to Clay.

Thanks, Tom. Seattle Genetics has its sights on many significant milestones for ADCETRIS and our other programs over the course of the next year. Including for ADCETRIS, reporting three new clinical data sets at ASCO from the Phase II trial in non-Hodgkin lymphoma, the Phase II screening protocol in non-lymphomas, and the Phase II retreatment trial. We also anticipate reporting additional ADCETRIS data during 2012, at appropriate medical meetings, including the annual meetings of the European Hematology Association and the American Society of Hematology.

Initiating three -- Phase III trials of ADCETRIS in both front-line, advanced Hodgkin lymphoma, and front-line mature T-cell lymphomas later this year or early in 2013. Obtaining a regulatory decision in Europe in the second half of 2012, and in Canada by late this year or early 2013. Reporting data from the ASG-5ME prostate cancer trial at ASCO. Initiating a Phase I trial of SGN-75, in combination with Everolimus for renal cell cancer by the end of 2012, and advancing SGN-CD19A into the clinic for B-cell malignancies by the end of 2012.

The launch of ADCETRIS is going extremely well, and we have received great feedback from patients and physicians. Our commercial team is hard at work to ensure relapsed Hodgkin lymphoma and ALCL patients in need have access to ADCETRIS. Ultimately, our goal is for ADCETRIS to be the foundation of therapy for CD30 positive malignancies. Each year in the United States, 15,000 to 20,000 people are diagnosed with CD30 positive lymphoma.

In addition, we are also discovering CD30 expression in subsets of patients, with certain types of solid tumors. Our clinical development strategy is to generate data that will support step-wise growth of ADCETRIS through maintenance, retreatment and in other CD30 positive malignancies, and ultimately by adding ADCETRIS to front-line regimens.

In the emerging era of personalized medicine and targeted cancer therapies, ADCETRIS and our other pipeline ADCs have the potential to make a major impact on the way many types of cancers are treated. And I look forward to keeping you updated on our progress. At this point, we will open the lines 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, sir.

(Operator Instructions).

And our first question comes from the line of Jason Kantor with RBC Capital Markets. Please go ahead.

Congratulations on all the progress, and thanks for giving --

Jason, it's very hard to hear you.

Thanks for taking the question, and congratulations on all the progress, and thanks for giving the sales guidance. I appreciate that. Wondering if you could help us understand a little bit better -- how you build in your assumptions for the sales guidance. I mean, obviously the low end of that, is really very, very anemic, in terms of quarter over quarter growth. And I think at the top end is about 6% Q-over-Q growth. And you said you did 12% of volume growth in Q1. So just wondering if you could give us some sense of how you are thinking about that guidance?

Thanks for the question, Jason. Physicians are excited about ADCETRIS and how it is helping their patients. And we think that showing low to and guiding to low to mid single digit quarterly growth is solid progress for our first full year on the market. There is a number of dynamics is that affect our guidance and impact the sales trajectory. This includes that EAP patients have largely completed their completed the course of therapy.

It also includes that our market research, as we stated in the script, indicate higher use and pre-transplant Hodgkin lymphoma. And it's certainly a positive sign that docs want to use of ADCETRIS at earlier stage disease. But it may result in shorter durations of therapy in the near-term, especially before we have any data on AETHERA. And we are still working to expand the use of ADCETRIS in the community setting to make sure that each patient that can respond and benefit from ADCETRIS can get this drug.

Okay. Thanks. And also just on the screening data at ASCO from, should we assume that the -- in the non-lymphoma setting that we will only get the screening data and no treatment, given what you said in your script? And also what is driving the increase in the size of that trial? I think that you were previously aiming for 2,500 or so? And now you are saying 3,000, so interested in why and how that is expanding?

Most likely, you are correct will be the screening portion of it, that we are able to share add ASCO. And we have decided to expand it from 2,500 to 3,000 samples, just because we are continuing to learn, and find different avenues of opportunity to see where CD30 is expressed. But we will discuss this more at ASCO.

Terrific. I will jump back into queue. Thanks a lot.

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

Yes, thanks very much. So I guess, two questions for me. One is -- has to do with this comment you are making, Clay, about the pre transplant? Can you give us a little bit more color on whether the trend is growing? And I don't think you have talked about that before. But I am going to assume, yes, but do you have a sense of what proportion of patients are getting shorter courses? And are we talking about like 2 to 3, cycles versus 6 to 7? Just help us put some numbers around that? And also on the front-line trials, you mentioned you needed -- that overall survival would be an important secondary end point. And I just want to make sure I have this clear my mind. Do we need to see an overall survival statistically significant result, in order to unblind the study or will trends be okay? Thanks.

Okay. First of all, on the pre transplant, and the number of cycles. We are not providing that type of guidance about this point. We are still learning, we're still watching, and doing a lot of market assessment to determine that. I think we are very pleased that a lot of doctors are able to get patients into transplant, through the use of ADCETRIS. And that is something that we are pleased with.

But as you know, doctors will try to use of ADCETRIS, get the patients into CRs, and then once they are in CRs, they want to put them into transplant, give these patients a chance of cure. And this is a good thing, that this what we're all about, making a difference in patients lives. And what we are saying here, is that in that setting, we have are -- we have initial data, just seeing less duration of treatment. But we are not providing a specific number for you at this point. Now your second question was about OS and secondary end point. And we do not have to continue our studies to see OS. I mean, our studies are for -- the primary end point is PFS, and our Phase I studies that will be conducted under Phase III, and a Phase III trial, will be completed when we have PFS. Tom, do you want to add anything to that?

Yes. So just to amplify on that. The dialogues that we are having with regulators on both sides of the pond, and finalizing the trial so they can initiate, largely run -- one of the areas of focus is always on statistical design. What is very clear, and what is in our post approval commitment from FDA that they put out, after ODAC, is that PFS is acceptable as an primary end point. But as in most trials, they want to make sure that safe -- from a safety perspective, and from an efficacy perspective, that OS is trending in same direction. So the study is powered, and really based on PFS, but we are following long enough that we should be able to get a trend for OS, and have enough patients that, that at least we have some idea of if it's moving in the right direction. And that is all, at this point, the regulators are asking of us.

Great, thanks.

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

Hi, good afternoon, and thanks for taking my question. I want to go back to the duration issue. And I'm just wondering if you could be more specific with regard to the overall average duration of therapy? Or at least, maybe how you believe duration in your labeled indications is shaping up at this point, relative to the experience in your pivotal trials? And then I have one follow up.

Okay, Cory. Thanks. We are not at this point, providing any numbers on duration, whether it is average or pre transplant or post transplant. But Chris Boerner, our head of Commercial has a little bit of color that he will provide.

Hi, Cory. Yes, so I think we talk about duration, is important to think about duration as a function of patient types. And this in some ways, this gets back to Rachel's question as well. The post transplant setting, we believe that we will have duration, approximating what we saw on our clinical trials. And as we said previously, the median in those trials was between 7 and 9.

So I would sort of wrap my head around that, as sort of the post transplant population. Pre transplant duration will be driven by a number of factors, notably patient response, and the intent that the physician has with the patient. But generally, we would expect to see duration a bit less in that setting, than what we saw on the post transplant setting. It is a little too early to give specifics on duration at this point, as we have said. However, it is something we will continue to monitor, and we will certainly keep you updated on future calls.

Okay.

And this is where AETHERA comes in. I mean, it is exactly what we are looking at testing, and that is post transplant. So when we speak with transplant physicians, they are excited with the opportunity to use ADCETRIS, benefit patients, get patients into CR and provide them transplants. But the question is after transplant, and do you put patients on the a therapy, or do you just watch and wait? And so, especially in the high-risk patients.

So we are doing a study, and we don't have data right now, but the accrual is brisk, robust as Tom said. We are guiding that the accrual should be done this year. And it could go from -- there's a possibly, that provided our data is strong, that transplanters could go from the docs that use ADCETRIS for somewhat smaller duration to a longer duration, with the results of ADCETRIS. And that remains to be seen with time, but that very well could happen, based on data.

Okay. That's helpful. And then my follow-up -- is just to make sure I understand your guidance for 2012. Clay, when you talked about expecting sequential growth throughout the year. And then you put into play the duration dynamics that you are talking about right now with some of this earlier use. Am I right in thinking that you would expect to have a significant number of new patients, kind of coming onto therapy to make up for those that are falling off? Is that what the right way to be thinking about the dynamics, throughout the course of this year?

That is exactly right. A lot of new patients coming on. And also as Chris alluded to, new centers. We still have quite a number of centers to penetrate the full market. And we are happy with the amount of centers that we are penetrated, but there is more to go. We have called on all of the centers, and we have our reps out there and talking about our labeled indications. And we are really making great progress. But it all wasn't built in one night, and it takes a lot of effort. And so far, we are really excited with the launch. We have helped so many patients, and just the testimonials have been incredibly heartwarming.

All right. That's helpful. Thank you.

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

Hi, thanks for taking the question. And, Clay, I appreciate the transparency in the guidance, very helpful. Maybe you or Chris, could talk a little bit, provide a little bit more granularity on some of the market dynamics. I'm curious with of this customer base, the half or so of your target that are using ADCETRIS, how -- what has the reorder rate been? And then the 50% that you just mentioned that have been touched, but have not order the product it, what is the primary gating factor to getting some of those physicians to use the drug?

Yes, so I'm going to turn out over to Chris to answer.

Yes. So John, we don't have a great data to provide you now, in terms of reorder rates. So I can't provide you any details there. But what I can say, with respect to the gating factors for getting new ADCETRIS use within these accounts, I would say really comes down to patient identification. And that is why we have put so much emphasis in this call, as well as the previous calls, on a commercial focus that really has two main pillars. The first is getting out, and helping physicians identify new patients who fit within the confines of our label. That is priority number one.

And priority number two, is once those patients get on therapy, to ensure they are treated in a way that is appropriate, but also consistent with the label. And so particularly in that post transplant setting, it will be messaging to the appropriateness of 16 cycles disease progression are unacceptable toxicity. So that is really the main focus, in terms of our commercial efforts.

And Clay, the billion dollar bogey that you put out there for North America, if we were to look forward in time, what are the components of that look like?

Let's first specify North America. It's -- what we put out, was US and Canada. Mexico, which is part of North America is under the umbrella of our partner, Millenium/Takeda. So sorry for the geography lesson. But there's a lot of different parts to it. I mean we have ADCETRIS sales in the relapsed refractory setting of Hodgkin's ALCL. That's first and foremost, we think we can grow that. But there is also the retreatment data that we are going to be coming out with, and hopefully get that as part of our label someday.

There is our AETHERA trial, which is some people call a maintenance trial. There is other types of lymphomas. And at ASCO, we're going to be putting out data on other types of lymphoma. There is -- that are not even including CTCL. CTCL's by itself is a lymphoma that we are excited about. We had some data earlier this year that was presented in January at a T-cell conference. And then later this week, we are presenting more data on CTCL, from a different IST at a Investigative Dermatology conference.

And as you know yesterday, we announced the start of a corporate study in CTCL, for under a SPA, and SPAs are not that easy to get. We're worked very hard with the FDA to get a SPA, and identify comparative drugs to use, and endpoint et cetera. We also worked across the Atlantic with the European Medicines Agency to give scientific advice, so that this could be a global study done with our partner, Millennium Takeda, that we can hopefully accrue rapidly, and get an answer in patients, so that we can provide more help with ADCETRIS to patients in need.

So we think that all these pieces and parts are important. But foremost, is our front-line studies. That is really the biggest market opportunity for us. We think there's a lot of step-wise growth, where we will have a nice market opportunity, and then we'll get new label, and then another market opportunity and another and another, with all these steps we are doing.

But front-line, in both Hodgkin lymphoma and immature T-cell lymphomas, where we are really not just adding to standard of care, we are redefining after many decades of no new therapies, trying to redefine front-line therapy, by reducing toxicity, increasing efficacy. And if we looked at our primary data that we put out in ASH, we're pretty darn excited with that, and looking forward to starting our authentic Phase III trials, and we're working very closely with regulators to try to do this in the best way possible.

Very helpful. I appreciate the geographical clarification, and will see you it ASCO. (Laughter).

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

Thanks. Just a clarification, when you talked about higher usage in patients who are not candidates for transplant. I just wanted to make sure I understood that. Did you mean that the rate of use there, is higher than what you would have expected? Or did you mean that actually more than 50% of the Hodgkin's lymphoma use, is in non-transplantation is?

Chris, would you like to take that? Sure. So let's get another geography lesson, with respect to the patients that we are talking about within their treatment algorithm. So for those patients who fail front-line therapy, approximately70% of those patients are deemed eligible for an autologous stem cell transplant, 30% ineligible due to patient characteristic or some sort of insufficient response.

Within this pool of patients, ADCETRIS, as you all know approved for patients who are not candidates for an autologous stem cell transplant, and have failed at least two prior multi-agent chemotherapy regiments. What we have heard, anecdotally and in market research, is that the number of patients who were previously deemed ineligible for an auto, or actually proper responses with ADCETRIS, and then becoming eligible for an autologous stem cells transplant. And so that is what we are seeing in the market research.

And as for whether or not they are trends of the vast majority, we have seen a movement up since launch, in the percentage of patients who fit that, what I just described. We are not yet ready to give actual percentages yet, because we are relatively early, and these numbers are going to jump around quarter-over-quarter. So it will be something, we will continue to update you on. But that is really the status of what we are talking about.

But I guess, I just wanted to be clear, when you talked about higher usage, do you just mean that the usage there is increasing? Or do you mean it is higher in that subgroup, than in the transplant post transplant setting?

Yes, it is really just a little bit higher than we expected.

Okay.

We had an expectation of how many patients we would -- approximately that we would treat in the pre transplant setting. And what we are finding is that, there is all the transplant ineligible patients. And when you think about it, Thomas, if I mean I was a patient I cannot get a transplant, I would want ADCETRIS. I mean ADCETRIS is a very active drug, with a high, with an unprecedented high rate of anti-tumor response, and a lot of CRs.

And as you know, and has been clearly written up by transplant doctors over the years, if you have a CR going into transplant, you do a lot better. And that is what they want. They want their patients to do a lot better. So it makes sense for them, to take these patients that can't get transplants, or still have a lot of tumors, to try in their blood and lymph nodes and et cetera, to try to get a CR.

I mean, this is really good for patients. So it's just -- we thought we would see a lot. We didn't think we would see none. We're just are seeing a little bit more than we thought. And that's what we wanted to express.

That's very helpful. I think I understand that now. And then my second question, was actually on this whole concept that you had talked about, before you had gotten ADCETRIS approved, of this prevalence pool of patients, in the third line setting and beyond. And you actually put some numbers to that, before press, and it was actually quite a large pool. But the sales numbers that you are reporting, don't seem to reflect that there was very much of a prevalence pool. And it seems to be falling more in line with the actual incidence rate. Can you just help us understand that, and did we miss-size that? Or are there factors that just make that pool inaccessible to you?

It's a very good question, so thank you for it. We still believe that the overall size of the Hodgkin's and ALCL markets were basically in the ballpark of what we thought going in. So we still think that we are about right there. But there are quite a number of factors, that do affect our revenue projections for ADCETRIS, and this prevalence pool. And then clearly, the market penetration rates, and duration of therapy, the retreatment and expansion into other labeled indications.

And so we are -- but keep in mind, that we are very excited by the data that we have in CD30 positive, I mean, CD30 positive NHLs, and other malignancies we are continuing to build the ADCETRIS franchise. We're doing it in a step-ward way. So we just think we are generating a lot of data right now. And ultimately, front-line therapy is very important. But overall, we think we're in the ballpark on this prevalence pool.

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

Great. Thank you for taking the question. And I just wanted to actually follow up on the last question. And Clay, you mentioned that you had 280 EAP patients who came on the drug early, and were largely done by early this year. So does that imply that the balance of the patients that have been treated launched to date, would be considered incidence patients? Or can you help us with the mix of incidence and prevalence, if we ex out to 280 EAPs? And if we're in the right ballpark here, then are you, in terms of understanding the incidence here, are you reevaluating the way you think about the addressable prevalent population?

We are not reevaluating any way, we're thinking about it. And since the EAP patients, they have been a mix of incidence and prevalence. And so there is really no new evaluation. I'm not sure what information I can provide to you to more address your question.

I guess if you could help us understand the mix of incidence in prevalent patients, in the launch to date, that would be helpful.

Right. But we are not prepared to provide that type of data. And so, I mean, there is certainly patients from both populations that we have treated. But we are not outlining that.

Okay. I guess secondly then, what you see in terms of interest levels in ADCETRIS, outside its current label? And what has the reimbursement been in those settings? I guess I was interested, because you made the statement that there have been no denials for on-label use. I guess I would raise the question, have you seen interest off label and have there been denials off label?

Clearly, we can only promote to our label, and you know that. It's hard to speculate much, about any spontaneous adoption. Physicians are becoming more and more familiar and comfortable, with looking for CD30, on expression of many types of tumors, especially all these different lymphoma types. There are more than an dozen different lymphoma types that likely express CD30. We have talked about many of them. And they -- that will be certainly -- those lymphomas will be involved in additional studies that we're doing to expand our label and additional ISTs.

And we have talked about that a lot. But as far as speculating, anything specific on spontaneous adoption, we're not in a position to. Now clearly, we have heard from some docs, about their use of off label. Clearly, we have heard of docs, who have used it, and have worked with reimbursers. And we have heard of some payments, for some drugs by payers, and we have also heard of some that are pushed back. I think that is something that we expected. But to give you any specific color, on amounts of spontaneous use, or amounts of pushback or paying, is something that we are not prepared to do.

Okay, thanks, and congrats on your progress.

Thank you. Our next question comes from Sapna Srivastava with Goldman Sachs. Please go ahead.

Thanks for taking my question. I had just a couple of follow-up questions, just on the off label that you were talking about. I mean do you have a sense of how much of the drug is used off label, in how much is used on label? And secondly, just focusing on the retreatment data that we expect at ASCO. Is it the full retreatment data, I mean just some context around what we can expect there, in terms of the maturity of the data set?

Yes, as far as off versus on label, we are definitely not in a position to provide any guidance or insight into that at this point. And as far as retreatment, I will turn it over to Tom.

Yes. So we're very pleased with the retreatment data. The study still open for enrollment. You can see that on clintrials.gov. But we've got a good slug of patients now. We think we have characterized well, what that responses are going to look like. And I think it is just no surprise to say, that it is going to be very nice, comparable to what we have shown earlier. And clearly, more so than what other drugs have done, such as Rituxin to get into a labeling situation. So we are optimistic, that these data will help guide physicians, and to ultimately, may be a good platform for label addition.

Thank you.

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

Hi, thank you for taking my questions. I wondered if you can comment on the screening trial? You mentioned that you have screened 1,500 to date. But I'm wondering if you could give us a sense of how many have been enrolled in the treatment phase? And then also, can you give us an update on the investigator-initiated trials, which ones we should be watching for, and which might shape use of the drug? Thanks.

On the screening trial, we said we have done 1,500 to date. But we are not discussing at this point, how many have gone into treatment. That is something that we will be presenting at a future time. As far as the ISTs, I am going to turn it over to Tom. And if you could briefly hit some of the ISTs, because we like to a few more questions in, before we run out of time.

Yes, so we have 7 ISTs open. I think the ones that we are going to see the data on soonest, are the CTCLs. We have seen interim data from one of them in January, another one coming later this week. So those the ones that are most mature. But also, to be watching for, there are 2 in salvage, prior to transplant that are running, one at City of Hope, and one at Memorial Sloane Kettering. And then for three front-line trials in various settings, in various combinations. And there are more to come this year. We have a very active program of ISTs, and a lot of enthusiasm from our investigators.

Thanks very much.

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

Thanks very much. Clay, you mentioned you would like to get retreatment on label. Can you talk about the plan there? What -- do you have understanding what it would take to get a label of that?

Yes. We can provide you a little insight into that. Tom, would you like to take that?

Yes, Howard, we are looking at our data, as it continues to mature. We think our retreatment will be a great option, for patients who benefit one-time around from ADCETRIS, go off in response. And then at some later time, come back, and have disease come back. We are trying to assess the regulatory potential for this. When we look at what Rituxan did as guidance, we feel like we're very much in the ballpark, or better than that. Now that was a while ago, when it was added there. And we still have regulatory discussions to put into play. But we are optimistic that this will be ultimately a labeled indication for ADCETRIS.

If I could follow-up on, a pipeline drug, ASG-5ME for prostate cancer that you presented for at ASCO, can you just talk about what is the nature of that presentation? What should we be looking for, efficacy signals or is it a safety study?

Well, it is a Phase I trial. So standardly, we are looking at both efficacy, our safety first, but also efficacy. And measuring things like PSA and other endpoints that are standard in prostate cancer. So we're looking forward to putting out -- I think it is our first a data set that we're putting out ASG-5ME. And we're looking forward to that. And we are doing is the partnership, obviously with the Agensys group from Astellas. And we have a couple of programs with them, and we're excited to be developing drugs with them.

Thanks very much.

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

Yes. Thanks for slipping me in. I am wondering what types or sites are eligible for the PHS discounts? And whether that might change or I guess, or shift over time at all? I guess, how should we think about that?

I'll turn that over to Todd.

Yes. So PHS eligibility is largely dependent upon the population dynamics of the patients that are treated at the site. I think you have to be over 10% or 12%, sort of a high need patients become PHS eligible. So once the site is eligible for PHS discounts, it can process discounts under the program for all drug purchases. One of the things that we have great insights into, with our distribution model, exactly where drug is going. So it is pretty easy for us to track exactly how much drug is going to PHS-eligible sites.

And as you saw on the gross-to-net adjustment for this quarter, we are now in essence, seeing the full impact of PHS discounts in our gross-to-net. The program went effective on, I believe, January 10, so almost the entire quarter. Now you asked a very good question, that is what happens in the future? I think we, and many in the industry continue to track what happens with PHS eligibility. Is this going to continue to increase, or will it stabilized? For example, when we go into more and more community hospitals, they tend to not be PHS sites. So there are factors here, sort of moving in both directions, that we are just going to need to continue to track and monitor. But for us, we've got great access to the information.

Bret, this is Chris. The only thing I would add, is that whatever happens to this regard will impact not just us, but the entire industry.

Sure. Absolutely. Thanks very much for the information.

We have time for one final question. Our final question comes from the line of David Miller, Biotech Stock Research. Please go ahead.

Great. Thanks for squeezing me in. I appreciate it, and thank you for providing guidance. Much appreciated. I want to talk a little bit about, is there any reason to expect a patient who got ADCETRIS going into transplant, would be somehow ineligible for ADCETRIS, if they relapsed after transplant?

Yes, it's a good question. It is something where, since we are new on the market, we haven't yet had every example of everything happen. But certainly, if someone got it pre transplant, and they had X number of cycles and went to transplant. And at a later time point, they were off of drug, and they were off drug for a while, and then they relapsed, there certainly would be no reason why they could not get ADCETRIS. Especially if they responded to it the first time, which they obviously would have if they got it. Chris, do you want to add to that?

Yes, the only thing I would add is that, that the patient would still be considered an on-label patient at that point. And so, we have every confidence that at that point, given the scenario Clay just described, that they would be eligible from a label standpoint to go back onto the drug.

I just want to make clear, that just because you are seeing patients pre transplant, it's not like you are robbing from a later pool, of the post transplant patients.

That's correct.

The second question I have is, you are talking about retreatment as going for a label. I understand why you would do that. But are you also thinking of using the retreatment data to go and talk to NCCN and the other compendium companies, and trying to get insurance reimbursement for that? And what would your timing be, between seeking a label, and seeking compendium listing maybe for retreatment?

What you are asking is a really, really good question about the strategy that we have, of working with the FDA, versus working with any of the compendia such as NCCN. That type of strategy is not something we're prepared to discuss on a call like this. But it is a very good question.

All right, great. Congratulations on that again, thank you very much.

Thank you. This does conclude our question and answer session for today. I would like to turn the conference back to Peggy Pinkston for closing remarks.

Thank you, operator, and thanks everybody for joining us this afternoon. We will be in the office if there are questions that you have, that we were not unable to get to today. And otherwise, have a good evening. Good night.

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