Seagen Inc (SGEN) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Seattle Genetics Second Quarter 2012 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, August 8, 2012. I would now like to turn the conference over to Peggy Pinkston, Senior Director of Corporate Communications.

Thanks, operator. I'd like to welcome all of you to Seattle Genetics' Second 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; and Chris Boerner, Senior Vice President, Commercial. Our intention is to conclude today's 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 we are unable to get to all of your questions, we will be in the 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 effect the Company. I'll now turn the call over to Clay.

Thanks, Peg, and good afternoon, everyone. It's been almost a year since FDA approval of ADCETRIS. I'm pleased with the important progress we have made, and excited by the opportunities -- by the opportunities ahead. Total ADCETRIS net sales since approval have now surpassed $100 million. We continue to execute on our goal of bringing ADCETRIS to patients through both commercial efforts directed at use in our labeled indications, of relapsed Hodgkin lymphoma and systemic anaplastic large cell lymphoma, or ALCL, and extensive clinical development activities in other CD30-positive malignancies and earlier lines of lymphoma therapy.

We have reported objective responses with ADCETRIS in six unique lymphoma types, and I'm particularly excited by the potential for ADCETRIS in front-line therapy. We have reported interim data from our Phase I trials in both front-line Hodgkin lymphoma and front-line mature T-cell lymphomas. We look forward to reporting additional data from both of these trials later this year.

Importantly, together with Millennium, we recently secured a special protocol assessment, or SPA, from the FDA for our front-line Hodgkin lymphoma trials. This is a key step in the regulatory process for our front-line Hodgkin lymphoma strategy, and positions us strongly as we execute on our vision of re-defining therapy for newly diagnosed patients.

We are also maximizing the opportunities provided by our industry-leading antibody drug conjugate, ADC, technology. It's an exciting time to be working in the ADC field. We are proud to be the only Company with an ADC marketed in the United States, and we are determined to continue building upon our ADC leadership position by aggressively advancing new programs.

Beyond ADCETRIS, we have three other ADCs in the clinic today, and are planning three IED filings in the next 12 months. Importantly, we also continue to enhance our ADC technology through development of novel linkers, chemo types, antibody engineering techniques, and conjugation methods. Our collaborators have 13 ADCs in clinical development that utilize our technology, and we expect a substantial amount of data to be reported on both our own and our collaborators' programs throughout the remainder of 2012, especially at the American Society of Hematology, or ASH, meeting in December.

Today we will discuss our second quarter results and commercial initiatives, and then I will outline our clinical development strategy for ADCETRIS, and update you on our other ADC programs and collaborator progress. ADCETRIS net product sales in the second quarter was $34.7 million, up slightly over the first quarter, and moving total first-half ADCETRIS net product sales to $69.2 million. We continue to project ADCETRIS net product sales of $140 million to $150 million in 2012.

During the second quarter, we also recognized $1.2 million in royalty revenues for ADCETRIS. These revenues relate to sales of ADCETRIS by our collaborator, Millennium Takeda, under its international named patient program, or NPP, which has been effective at providing ADCETRIS to patients in need around the globe prior to international approvals. There is widespread interest from both physicians and patients outside of the United States in utilizing ADCETRIS.

Millennium and Takeda have also made important progress on the regulatory front with ADCETRIS, most notably the recent positive opinion from CHMP for the approval of ADCETRIS in the European union. We are pleased that the CHMP recommendation aligns with the broad indication for ADCETRIS in the United States for relapsed or refractory Hodgkin lymphoma and relapsed or refractory systemic ALCL. We anticipate Millennium will receive an approval decision from the European commission within the next three months, which will trigger $25 million in milestone payments to us.

Millennium is also making progress toward ADCETRIS approvals in many other countries. In addition to the US, Seattle Genetics has commercial rights to ADCETRIS in Canada, and our new drug submission was accepted for review by Health Canada in May. We anticipate an approval decision by early 2013, and are working to secure reimbursement approval in a timely fashion. At this point, I'd like to turn the call over to Chris to provide an update on our ADCETRIS commercial activities, and then to Todd to discuss our second-quarter financial results.

Thanks, Clay. Good afternoon, everyone. Today I'm going to provide an overview of our commercial performance for Q2, outline the key factors that we expect will affect near-term growth for ADCETRIS, and discuss briefly how our commercial efforts are directed toward key initiatives.

In Q2, we continued to make solid progress in bringing ADCETRIS to patients in our labeled indications. Highlights for this quarter include first, strong interest in ADCETRIS among community physicians. More than 150 new accounts utilized ADCETRIS during the quarter, with the majority of these being community accounts. In total, more than 900 accounts have ordered ADCETRIS since approval.

Second, our market research indicates near universal awareness of ADCETRIS data among targeted physicians. In Q2, 95% of surveyed physicians report having a positive impression of the product. Among physicians who have utilized ADCETRIS, 99% reported that the product met or exceeded their expectations.

Enthusiasm and support among community physicians for utilizing ADCETRIS resulted in an approximately 10% increase in volume in that setting. We believe the broad awareness and excitement for ADCETRIS in the community setting establishes a solid foundation for incremental growth in the near term. It also positions ADCETRIS for long-term success, as we continue our clinical development efforts to move the product earlier in the treatment algorithm.

While we saw growth among community accounts in Q2, it was largely offset by a decline in volume in the academic setting. The decline in academic use resulted mainly from patient discontinuations at a handful of large volume academic centers. Based on our review, we believe most of these patients had either initiated ADCETRIS shortly after approval and completed their course of therapy, or had discontinued to go on to an autologous stem cell transplant.

Overall, we continue to see very strong enthusiasm for ADCETRIS in the academic setting. Looking forward, two major factors will impact near-term growth for ADCETRIS -- namely, our ability to drive new patient starts on the product and duration of therapy. Let me provide some additional perspective on both of these topics, starting with the number of new patients initiating therapy.

In the first ten months following approval, we have seen relatively rapid and significant adoption of ADCETRIS. Our market research suggests that there are opportunities for continued growth in market share in both relapsed ALCL and HL, and also indicates that ADCETRIS will be the drug of choice in both settings.

Given the limited size of the market in our labeled indications, we do not expect a large volume of patients to initiate therapy in any given quarter. Because most of these patients are in the community setting, it is critical that we continue to build strong awareness of and support for the product among community-based physicians. Our sales and marketing teams continue to focus considerable promotional efforts on these accounts.

In addition to new patient starts, duration of therapy remains an important driver of near-term growth. You will recall that in our clinical trials, patients could be treated up to 16 cycles, or approximately one year of therapy. Driving duration in the commercial setting is challenging because there's no history of treating to disease progression in either HL or ALCL with traditional drugs; responses with ADCETRIS come quickly for many patients; and as noted last quarter, a significant fraction of patients are receiving ADCETRIS prior to an autologous stem cell transplant. All of these factors tend to push physicians towards fewer cycles of therapy.

We strongly believe that treating consistent with our pivotal studies is in the best interest of ADCETRIS patients. Accordingly, our sales team is leveraging our clinical data as well as advocacy from key opinion leaders to encourage physicians to continue patients on ADCETRIS until progression or unacceptable toxicity, up to 16 cycles. We will update you on our progress in driving both new patient starts and duration of therapy in future calls.

In summary, since approval we have made significant progress in making ADCETRIS the standard of care for patients in our labeled indications. We are encouraged by the broad awareness of and enthusiasm for the product. Most importantly, feedback from our customers continues to emphasize the positive impact that ADCETRIS is having on patients and their families. Our commercial efforts remain focused on identifying every available on-label patient who is a candidate for this product, and ensuring that patients are treated appropriately. With that, I'll turn it over to Todd.

Great. Thanks Chris, and thanks everyone, for joining on the call this afternoon. We continued to build momentum through the second quarter, with year-to-date revenues increasing from both ADCETRIS sales and from our collaborations. We also reported for the first time ADCETRIS royalty revenues during the second quarter.

Our cash position increased by more than $21 million during the quarter, reflecting cash payments received from ADCETRIS sales. This keeps us in a strong financial position, and allows us to continue to invest aggressively in expanding ADCETRIS into earlier lines of therapy and other CD30-positive malignancies, in addition to advancing our other ADC programs.

Today, I'll highlight our second-quarter financial results and provide some additional commentary around our numbers. For the first half of 2012, total revenues increased to $97.1 million, which included $69.2 million in ADCETRIS net product sales. Total revenues for the second quarter of 2012 increased to $48.8 million, which included ADCETRIS net product sales of $34.7 million.

Second-quarter revenues also included $1.2 million in royalty revenues. As Clay mentioned, these revenues related to royalties paid to us from Millennium based on sales under its named patient program. We recognize royalty revenues when reported to us by Millennium, which is one quarter in arrears. In other words, second-quarter royalties related to NPP sales in the first quarter of 2012.

Gross-to-net adjustments remained relatively flat quarter over quarter, and are running at approximately 11% to 12% as government discount programs are now fully in place. Fluctuations in discounts moving forward will be primarily based on site utilization of the drug and the eligibility for government discounts.

In the second quarter of 2012, our cost of sales continued to be approximately 9% of net sales. As previously explained, this reflects the benefit of using product manufactured prior to FDA approval, the cost of which was previously charged to R&D expense. This benefit will diminish as that product is utilized, and we expect that over time ADCETRIS cost of sales as a percentage of net sales will increase into the teens.

R&D expenses were $42.8 million and $81.2 million in the second quarter and year-to-date in 2012, compared to $49.6 million and $82.1 million in the second quarter and year-to-date in 2011. In 2012, there has been increased spending for ADCETRIS clinical development activities, as well as increased investment in our other ADC programs.

Research and development expenses in 2011 included ADCETRIS manufacturing costs. Following FDA approval, these costs are being capitalized as inventory. Selling, general and administrative expenses increased for both the quarter and year-to-date in 2012 as expected, reflecting ADCETRIS's commercialization costs. Non-cash share-based compensation expense for the first half of 2012 was $11.6 million, compared to $8.5 million in the first half of 2011.

We ended the second quarter in a strong financial position, with approximately $330 million in cash and investments, an increase from approximately $309 million at the end of the first quarter. We are very pleased with the continued strong launch of ADCETRIS and the exciting opportunities in front of us. Our financial resources allow us to continue to aggressively invest in advancing our programs and technologies With that, I'll turn the call back over to Clay.

Thanks, Todd. I'd like to update you now on the significant clinical development efforts that are under way as we work towards our goal of establishing ADCETRIS as the foundation of therapy for patients with CD-30 positive cancers. Each year in the United States, we estimate that 15,000 to 20,000 people are diagnosed with CD30-positive lymphoma. We have also discovered CD30 expression in subsets of patients with many other types of cancer.

Our clinical development strategy is to generate data that will support step-wise growth of ADCETRIS through maintenance, extended duration of treatment, re-treatment, other CD30-positive malignancies, and by adding ADCETRIS to front-line lymphoma regimens. We have a comprehensive development program under way, falling into four main therapeutic areas -- earlier lines of Hodgkin lymphoma; earlier line of mature T-cell lymphomas, including systemic ALCL; other CD30-positive non-Hodgkin lymphomas; and non-lymphoma malignancies.

In earlier lines of Hodgkin lymphoma, we have two major areas of focus. First, our Phase III AETHERA trial, which is evaluating ADCETRIS versus placebo in Hodgkin lymphoma patients at high risk of residual disease post-autologous transplant. This trial is evaluating whether ADCETRIS can extend progression-free survival in these patients. We are on track to complete target enrollment of 322 patients this quarter. This is an event-driven study, and we currently project that data will be available in late 2013 or early 2014.

Second, the addition of ADCETRIS to redefine the front-line Hodgkin lymphoma treatment paradigm. All 51 patients on our phase one front-line trial have completed treatment, and we look forward to reporting a comprehensive data set later in 2012. We believe there is an opportunity with ADCETRIS to improve front line treatment for patients where the standard of care has not changed in more than three decades.

Building on our data from Phase I, we plan to initiate a randomized Phase III clinical trial to evaluate ADCETRIS plus AVD compared to ABVD in front-line advanced Hodgkin lymphoma patients in late 2012 or early 2013. As I mentioned, this trial will be conducted under a SPA from the FDA.

Also in front-line Hodgkin lymphoma during 2012, we plan to initiate a Phase II trial of single-agent ADCETRIS for older patients who are unable to tolerate combination chemotherapy. In mature T-cell lymphomas, or MTCLs, we are also striving to improve effectiveness of treatment for front-line patients. Unlike B-cell lymphomas where Rituxan is widely used, there has not been a similar advancement for patients with T-cell lymphomas.

We believe that ADCETRIS could play this role. We have completed enrollment to a Phase I clinical trial of ADCETRIS plus chemotherapy in 39 front-line MTCL patients, and expect to report a full data set later this year. In parallel, we are on track to initiate in late 2012 or early 2013 a Phase III randomized clinical trial of ADCETRIS in front-line MTCL in combination with CHP versus CHOP.

Our third key area of focus for ADCETRIS is expanding into other CD30-positive non-Hodgkin lymphomas, including or cutaneous T-cell lymphoma, or CTCL; diffused large B-cell lymphoma, or DLBCL; and peripheral T-cell lymphoma, or PTCL. In CTCL, a global randomized Phase III trial recently named ALCANZA, and that's spelled A-L-C-A-N-Z-A, is under way in relapsed CD30-positive patients to evaluate ADCETRIS versus physician's choice of methotrexate or [bexarifue].

Based on positive data from two investigator-sponsored trials, or ISTs, being conducted at MD Anderson and Stanford, we believe ADCETRIS may represent an important treatment option for CTCL. These ISTs have demonstrated objective response rates of 65% and 75% respectively with manageable safety profiles in heavily pre-treated patients.

In other types of systemic non-Hodgkin lymphoma, we are conducting a Phase II trial of ADCETRIS to assess activity and tolerability, as well as to correlate activity with CD30 expression. At ASCO, we reported interim data showing a 36% objective response rate across all CD30-positive NHL patients treated thus far in this trial, which included NHL diagnosis of both B and T-cell origin.

We are particularly encouraged by the data in DLBCL, where four of seven patients achieved an objective response. ADCETRIS was generally well-tolerated. This trial is designed to enroll up to 80 patients, and we plan to report additional data later in 2012. In parallel, we are developing our clinical and regulatory strategy to further explore ADCETRIS for the treatment of CD30-positive DLBCL and other lymphoma sub-types.

The fourth main therapeutic area we are exploring with ADCETRIS is non-lymphoma malignancies. We are currently conducting a screening protocol to evaluate CD30 expression in up to 3,000 tumor samples. Patients with CD30 expression are eligible to enroll in a Phase II clinical trial for treatment with ADCETRIS.

At ASCO, we reported data from more than 1,600 patient samples, showing that 17 different malignant diagnoses were CD30 positive. The most common malignancies were mesothelioma, melanoma, triple-negative breast cancer, and ovarian cancer. Our data suggests that there may be some important opportunities for clinical research of ADCETRIS beyond lymphoma, and we look forward to continuing to explore this area.

At ASCO, we also reported data from our Phase II re-treatment trial. This is a study designed to assess the therapeutic potential of ADCETRIS administration in Hodgkin lymphoma and ALCL patients who have relapsed after previously responding to ADCETRIS. The data showed a 70% response rate among patients re-treated with ADCETRIS, with a safety profile consistent with other trials. We are evaluating our regulatory options and determining next steps for addressing the medical needs of patients in the re-treatment setting.

The many ongoing and planned corporate-sponsored trials of ADCETRIS are complemented by ISTs. There are currently ten ongoing ISTs for ADCETRIS falling into several different settings, including CTCL, sub-sets of front line Hodgkin lymphoma, and second-line pre-autologous transplant Hodgkin lymphoma. Recently, ISTs have opened to evaluate ADCETRIS for the first time in a non-cancer application, Graft-verses-host disease. We anticipate additional ISTs will be initiated this year.

Beyond ADCETRIS, we are pursuing a robust pipeline of other ADCs and also continue to advance our industry-leading ADC technology. It is exciting that there is significant interest in ADCs and that they have emerged as an important class of therapeutics. Although the concept of ADCs has been around for decades, the approval of ADCETRIS, the impressive data reported with TDM1 in breast cancer patients, and progress by Seattle Genetics and our collaborators have delivered on the progress -- on the promise of this targeted, empowered approach to treat cancer.

Of the roughly 25 ADCs in clinical development, more than 15 utilize our technology. We are proud that we are the only Company to have successfully completed the development and FDA approval process for a next generation ADC. This reflects more than a decade of work we have invested in this field, and the substantial expertise of our experienced team. Although new companies are emerging with ADC technologies focused on alternative delivery vehicles, drug-loading technologies, and drug payloads, we know from experience that it takes a long time to develop clinically and commercially viable technology.

In parallel to advancing our ORS patent-based technology through our internal and collaborator programs, we have continued to invest significantly in developing new ORS patents, novel and more potent cell-killing cell payloads, and site-specific conjugation methods. Seattle Genetics is the leader in ADC technology, and we are confident that our innovative science, significant experience, and passion for helping patients will ensure we continue driving advancement in this field.

Our focus on ADCs has resulted in a robust product pipeline. We have three clinical-stage ADC programs -- SGN75, ASG5 ME and ASG22 ME. SGN75 is an ADC targeted to CD70. We are planning a Phase I-B trial evaluating SGN75 in combination with everolimus, an mTOR inhibitor approved for the treatment of renal cell cancer. We are on track to start this trial very soon. ASG5 ME and ASG22 ME are both ADCs that we are co-developing with Agensys, an affiliate of Astellas. These programs are in Phase I trials for a variety of solid tumors. We also plan to advance SGN CD19-A an ADC targeted to CD19 into the clinic this year for B-cell malignancies.

Later this year, we plan to introduce and present pre-clinical data from an ADC utilizing some of our newest technology advances. This program is in late-stage pre-clinical development for specific hematologic malignancies, and is one of two ADCs that we plan to advance into clinical trials during 2013. The second 2013 IND candidate is an ADC for breast cancer. Targets for both of these programs are undisclosed at present. We look forward to providing more specifics in the near future.

Beyond our robust internal ADC pipeline, Seattle Genetics has a strong track record of strategically leveraging our ADC technology through collaborations, including both licensing deals and co-development arrangements with opt-in rights. The potential of our technology is underscored by the important progress of our collaborators through clinical data, trial initiations, and pre-clinical milestones. Some recent highlights include Progenics reported positive interim data at ASCO on its PSMA ADC for prostate cancer. Celldex presented encouraging data on CDX-011, an ADC using our technology that they are advancing in a Phase II clinical trial for breast cancer.

We achieved a milestone under our collaboration with Genentech triggered by their IND submission on another ADC, for a total of nine ADCs in clinical development using our technology by Genentech alone. We achieved a milestone under our ADC collaboration with Millennium when they initiated a clinical trial with an ADC for gastrointestinal malignancies. As the leader in developing ADC technology, we, along with our many collaborators, are seeking to change the way cancer is treated.

Before we open the call to questions, I'd like to summarize our key upcoming milestones. For ADCETRIS, we plan to report a substantial amount of new clinical data before the end of the year, including from our Phase I front-line Hodgkin lymphoma trial, our Phase I front-line MTCL trial, and our Phase II non-Hodgkin lymphoma trials. We are on track to complete enrollment of our Phase III AETHERA trial, positioning the study for data in late 2013 or early 2014.

We expect to initiate several additional clinical trials, including a Phase III trial in front-line advanced Hodgkin lymphoma, a Phase III trial in front-line MTCL, and a Phase II front-line trial in older Hodgkin lymphoma patients. From a regulatory perspective, we anticipate that Millennium Takeda will receive an ADCETRIS approval decision in the EU this year, and that we will obtain a regulatory decision in Canada by early 2013.

Upcoming milestones for our other programs include initiating a Phase I trial of SGN75 in combination with everolimus for renal cell cancer this quarter and advancing SGN CD19A into the clinic for B-cell malignancies by the end of 2012. Across both internal and collaborator programs we expect a substantial amount of data to be reported before the end of the year, especially at ASH in December.

The remainder of 2012 and into 2013 is poised to be a busy and productive period for Seattle Genetics as we continue to bring ADCETRIS to patients, generate data to support growth of ADCETRIS, and advance our pipeline of other ADCs that we believe will make a significant difference in the lives of people living with cancer. 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 to questions.

(Operator Instructions)

Thomas Wei, Jefferies & Company.

Thanks. Just a couple of questions on the commercial front on what you had talked about with duration and new patient starts. Can you just help us understand on a quarter-over-quarter basis duration commentary? Are you giving any more details than what the average duration is, and maybe how it changed or did not change relative to the first quarter? Also, number of new patients -- is it fair to say that stepped down a little bit relative to 1Q, and how would you think about that on a go-forward basis? Are we at a kind of more normal rate of new patient starts?

Thomas, it's still too early for us to provide detailed data on duration. I guess we have more comments -- Chris, would you like to add a little bit more detail for some of Thomas' questions?

Sure. Thomas, on the duration front I agree with Clay, it's a little bit too early to provide much detail in terms of specifics on duration. You have to think about duration, as we talked about on the call last time, in two segments with this market, pre-transplant and post-transplant. The issue is that we don't yet have enough patients in those specific segments that have completed therapy to provide detailed duration numbers at this point.

What I will say is that, as we just discussed, the realities of duration in this market place are that there are going to be some challenges. Those challenges are, as I mentioned previously, the limited history of treatment to progression -- really in hematology, but specifically in ALCL and HL -- and that leads customers to sort of typically think about treating to fixed numbers of cycles, and changing that mind set is just going to take time.

Second, responses from ADCETRIS tend to come quickly, again adding to the tendency to treat to best response. Third, as I mentioned, physicians have grown increasingly comfortable using ADCETRIS to enable a transplant, and as we've said, you can anticipate a shorter duration of therapy in that pre-transplant setting.

Counterbalancing that on duration, though, we believe what is in the best interest of patients in the very strong clinical data that we've seen in our pivotal studies, and so our commercial efforts really are focused on aggressively messaging to the labeled duration of therapy that we see in our pivotal studies and in our PI. With respect to number of new patients, again, we're not providing much detail there, but I will say that we do see in all of our market research additional opportunities for increased growth in both ALCL and HL.

The other thing is our data with AETHERA. We have -- which we don't have yet, but we're this quarter going to be done with enrollment, and that starts the clock ticking because it's an event-driven study. We're excited to be almost done with enrollment with AETHERA. That gives us the opportunity to treat post-transplant and based on the data. We're excited to go toward completion of the trial, get our events and see where that takes us. Our goal is obviously to get the best benefit for patients, but after transplant, there's mainly a watch and see with the docs, and the docs are really looking for a reason to use ADCETRIS there.

What could happen pending our data is that patients going to transplant right now may get shorter duration than the patients that don't, but pending AETHERA, they may actually get treatment ahead of time and then afterwards, and become longer duration. That's one of the reasons we're excited about AETHERA and to see how much we could help patients.

Rachel McMinn, Bank of America, Merrill Lynch.

Yes, thanks very much. I guess a couple of questions following on Thomas' question. I'm not sure I understand the guidance of why you're keeping it at $140 million to $150 million, if we kind of think that it will take some time, if it's not reading out any time soon. I guess the question is why would you expect sales to really grow from the current rate?

Beyond that, can you talk about the proportion of patients using 16 cycles? I guess you won't really know that now, but do you have a sense of what proportion of patients are being treated to progression, whether peripheral neuropathy is a factor at all for shorter duration? Thanks.

Sure, Rachel, thanks for the questions. We have re-stated our annual guidance, and it is unchanged at the $140 million to $150 million that we stated at last conference call. We believe that the market opportunity for ADCETRIS in the labeled indications is meaningful. We believe there's room for growth in the market share. We believe there's room for growth in the duration of therapy.

Our commercial team is working hard at all of those, and they're very focused on identifying each and every on-label patient that can benefit from ADCETRIS and then educating to use the appropriate duration of therapy to best benefit each patient. Clearly as we look long-term, which wasn't necessarily your question, but we believe there is a very substantial opportunity to build ADCETRIS into the foundation of therapy for CD30 malignancies and a very large market that would go with that.

Now your second part of your question included -- or was focused on percentage of patients that are getting 16 cycles. In our clinical trials is where I can really point to the data. We don't have enough data and we're not prepared to present information on that right now with patients. We're just nearing a one year on the market. It's just too early to think about that. But in our clinical trials, where we do have long-term data, we had about -- I think it was 20% of patients that went through the 16 cycles. I can't comment on what we're seeing right now and whether it's the same or less or more, but that's what we saw in the trials.

I'm sorry, just to follow up, though, on the guidance comment. You're saying that you see room for growth on -- in both market share and duration increases this year beyond what you're seeing today?

We think there's opportunities for growth in both. Keep in mind that the $140 million to $150 million -- it really is -- we're not calling for a very large amount of growth. That's to get into that range is a very small amount of growth.

I'm sorry, then the peripheral neuropathy question?

Oh. We are not seeing peripheral neuropathy in any meaningful way inhibiting the ability to use this for longer duration. If I think that that was the question that you're focused on. We've not seen that. Certainly we've seen some peripheral neuropathy in some patients and we've reported that for our trials, but it doesn't really inhibit us to any marketable amount. Chris, do you want to comment on that?

Yes Rachel, I would agree with Clay's assessment on peripheral neuropathy. It is something that we know was a reason to go off of study in the clinical trial. When we launched ADCETRIS, we put a considerable effort around making sure that physicians were aware of peripheral neuropathy as a potential adverse event and that they were appropriately monitoring patients and were necessary down-dosing the drug to accommodate it. I think we've gotten ahead of that particular issue.

Great. Thanks very much.

Cory Kasimov, JPMorgan.

Hi there, it's actually Matt Lowe in for Cory today. A couple of questions. One on the rate of new patient adds. Are you preferred -- can you comment on that versus the first quarter and maybe the changes, if there were any, over the course of 2Q? Thanks.

Sure. Chris, would you like to comment on that?

Yes. We're not providing specific guidance with respect to the number of new patients who initiated treatment just yet. That said, what I will tell you is that we continue to do a very good job in terms of a couple of things. First, continuing to drive awareness of ADCETRIS and enthusiasm for the product to a broader set of customers. We added a number of new accounts this quarter, as I mentioned previously.

Importantly, the vast majority of those new accounts that came online in Q2 were community accounts, where we believe the majority of our patients in our label set. I think we're happy with respect to the breadth of use that we're seeing with ADCETRIS. Our sales teams continue to focus on driving broader awareness and utilization of the product, and that's going to be our focus going into Q3.

Okay, thanks. Any idea how long it may take until we get the early-stage Phase III data, once those trials are up and running?

Those are multi-year trials, so you'll have to be patient with us. Our goal is to re-define front-line therapy in Hodgkin lymphoma and MTCL, and this is something that hasn't been done in three and a half decades. It does take a few years to enroll patients, and it takes a few years to monitor the patients to our end points. You'll have to be patient there. What we're trying to do here is really set a new precedent for really helping patients, making a difference in their lives, improving therapy, and decreasing toxicity, all at the same time.

Okay, thank you.

Matt Roden, UBS.

Great. Thanks for taking the question. Clay, in your prepared remarks, I think I heard you say that every year 15,000 to 20,000 CD30-positive patients are diagnosed, that there's that number of incident patients. Can you walk us through what the breakdown is there by indication? And I have a follow-up on the pipeline.

Sure, Matt. Thanks very much for the question. I'm going to turn it over to Eric Dobmeier to discuss that.

Hi, Matt. Obviously within that 15,000 to 20,000, you've got to include Hodgkin lymphoma and ALCL, which is roughly 8,000 to 9,000 incidents for Hodgkin and around 2,000 incidents for ALCL. Those are all US numbers. We're just talking about US incidents here. In addition, you've got about 50% of CTCL cases, about 30% of PTCL cases, and 20% of DLBCL cases that are included in those incidence numbers.

There are also some more rare types of lymphoma that express CD30 and, frankly, a lot of this isn't all that well characterized in the literature. We're doing a lot of work, both pre-clinically and through screening in our clinical trials to really better characterize where CD30 is expressed. You'll see more data coming out from those types of studies later this year as well.

Okay. Related to that, you showed some data at ASCO related to certain populations of solid tumor patients who were positive for CD30. How are you guys thinking about sort of carrying that forward and maybe investigating those patients in clinical trials and ultimately getting them on label?

Yes, a really good question. All we've shown so far is really the screening of 1,600 patient samples. The trial calls for up to 3,000 patient samples. As part of that trial, there's a treatment arm, and we're hard at work on the treatment arm, treating many patients. We will, with time, report data at appropriate conferences on the treatment of those patients.

These are largely outside, and like you say, a lot of solid tumors and things like that. It's not necessarily appropriate for an ASH type of conference, which focuses on huge logic malignancies, but we'll make sure that we diligently present it at the right conferences. The goal is really to find the subsets of patients where we can make a difference in people's lives and we could treat tumors with CD30-positive expression using ADCETRIS.

We know we're excited with our progress. We have a long way to go. We're really at early stages of looking at other types of tumors, but we will continue to update you and update the clinical community as well with what we're doing. Where we see opportunities, you bet, we're going to go toward larger studies and potential registrational studies to broaden ADCETRIS out into other disease types outside of lymphoma.

Great, thanks very much. If I could squeak one more in on the pipeline. When should we expect to see more visibility into the ASG 5 ME program?

At our soonest possible opportunity. I mean, we've been working very closely with our partners at the Agensys affiliate of Astellas, and it's being developed in a number of solid tumors. We continue to work very hard on that, as well as with ASG-22ME. I don't want to set a specific guidance for when you'll see the data, but both of those programs are actively being prosecuted.

Thank you.

John Sonnier, William Blair.

Thanks for taking the question and congrats on a lot of progress. I really appreciate it, Clay, all the update on the pipeline, and that's the nature of my question. As you look across the next six to nine months or even over a year, as some of the data reports out, do you have enough there to start considering compendia filings in that time frame? Thanks.

It's an excellent question, thank you for bringing it up. I think there are opportunities to think about ways to work with KOLs and work with organizations like NCCN to see how we can get ADCETRIS into the decision of doctors and their patients, so that they can use it, so that they can really benefit patients to the maximum. I don't want to make any specific regulatory or compendia comments because that's not really appropriate to do, but to tell you that we're very aware of the system, how it works, and how we're going to go about trying to make the best decisions for patients and doctors. The answer to your question is yes.

Thank you.

Howard Liang, Leerink Swann.

Thanks very much. For the front-line study, where you have already received an SBA, I think, is it going to be an all-comer study?

Howard, thanks very much for the question. On the front-line Hodgkin lymphoma SPA, we will be providing specific comments and specific -- the specifics of the trial, I should say, when we get the trial underway. We received the SPA recently, we just announced today for the first time that we just got the SPA, and it's -- when we start the trial is really the appropriate time to discuss the specifics of the population of patients, how many patients, what our periodicity of scans are, et cetera.

Okay, great. On the AETHERA trial, are you comfortable that there can be a registration trial? It sounded like FDA had some questions at the time of the ODAC meeting?

We're very comfortable that it will be a review decision. We think that it will stand -- or sink or swim, I should say, on its own data and its own merit. The trial was conducted in, I think, an impeccable way. We have done an excellent job. The clinical team here have done an excellent job with accrual and conduct of the trial. We are doing everything in the style that we did to gain approval through our pivotal trials. I think that the FDA -- if our data are really good, we would for sure go forward -- try to go forward in a regulatory way to the FDA. We think the trial is set up to do that, and we think it would be a review decision by the FDA.

Thank you very much.

Adnan Butt, RBC Capital Markets.

Hi, thanks for taking my question. I think Chris went over this a little bit, but I -- if I heard him correctly, I think he said that volumes are up 10%, but sales are up less than that. Was that close to net factor? Is that inventory movement? What is that? That's the first question. Secondly on the named patient program, can you give us the price; secondly, is it something that will be lumpy, or is that something that will continue going forward until they get formal approval into Europe?

Adnan, I'll start this and Chris can join in. What Chris said was that we had an increase in the sales in the community setting, and that was offset a little bit by a little less in the academic setting, and Chris gave a couple of -- from our research some rationale for it. You may recall when we first got approval, there was a bolus of patients that started on trial. Those were almost all at academic centers that really had experience with the drug.

What we saw this quarter was that those patients who had been on for some period of time really came off. This is just the tail end of the bolus. I wouldn't read too much into anything at an academic center. ADCETRIS is very well liked in the academic centers, and the KOLs use it widely on their patients, and really enjoy using this because it makes a great positive impact on patients. I think this is a function of just the end of the bolus that we reported on a conference call a number of quarters ago that we saw right after the initial approval, this burst of patients coming on.

That really is what it is, and I'm actually very proud of our expansion in the community setting. There are thousands of community doctors and just a limited number of these major KOLs and that's where I think over time you'll see more growth. Yes, the MD Andersons and Mayo clinics and UCLA medical centers, they know ADCETRIS well.

Where we see a lot -- and they continue to use it and like the drug, absolutely. Where we see real good growth opportunities in our current label is in the community setting. Obviously, we see growth opportunities in broader labels, but just in our current label, that's where we see more growth opportunity.

On the NPP and the price, we are not -- it's not appropriate for us to discuss the price that Millennium is charging outside of the United States. That's really for them. You ask whether this is going to be lumpy or not. Todd, do you want to comment on your thoughts?

I think part of your question was will the program continue, and for how long? I think the plan, obviously, behind the main patient program, which is similar to what we had with our expanded access program was to enable patients to get drug prior to regulatory approvals. I would imagine that as Millennium obtains regulatory approvals in the various markets, that the name patient program would end in those markets.

Okay. Can I get a pipeline question?

Sure.

Hi Clay, so maybe this is for you. In terms of treating solid tumors, is there a cut off in terms of CD30 positivity? Can you tell us what kind of tumor types you're testing ADCETRIS in?

We -- I'm not at this point going to talk about the specific tumor types that are in our treatment study for solid tumors. We -- there is -- we don't want to see one cell with CD30 on it. I don't think that's fair to the drug or fair to a trial. There is a cut off, but it's a pretty low-level cut off. We really eliminate very few patients that are CD30-positive. As we get toward presenting more data in that trial, we'll be a little bit more specific on the expression levels and the types of tumors we're treating.

Okay, thank you.

Yes. Now, Adnan, I can -- one thing I can point out is that in our CTCL trial -- now, granted, this was not solid tumor, this was a cutaneous T-cell lymphoma -- we reported at ASCO recently, I believe it was, data in patients where we had some patients that had very low level CD30 expression, and some patients that had middle, and some that had high, and there was responses in CTCL in all of them. We don't want to go too far and cut off patients that might actually respond to ADCETRIS until we really know that they don't. We're still exploring that area. It's a good question.

Thanks again.

Alan Carr, Needham & Company.

Hi. Thanks for taking my question. Wondering if you can comment on Europe. What are your expectations for warranting across the country there after launch in terms of time lines?

David, can you --

Alan.

Alan, I'm sorry. Alan, can you -- it's really hard to hear you.

Oh, sorry. Is that any better?

Yes. A little bit, yes.

Okay, sorry.

Can you start over?

Sorry about that. I hope this is better. I was wondering if you could comment about time lines for launching across Europe after approval there. Also, how many patients are on -- are treated on a name patient basis over there in Europe?

Okay. The time lines for the EU launch are something that is really within Millennium Takeda. What we can tell you is that we think in the second half of this year the EU will rule on approval. We're not at liberty at this point to discuss the specific number of patients in the NPP. Eric, do you want to make any comments?

I can just say from the point of view of Millennium, we haven't disclosed specific time lines, but they're aggressively pursuing pricing approvals within Europe and also seeking approvals across the globe for the product. It's an important product in their portfolio, and they're doing this aggressively to make it available to patients.

All right and a quick one around the US. I'm sorry if I missed it, but is the gross-to-net stable now, and then what's your strategy on price increases in the US?

Todd, you want to answer the gross-to-net question?

Sure. Yes, you're right. Gross-to-nets have stabilized now, we're running at about 11% to 12%. That follows the implementation of the last government discount program that happened in early January. With respect to future price increases, we're really not at this time going to comment on that. There was one that went effective July 1, but at this point we're not prepared to talk about future increases.

All right. Thanks very much.

David Miller, Biotech Stock Research.

Good afternoon. Thanks for taking my questions. I found it interesting that you actually were net cash positive for the quarter. Can you talk about whether you expect this trend to continue?

Todd, you want to take that?

Sure. You're right. In the quarter we increased cash by a little over $21 million. It was really one thing that really drove that. You might recall that out of the initial gate on the initial launch, we've provided extended payment terms. We didn't want to create a situation where we were asking sites to pay us before the sites were getting paid by the various payers.

For most of -- virtually -- actually all of last year, we provided extended dating on the receivables. That started to work its way out in kind of the February to March time frame, so what we saw in Q2 was a combination of cash collections from, Q1 and Q2 sales, but also 2011 sales, which drove cash receipts unusually high in Q2.

Okay. The part about whether we can expect this trend to continue as revenues go up, or is this really just a one-time deal?

Well, it's -- the expiry of the extended launch dating is a one-time phenomenon, and the future is going to be dependent upon how the sales trajectory looks.

Okay. Last question is a question about your $140 million to $150 million revenue guidance. Is this just US ADCETRIS sales, and if not, what all does it encompass?

No, that's just US ADCETRIS sales.

Okay.

You may recall at the last quarter that we provided guidance for partnering revenue and ADCETRIS sales and now for the first time, we actually reported some royalty revenue. Todd, you want to go back and just refresh the memory?

Yes. To reset the clock here. ADCETRIS product sales $140 million to $150 million, and then we also provided guidance on collaboration revenues of $55 million to $65 million.

Okay. Thanks.

Okay.

Mani Mohindru, ThinkEquity.

Yes. Hi, thanks for taking my question. Most of my questions have been answered, but I just wanted to get a sense that now that you have a healthy proportion of physicians in the community setting, do you think that the number of cycles that the patient gets before they're put on transplant, like pre-transplant, would potentially increase because the patients are now treated in the community setting versus some of the trends that you've seen in the past in the academic setting, where the goal is to get them to a CRN transplant faster?

I think that's a very insightful question. In the community setting there's not these very-well-known transplant centers, and there's not the KOL transplanters, and so that is something that I believe we talked about on the last call. We said that our presumption is based on all our research that we've done in our interviewing of community docs versus the academic docs that that's exactly what would happen. I think that we're still observing and watching. I don't want to make any specific comments. I can ask Chris if you want to add color to this, but I think that what you're stating is something that we're watching very closely.

Yes. All I will add is that in the pre-transplant setting, one factor that plays into physicians' decision as to how long to keep patients on therapy is the desire to get them into the transplant itself. That constraint on the back end is something that will likely keep duration in that pre-transplant setting relatively less in terms of duration, compared to the post-transplant setting.

In the post transplant setting, I think there's less of an urgency to move on to something else. I think the opportunities for longer duration are actually greater in the post-transplant setting. The underlying premise of your question, though, is, I think, correct, which is that we do expect longer duration of therapy generally in the community setting relative to the academic setting.

Thank you, and if I may add one more question. Can you give me a sense of the kind of proportion of accounts that are still not signed up or have not prescribed ADCETRIS yet?

When we look at hem/onc accounts across the United States, I think that separate accounts, we're thinking that there could be up to 2,000 or so accounts, and it's hard to get an exact number there. What we reported today was that 900 accounts, separate and unique accounts have ordered the drug.

That's up from 750 last quarter, which was up from 500 the quarter before. We added 250 accounts two quarters ago, 150 accounts this quarter. I think our growth rate on that is not going to be -- obviously with time it's going to have to go down, because there's an unlimited number of accounts, but we are still adding new accounts, absolutely. Chris, would you like to add color?

Yes, I think so. Clay, I think, hit it right on the head. We continue to add new accounts, and the target number of accounts is just over 2,000. Keep in mind, though, that the difference between the number of accounts who are utilizing the drug, and the number that we're targeting, that not all of those accounts will have on-label patients at any given point in time. What our goal is to make sure that we keep awareness of the drug high, enthusiasm for the product high, our representatives continue to call on these accounts.

Where we're going to see incremental growth is going to be as new patients either progress on their prior therapies or relapse with their disease, and at that point we'll get those patients to hopefully receive ADCETRIS. I think we're encouraged by the fact that all of our research suggests that ADCETRIS will be the drug of choice for the patients who fit our label.

Okay. That's very helpful. One quick last question. Can you give us some sense of pre-transplant versus post-transplant patients, a proportion of the mix of these two in this quarter versus the previous quarter?

Yes. We're not providing that level of detail, but we appreciate the question.

Can you at least give a sense like whether there were more pre-transplant or less pre-transplant patients in this quarter versus previous? Yes. We're not -- we're not providing that level of detail. I understand. Thank you.

Lei Huang, Summer Street Research

Thank you for taking my questions. I have two questions. First one, with regard to your education for -- of the physicians to increase the treatment duration, can you help us to better understand why is it to the best interests of the patients to have a longer treatment duration if physicians think transplantation could potentially be curable while staying on ADCETRIS could risk of progression based on the current data?

Secondly, housekeeping for the cost of royalties revenue you from partner Millennium, can you explain the nature of the cost and whether we should expect the percentage to continue to be approximately 40% going forward? Thank you.

Okay. As far as the first one, the education to duration is basically to the data that we have where we -- in our pivotal trials which the duration is between, depending on the pivotal trial, between seven and ten cycles. That's where our data is. That's where we know the results. It's very important that if a physician has historical data using cytotoxic drugs, and they want to give four cycles or five cycles, that our data is not that. If they really want to help their patient and get the best response rate they can, that we saw in our pivotal trials, they need to use the drug as we saw it -- as we used it and as it was used.

What we're doing is trying to educate doctors as to what our data was, what our number of cycles were in our pivotal trials, and educate toward that. We're not just trying to add more for no reason. Absolutely, we embrace and it's important to get patients toward transplant and that could be very valuable, as well. We have no issue at all with that and we think it's part of the whole paradigm. The cost of the royalty revenue, Todd, would you like to take this?

Sure. There's sort of two parts to the answer. You have to look at royalty revenues and then the cost of those revenues. In our financial statements, you'll notice there's now two new line items. The cost of royalty revenue is the single digit royalty stack that's owed on ADCETRIS sales in Millennium's 's territory. That number will stay at a constant percentage, although I will say those licenses expire at various points in time, and there are various step-downs.

On the royalty revenue, these are the royalties that are in-bound from Millennium. What we've talked about on prior calls is that range of royalty starts in the mid-teens, and increases to the mid-twenties as a percentage of sales based on sales volume. The cost of royalty revenue line will stay relatively fixed, but the revenue royalties will actually increase as sales volumes increase.

I'm sorry, so the cost of the royalty, it's a percentage of the royalty revenue, so that stay constant at approximately 40%?

No, it's a percentage of Millennium's sales -- the single-digit royalty on Millennium's sales.

Thank you. We have no further questions at this time.

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

Ladies and gentlemen, this concludes the Seattle Genetics Second Quarter 2012 Financial Results Conference Call. If you'd 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 4555600. We would like to thank you for your participation. You may now disconnect.