Seagen Inc (SGEN) 2012 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Seattle Genetics third-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 open for questions.

(Operator Instructions)

This conference is being recorded today, Wednesday, November 7, 2012. At this time, I would like to turn the call over to Peggy Pinkston, Senior Director, Corporate Communications. Please go ahead, ma'am.

Thanks, Operator.

I'd like to welcome all of you to Seattle Genetics' third-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 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 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 affect the Company.

I will now to the call over to Clay.

Thanks, Peg; and good afternoon, everyone. Over the past few months, we have made steady progress across our key corporate priorities. Our overarching goal is to improve the lives of people with cancer. We are doing this today with ADCETRIS, and we plan to do this in the future through our pipeline of other antibody-drug conjugate, or ADC programs. Our commercial team is executing on its plan to provide ADCETRIS to appropriate patients in need and educating the physician community on the use of ADCETRIS. Our clinical development team has continued to deliver on our aggressive plans to broadly evaluate ADCETRIS in additional therapeutic areas and it advance our other pipeline programs. And, our internal research and collaborator progress continues to underscore our leadership position in ADCs.

ADCETRIS net sales in the third quarter were $33.7 million and year-to-date net sales were nearly $103 million. We now project net ADCETRIS sales for 2012 will be in the range of $132 million to $137 million, slightly lower than our original guidance. In the near term, our latest market research suggests that there are opportunities for growth in market share in our labeled indications, including opportunities to drive increased duration of therapy and even greater utilization in the community setting.

As Chris will explain in more detail, we have done an exceptional job of ensuring that physicians and patients are broadly aware of ADCETRIS. We believe we are now transitioning, primarily, to an incidence model of patient flow. This creates a strong base for us to grow from; and as Tom will explain, more than 20 internal and investigator-sponsored clinical trials are underway that will generate data for publication and future labels for ADCETRIS.

We will provide 2013 guidance in our year-end call in February; but at this point, we anticipate on-label US sales of ADCETRIS to be relatively flat in 2013. I want to emphasize that we are more enthusiastic now than ever about ADCETRIS therapeutic and commercial potential. Through our sales, marketing, clinical, and medical affairs efforts, we are advancing towards our vision of ADCETRIS becoming a blockbuster drug and the foundation of therapy for a broad array of CD30-positive malignancies. Achieving this vision will take time, but we are making strong progress as we execute on our commercial strategy, generate data in new therapeutic areas and new indications, and expand globally.

Speaking of expanding globally, I would like to highlight an important recent milestone for our ADCETRIS program -- its conditional approval in the European Union received by our collaborator, Millennium/Takeda. This is a key step in ADCETRIS becoming a global brand and in helping patients in need worldwide. We are pleased that the label in the EU aligns with our broad label in the United States. The approval triggered milestone payments to us, totaling $25 million. Millennium and Takeda are actively pursuing pricing and reimbursement applications in each of the EU member states, with the first commercial launches planned in the coming weeks.

In addition to the approval in Europe, Millennium and Takeda are planning regulatory submissions for approval in multiple other countries, outside of the EU, within the next year. They have also been conducting a broad international named patient program, or NPP, which has been effective at providing ADCETRIS to patients around the globe, prior to international approvals.

An important upcoming event for our Company, and ADCETRIS as well, is the American Society of Hematology, or ASH, annual meeting in December. More than 12 corporate and investigator abstracts were accepted for presentation at ASH, primarily focused on ADCETRIS and evaluation of its potential in a variety of CD30-positive lymphomas and stages of disease.

Some notable data sets include two oral presentations on ADCETRIS in newly diagnosed patients, including data from our phase I trial in front-line Hodgkin lymphoma and from our front -- phase I trial in front-line mature T-cell lymphomas, or MTCL. Both trials showed high complete remission, or CR rates, when ADCETRIS was combined with components of standard front-line regimens, including a 92% CR rate in Hodgkin lymphoma patients and 88% CR rate in MTCL patients. The data suggests that ADCETRIS can be safely combined with these regimens and reinforce our belief that ADCETRIS will play a role in redefining therapy for newly diagnosed patients.

The phase III trial in front-line Hodgkin lymphoma recently opened under a Special Protocol Assessment, or SPA, and the phase III trial in front-line MTCL is on track to start later this year or early in 2013. Importantly, we also recently secured a SPA for the MTCL trial.

Also at ASH, there will be two presentations, one oral and one poster, from investigator-sponsored trials with ADCETRIS in cutaneous T-cell lymphoma, or CTCL. New patient data from these trials align with previously reported interim data, with both studies resulting in greater than 60% overall response rates with manageable safety profiles in relapsed CTCL patients. To put this in context, recently approved systemic therapies in CTCL have response rates in the range of 30% to 35%. These data continue to support the potential role of ADCETRIS in this population and bolster our enthusiasm for our ongoing randomized phase III trial in CTCL that is being conducted under a SPA.

The three SPAs we have now received for our phase III trials, as well as the previous SPA for our pivotal Hodgkin lymphoma trial, reflect a key part for our regulatory strategy for our ADCETRIS program. We are proud of our relationship with the FDA that has led to the successful granting of four SPAs for these key trials. In addition to securing SPAs from the FDA, we have also worked closely with European regulators, leading to scientific advice on our phase III trials.

Finally at ASH, there will be interim data from our ongoing trial in CD30-positive non-Hodgkin lymphomas, including additional objective responses in patients with diffuse large B-cell lymphoma, or DLBCL, and T-cell lymphoma. The anti-tumor activity of ADCETRIS in DLBCL is of particular interest, where a significant percentage of heavily pre-treated patients in this trial responded, and the safety profile was consistent with other trials. This single-agent activity is encouraging, since most relapsed DLBCL patients receive multi-agent chemotherapy. In two other investigator abstracts at ASH, data demonstrated that 20% to 25% of DLBCL patients express CD30. These data are driving our strategy to evaluate future clinical trials of ADCETRIS in CD30-positive DLBCL, which represents a relatively large patient population with unmet medical need.

These are just a few of the many data presentations from Seattle Genetics, investigators, and collaborators at ASH. We are looking forward to a strong presence at the meeting and believe it will continue to reinforce the broad potential of ADCETRIS and our leadership in ADCs. At this point, I'll turn the call over to Chris to provide an update on our ADCETRIS commercial activities.

Thanks, Clay. Good afternoon, everyone. Today, I am going to provide an overview of our commercial performance for the third quarter and discuss the factors that will likely affect near-term growth for ADCETRIS.

As Clay mentioned, sales of ADCETRIS in Q3 were $33.7 million. Approximately 180 new accounts placed orders for ADCETRIS during the quarter. Total accounts ordering ADCETRIS since approval now exceeds 1,000. While the absolute number of accounts increased in the quarter compared to last, the average number of orders per account and the average size of each order decreased slightly, resulting in a decrease in quarter-to-quarter sales.

Market research performed Q3 confirms that overall awareness of ADCETRIS, as well as customer satisfaction with the product, continues to grow. 97% of physicians surveyed last quarter were aware of the product, and among those who had utilized the drug, 100% responded that ADCETRIS had met or exceeded their expectations.

Turning, now, to specific performance data and the near-term on-label opportunity for ADCETRIS. Based on a review of a large number of actual HL and ALCL patient charts, overall penetration for ADCETRIS in both relapsed systemic ALCL and post-transplant HL was between 50% and 60%. In the pre-transplant HL setting, our market research data suggests that utilization among patients who are ineligible for transplant and have failed at least two lines of multi-agent chemotherapy is over 45%.

As expected, utilization across these settings is highest among academic physicians, who were among the earliest adopters of ADCETRIS following approval. We are very pleased with the significant and rapid adoption of ADCETRIS in the relatively short period of time since approval. With respect to duration of therapy, as expected, our market research confirms that current duration of ADCETRIS use in both, HL and systemic ALCL, is shorter than what was seen in our pivotal studies, but also highlights that physicians are growing comfortable treating beyond best response.

Finally, the reimbursement climate for ADCETRIS continues to be very favorable. We were notified this month that a product-specific billing code, or permanent J-code, has been granted for ADCETRIS by the Centers for Medicare & Medicaid Services. The new J-code will be effective on January 1, 2013 and will further simplify the billing and reimbursement process for ADCETRIS. The favorable reimbursement climate should continue to support our efforts on duration, as well as new patient starts, in both relapsed HL and systemic ALCL.

Our commercial efforts remain focused on working with physicians to identify every ADCETRIS-appropriate patient and to ensure that these patients are pretty consistent with our label. We continue to focus significant efforts in the community setting, where we see the greatest opportunities for incremental growth. We feel these efforts will continue to ensure that ADCETRIS is made available to every appropriate patient in the near-term, and importantly, will provide a solid foundation for longer-term growth as our clinical development activities generate additional data to support potential new labels in broader patient populations. Tom will provide additional details on these activities shortly.

Now, I will turn the discussion over to Todd.

All right, thanks, Chris. And thanks, everyone, for joining us on the call this afternoon. Today, I'll highlight our third-quarter financial results, provide some additional color around key business drivers, and provide some context for what we expect next year.

Revenues for the third quarter of 2012 increased to $49.8 million, which included ADCETRIS net product sales of $33.7 million. Year-to-date revenues increased to $146.9 million, which included $102.8 million in ADCETRIS net product sales. Revenues in 2012 also included collaboration revenues of $14.5 million in the third quarter and $41.1 million for the year to date. ADCETRIS gross to net adjustments continue to run at approximately 12%. As explained last quarter, we expect that fluctuations in gross to net amounts moving forward will be primarily based on government discounts.

Cost of sales continued to be approximately 8% to 9% of net sales, this primarily reflects royalties and distribution costs at this point, as we continued to benefit from the use of ADCETRIS product that was manufactured prior to FDA approval. The cost of this product 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 essentially flat in 2012, at approximately $41 million in the third quarter and $123 million for the year to date. In 2012, this reflects spending for ADCETRIS clinical development activities, as well as increased investment in our other ADC programs. R&D expenses in 2011 included ADCETRIS manufacturing costs; however, following FDA approval last August, these costs are now being capitalized as inventory.

SG&A expenses decreased for the quarter but increased for the year to date in 2012 as planned. The decrease in the third quarter reflects higher costs in 2011 related to the launch. Non-cash share-based compensation expense for the first nine months of 2012 was $17.9 million, compared to $14 million in the first nine months of 2011.

We ended the third quarter in a strong financial position, with approximately $314 million in cash and investments. The fourth quarter of this year will be particularly strong from a cash-generation perspective. We expect to receive more than $100 million during the quarter, which includes the $25 million Abbott collaboration payment, $25 million in approval milestone payments from Millennium, anticipated collections from ADCETRIS sales, and other collaboration payments.

Fourth-quarter collaboration revenues will reflect approximately $7.7 million related to the European approval milestones from Millennium, and we will begin to amortize the $25 million Abbott payment over the two-year development term of the expanded collaboration. After funding our operating activities, these cash payments will lead to an increase in our cash position through the end of the year, keeping us in a strong financial position to execute on our ambitious plans ahead.

Looking forward into next year, from an expense perspective, we will be broadening the scope of the clinical development program for ADCETRIS with our partner Millennium, as well as continuing to invest in our other ADC programs and supporting our commercial efforts. I want to point out, though, that two of the four ADCETRIS phase III trials are being conducted by Millennium. As a result, the cost of those trials will not be reflected in our R&D expense, rather our 50% share of the trial cost will reduce the amount of reimbursement funding that we receive from Millennium, which as you will recall, is a component of collaboration revenue. With that, I will now turn the call over to Tom.

Thanks, Todd. Today, I will outline our plans to build ADCETRIS from its current labeled indications into the foundation of therapy for a broad array of CD30-positive malignancies. We see this evolving in a step-wise fashion as follows. At ASH, and throughout 2013, we expect to report data from multiple corporate studies and investigator-sponsored trials, or ISTs, that will highlight the use of ADCETRIS in earlier lines of therapy in other types of CD30-positive lymphomas. There are currently 11 ISTs ongoing in a variety of settings. These data will support publications and presentations to further illustrate the broad therapeutic potential of ADCETRIS.

Then, in the first half of 2013, we plan to submit data to the FDA supporting use of ADCETRIS in the retreatment setting as well as extended treatment beyond one year of therapy. Also during 2013, we plan to report data with ADCETRIS in non-lymphoma indications, including solid tumors and leukemias, which may enable future indication-specific trials for CD30-positive patients.

In late 2013 to early 2014, we can expect data from our AETHERA trial in the post-transplant Hodgkin lymphoma patients. Then, in the 2014 to 2015 timeframe, we anticipate data from our ongoing corporate phase III trial in CTCL patients. And, we expect our front-line randomized trials in Hodgkin lymphoma and mature T-cell lymphomas, that are designed to redefine treatment for newly diagnosed patients, to reach their primary endpoints within the next four to five years.

Let me provide some additional context for each of these steps, starting with our plans in retreatment and extended duration. We reported data at ASCO this year from our phase II retreatment 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. We have also published data on the activity and tolerability of ADCETRIS among patients who receive greater than 16 cycles of therapy. We plan to submit a supplemental BLA to the FDA in the first half of 2013, supported by both of these data sets. Our goal is to incorporate these clinical findings into our US label, allowing patients and their physicians the flexibility to determine the best course of treatment for their disease.

During 2013, we also plan to report data with ADCETRIS in non-lymphoma indications. Patients with CD30 expression, identified through our 3,000 patient sample-screening protocol, are eligible to enroll in a phase II clinical trial for treatment with ADCETRIS. We anticipate interim data from this trial next year, which will inform opportunities for clinical research of ADCETRIS beyond lymphoma. An example of early data are described in an investigator abstract at ASH on two patients with aggressive systemic mastocytosis, a proliferation of mast cells leading to severe allergic symptoms, which are poorly controlled with current therapies.

Next is AETHERA, which is a phase III trial evaluating ADCETRIS in Hodgkin lymphoma patients at high risk of residual disease, post-autologous transplant. In September, we completed enrollment of 329 patients, 0.5 of whom received ADCETRIS and the other 0.5 placebo. This trial is evaluating whether ADCETRIS can consolidate responses in these high-risk patients and will be informative on the use of ADCETRIS in a maintenance-type setting. In addition, safety findings from this trial are part of our post-marketing requirements under the FDA's accelerated approval of ADCETRIS. The primary endpoint is progression-free survival, and we currently project the data will be available late in 2013 or early 2014.

Another opportunity for ADCETRIS that we are particularly enthusiastic about is CTCL. Building upon the reported IST data, we and Millennium have initiated a global randomized phase III study, the ALCANZA trial, in relapsed CD30-positive CTCL patients to evaluate ADCETRIS versus physician's choice of methotrexate or bexarotene Analysis of the primary endpoint, which is the objective response rate with a duration of at least four months, will occur in the 2014 to 2015 timeframe. And lastly, we are moving ADCETRIS into front-line regimens for Hodgkin lymphoma and MTCL by conducting global registrational studies in both patient populations.

Clay highlighted that data from our phase I front-line trials will be presented at ASH and that both phase III studies will be conducted under an SPA. In addition, the FDA has agreed that both of these phase III trials are potentially confirmatory. A positive outcome in either trial will serve to convert the accelerated approval of ADCETRIS in the US to regular approval in both indications. Another approach in front-line Hodgkin lymphoma is to evaluate ADCETRIS in select subpopulations. To this end, we recently initiated a trial of single-agent ADCETRIS in front-line Hodgkin lymphoma patients, age 60 and over. The trial is being conducted in up to 20 patients who are unable to tolerate combination chemotherapy.

In the salvage Hodgkin lymphoma setting, we plan to initiate later this year a phase I/II trial evaluating ADCETRIS, in combination with bendamustine, for patients who have relapsed following front-line therapy. This corporate study, in combination with the work of investigators through ISPs, will be informative to the potential role of ADCETRIS prior to transplant.

Before I turn the call back over to Clay, I'd like to comment on the recent disclosure that I have decided to leave Seattle Genetics early next year. This was a difficult decision, but a choice that was right for me and my family, given a chronic health issue that has recently emerged with my wife. The past five years at Seattle Genetics have been a phenomenal personal and professional experience for me. During my tenure, I have had the privilege of participating in developing one of the most important new drugs for lymphoma patients in need and witnessing a renaissance in oncology, as agencies are changing the way we think about treating cancer.

I leave the Company with a talented and passionate group of clinical and regulatory professionals, and I thank Clay, and the rest of the team, for this rewarding experience.

Tom's contributions to Seattle Genetics have been highly significant, notably his leadership of the clinical and regulatory team during the development and through approval of ADCETRIS. While we will miss Tom, we understand that he is making the right choice for his family. And, he is leaving us with a strong and respected staff, with deep expertise in drug development, that ensures we are well positioned going forward. We have started a search for his replacement and anticipate a smooth transition to a new Chief Medical Officer.

Next, I will update you on recent highlights from our internal and collaborator ADC pipelines. In the third quarter, we initiated the phase Ib trial, evaluating SGN-75 in combination with everolimus, an mTOR inhibitor, approved for the treatment of renal cell cancer. We have submitted, and the FDA has accepted, our IND for SGN-CD19A. We are on track to begin two phase I trials, one in acute lymphocytic leukemia and one in B-cell non-Hodgkin lymphoma, within the next several months.

And at ASH, we will describe pre-clinical data from our next ADC that will move into the clinic, SGN-CD33A. This is an ADC targeted to CD33 that we will evaluate in acute myeloid leukemia. It employs our next-generation ADC technology -- a new linker; a highly potent class of cytotoxic agent, termed a PBD; and a novel antibody, incorporating our proprietary site-specific conjugation technology involving engineered cysteines, which we call an EC-mAB. We expect to submit an IND for SGN-CD33A in the first half of 2013. We are very excited to bring our newest technology forward to apply this to a difficult-to-treat disease.

Our ADC collaborators have also made substantial recent progress. In particular, Genentech advanced two ADCs into phase II clinical development. They are evaluating a CD22 ADC and a CD79b ADC, each in combination with Rituxan, for the treatment of non-Hodgkin lymphoma. Phase I data from both these programs will be presented at ASH. Genentech has six other ADCs using Seattle Genetics technology in phase I clinical trials. Progenics advanced its PSMA ADC into phase II clinical development. And, Abbott initiated a phase I clinical trial of an ADC for cancer using our technology. Each of these clinical accomplishments triggered a milestone payment to us.

We also recently announced that we have expanded our ADC collaboration with Abbott. Under the new deal, we will receive a $25 million upfront payment, up to $220 million in milestones per additional target, and mid-to-high single-digit royalties. We have now generated a total of more than $200 million under our ADC collaborations and have the potential to receive up to $3.8 billion in potential future milestones plus royalties. And, of 30 ADCs in clinical development, more than 0.5 utilize our technology.

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 at ASH, including from our phase I front-line Hodgkin lymphoma trial, our phase I front-line MTCL trial, our phase II non-Hodgkin lymphoma trial, and two ISTs in CTCL. We expect to initiate a phase III trial in front-line MTCL later this year or early in 2013. We expect a regulatory decision from Health Canada in early 2013. We expect to initiate a phase I/II trial of ADCETRIS plus bendamustine in first-relapsed Hodgkin lymphoma patients later this year. And, we are on track to advance SGN-CD19A into phase I trials for B-cell malignancies and ALL within the next few months.

At this point, we will open the line for Q&A. We ask that you limit yourself to one or two questions and then requeue with any additional questions. Operator, please open the call for questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

Matt Roden, UBS.

I want to start by congratulating Tom for your contributions to the Company as you move onto the next chapter.

I have one question on the guidance and another question on the pipeline. If you look at the guidance, the top end of the guidance here seems to imply sequentially flat sales in the fourth quarter, while the lower end implies a pretty good sequential step down. And I was wondering if you could give us a sense for what is going on fundamentally that should drive that step down in sales, sequentially? Then, I have a follow-up on the pipeline.

Thanks, Matt, for that.

We are trying to make sure that we provide the kind of guidance that we will actually fall into. This is really the first full year of guidance, so early in the year we provided guidance, and we were close to it. So, we feel good about that, but we also wanted to guide for the full-year 2012 with something that was a little bit more exact. As we've said, early in the year, we were guiding for flat sales, and that's really where we are still at.

Okay. Then, with respect to the opportunity in front-line Hodgkin's, if you look at the ASH abstracts posted describes complete response rates in the 92% to 95% range for ADCETRIS in front-line. Can you put in context the patient population studied there, in terms of prognosis, stage of disease? And, just help us think about how this relates to the phase III population, which is actually fairly agnostic this stage as far as I can tell?

Tom, would you take that?

Sure. Matt, what we studied in phase I are largely stage 3 and 4 patients, with some stage 2b's, so it's largely a stage 3/4, with a smattering of 2b's. The phase III study is pure-play stage 3 and 4, so they should be relatively similar. And, based on the small numbers that we've got, we are not seeing a disproportionate number of responses based on stage.

We have only had a handful of patients who have not achieved CR, and those data will be updated at ASH. It's something really to focus on is, we are very excited about it. We think, not only the improvement in efficacy base, compared to what the historical database looks like, but also the removal of bleo and the lack of toxicity in this regimen, really is going to make it, we think, very attractive for front-line use when the final phase III data come out.

Great, that's helpful. Thanks a lot, guys.

Adnan Butt, RBC Capital Markets.

I guess the first question is, the adjustment in guidance -- is that simply the experience that you have to date, in terms of looking at the market, or is it something more specific, such as duration, penetration, or the actual outlook on the on-label indication?

Adnan, thanks for the question. I will start this, and then turn it over to Chris for a few comments.

First of all, and this goes back to Matt's question as well, because it is really the same question in a sense. ADCETRIS is really a great drug. It is helping a lot of patients. It is ultimately going to be a global brand, we think, $1 billion-plus brand, but that is going to take time to get there.

We have an enormous presence, compared to what we previously have had for sure, at ASH. And, it is showing the broad application to front-line, to NHL, to cutaneous lymphomas, and a variety of other indications. We are investing in this long-term potential. That is really what is critical.

We are looking to make ADCETRIS the foundation of treatment for many different diseases that express CD30. That is what we are about. So, there's some specifics that we could give you about our guidance and about the market opportunity and -- Chris, would you like to make some comments?

Sure, happy to. Thanks, Adnan. Let me just address a couple of things. First, this year, and then I'll look forward to the comments made on next year.

First, as Clay mentioned, based on all of the data that we have to date, as well as order patterns and feedback directly from customers, it is pretty clear that sales have shifted largely to be dependent upon incident or newly relapsed HL and ALCL patients. We also know, from the work that we've done over the last three or four months, is that our penetration in these patients is significant, upwards of 60% in the largest segment, which is relapsed Hodgkin lymphoma.

As you move to that incident patient population, in any given quarter you are subject to when those patients come on therapy, and that can lead to some natural fluctuations in sales growth quarter-over-quarter. So, I think the guidance this year reflects the potential that you may see some of those fluctuations.

As we look going forward, we do expect to see continued incremental growth in market share as well as in, potentially, duration. But, I think we have to keep a few things in mind. The first is that, as I mentioned, market share as of early last quarter in the largest of the segments is over 60%. So, that growth will likely be incremental, and as the business shifts to these incident patients, we are subject to the timing, as I mentioned, as those patients come on therapy.

Then finally, we will continue to see patients who initiated therapy in previous quarters come off of therapy, so that any new growth in patients has to compensate for that. And we think that the net effect of this will be relatively flat sales. But again, we will provide additional guidance as we get into next year.

Okay, and do I dare a follow-up, Clay? In terms of label expansion, I think you mentioned retreatment, what about Compendia listing CTCL, et cetera? That's it, thanks.

Tom, would you like to comment?

Yes. We are definitely aggressively pursuing the retreatment and extended duration with FDA. We think our data are strong, they are clearly as good, if not better, than when Rituxan added retreatment to its label. So we think we have got a good precedent there. It really will give some flexibility for caregivers and for patients to select the right mode to use ADCETRIS for appropriate patients.

In terms of some of the off-label stuff that you're talking about, like CTCL, we are extremely pleased with the data coming out of our ISTs, and we are following that up with a registrational study. We think the data set will be pretty good sized and that we should anticipate manuscripts from these two ISTs coming out sometime in 2013. Now, we are not in the position to decide what guidelines in Compendia groups do, but the range -- the data, the compellingness of the data, the size of the data sets, and the rigor with which these were done, suggest that they might evaluate it for incorporation in the guidelines, and we think those publications could occur next year.

So that's about all we can say at this point, and that we are extremely excited by the data, and what it bodes well for our phase III registrational study in CTCL.

Jason Kanter, Credit Suisse.

I wanted to clarify your pseudo-guidance for 2013, when you said you thought it would be flat. Are you suggesting that it will be flat on a year-over-year basis, flat from the current quarterly level we are seeing now, or flat from the Q4 level that we can all begin to model now that we have the year-end guidance?

Yes, we wanted to give a little foreshadowing for our February call, and the flat sales are on on-label US sales, so please keep that in mind.

Do you have any sense of what percentage of your current sales are not on-label US sales?

We are certainly aware of some off-label use of ADCETRIS. We certainly do not promote anything outside of our label. We, at this point, do not believe, or are not guiding that any non-promoted use constitutes a significant portion of our ADCETRIS sales.

Certainly, our ASH data is strong, and you've heard from Tom on that, and that may generate some interest amongst physicians. There is clearly a appreciation that hematology oncologists are gaining for CD30 as a target. It is an appreciation that has grown over a long time, with CD20 as a target for Rituxan, and I think that that appreciation is starting to really build. And, our clinical program really goes across so many different malignancies that express CD30, we think we have a lot of chance to move forward in ways that get label. So, at this point, we're not going to make any specific comment about the percentage of any sales, off label.

If I could ask one bigger-picture question, you talk about the DLBCL data and the opportunity as being one that is very exciting to you guys. Could you give us a better sense of what is 20% to 25% of the DLBCL population? What does that mean in terms of a market opportunity for you? How addressable are those patients? Where do you think this would fit in, in terms of where in the line of therapy you think ADCETRIS would be appropriate?

Sure, Jason. Eric, do you want to take that?

Hello, Jason. In terms of patient numbers -- and then I'll hand it over to Tom to talk about how the drug could be used. DLBCL is the most common type of aggressive lymphoma, and roughly based on -- there's some new data at ASH about CD30 expression in DLBCL that -- there's two abstracts, actually, that suggest expression is somewhere between 20% to 25% of DLBCL patients express CD30. So, applying that to the patient population, it is somewhere around 4,000 or 5,000 patients a year with DLBCL have CD30 on their tumors.

I'll hand it over to Tom to talk more about how the drug could be used.

Jason, we've been really pleased with what we are seeing in the population that is currently under study, where most of these patients are post-transplant. They don't have many opportunities, there is not a good standard of care. And, we're seeing a substandard-response rate, and we will be updating that, as well as we are watching the evolution of the durability. So, this is looking quite exciting at this point.

I think as we look forward on -- given the competition in the late-stage DLBCL patients, our eyes are turning toward evaluating the front-line opportunity. We believe that, given the data that we've presented with ADCETRIS in combination with CHP, that that's quite a tolerable regimen. And, we plan to explore inclusion of Rituxan in an ADCETRIS regimen as well, in the near term. This, we think, could enable us to contemplate a registrational study pitting ADCETRIS plus R-CHP against the standard R-CHOP.

Now, we still have a lot of work to do about exactly which patients to target that are in highest need and could most benefit from this in the front-line setting. But, I think it's something we're seriously contemplating, given the activity we've seen in this population, which doesn't have good alternatives at this point.

Got it, thank you.

Cory Kasimov, JPMorgan.

Let me also start by saying that I'm sorry to hear that Tom is going to be resigning. You will definitely be missed.

Two questions for you. First of all, can you tell us what -- or give us a sense of what the sequential change was in underlying patient adds in 3Q, net of the price increase you took in July?

Then, my second question is on the front-line phase III study in Hodgkin's with AVD. On clintrials.gov, it suggests the primary completion date there is 2017. Is there going to be an interim look ahead of that? And, is there anything that you can share with us around the powering assumptions in the study for the primary PFS endpoint? Thanks.

Thanks, Cory. As far as the sequential change in the numbers of patients we are adding, as your first question, we really don't go through that and are not going to give specific patient numbers on that.

Chris, do you have anything you want to add to that?

What I will say is that, while we are not giving specific patient numbers, we were happy to see in Q3 that we did see broader use in terms of the number of accounts that are either using ADCETRIS for the first time or re-initiating the use of ADCETRIS. And again, as I mentioned previously, the underlying dynamics for Q3 have to do with the number of new patients who initiated therapy in the quarter, relative to those patients who initiated earlier in the year or late last year and are coming off therapy, due to the natural course of their disease. And, I think it is that underlying dynamics of what you saw in the decrease in average order size for the quarter, and that's really what is going on there.

And as your second question, front-line plus AVD, where it says on clintrials.gov, it says 2017. That is approximately within the four to five years that we guided, even on this call. So, I'm not sure what the question is. That's a correct statement --

Is there going to be any interim look ahead of that?

Right, sorry. There is not an interim look built into the trial.

Okay, thanks.

Howard Liang, Leerink Swann.

On the -- I think you give the penetration estimates of 50% to 60% in the post-transplant setting, and I think 45% transplant -- electrical setting. What is preventing the share to increase more to, let's say, why not 100%?

Yes. It's not an unexpected question. We do continue to see incremental growth in market share across all lines of the segment. So, I think that's an important point.

But as I mentioned earlier, you have to keep in mind that the largest segment of that, as it translates into revenue, is a segment in which you have upwards of 60% penetration right now. So, while you do expect to see growth, how that translates into actual sales is, as we said, likely going to be incremental sales.

In terms of what is a barrier to the increase in utilization in the post-transplant setting, I think I'd highlight two things. One is that a lot of the patients who are out there are still spattered across community accounts, and we've got to go out and help physicians to identify those patients. The good news is we start from a great base. There is broad awareness of the drug, broad understanding of the drug, and for those physicians who have utilized it, they have had great experiences. So, that is one thing.

The second thing is, keep in mind that in a lot of these smaller community accounts, there's been nothing approved in this space in 30 years. So there is a natural hunkering down to what they've used previously, and we are going to have to get in and educate physicians on that. Again, that's more isolated to community accounts, and that is really where our focus is. But, those are really the two major areas where we would see potential hindrances, but they are certainly overcome.

Great. For your CD30-positive non-Hodgkin lymphoma trial, I think the target is something like 75 to 80 patients. Of that, how many will be diffuse large B-cell lymphoma patients, and how many patients will we see data on at ASH?

Yes, Howard, great questions. More than 0.5 of the patients are B-cell lymphoma patients, with the majority of them being in the DLBCL space. We are doing very well with accrual, and you will see a substantive update in data. We are really excited about what we are seeing, so we hope you are too.

Great, thanks very much.

Thomas Wei, Jefferies & Company.

On the actual commercial sales, I was wondering if you could say what the average duration of therapy is? And, what the penetration is like among those academic centers that -- where you had mentioned things are tracking higher?

And then, on diffuse large B-cell lymphoma -- because I don't understand why you are not going to develop relapse refractory as an indication. I'm not sure how many of these other competing therapies you're talking about are having 40% to 50% response rate?

Okay, Thomas, there's two questions there. First of all on duration, the duration data is generally still early because we rely on patients who have completed all their therapy. So, we are not there yet with as much data as would like to have. We hope to be able to provide more information in the coming quarters.

I can share a few things. Duration is a little lower than what we have seen in our pivotal studies. We have mentioned this before. This does suggest we have continued opportunities to work with doctors, here.

And, the duration numbers that we've seen thus far, and the qualitative interviews with physicians, suggest that our customers, potentially in the community setting, are responding to our promotional efforts. And, they are willing to treat that in a more consistent way with our label. As we've noted previously, the changing duration of therapy behavior can be challenging, and thus we, in the commercial setting, continue to put significant effort there.

Now, as far as DLBCL and your question, we did not say that -- I don't think we said that relapsed refractory, as an indication, was something we were not going to go after. I think that is on the table still for going after.

Tom, do you want to add anything that?

Yes, Thomas, if I was confusing about that, my apologies.

We are very interested in front-line. We are contemplating how to move forward in the relapsed refractory space in DLBCL. We know it is competitive. We know there's currently no really good, well-accepted standard of care that would facilitate a regulatory study. So, we are trying to consider how to navigate that.

We're doing quite a bit of work with key opinion leaders to better understand their perspectives on how we can develop this drug. What they have uniformly told us that if we can show sustained-durable responses that are 30% or better in this population, it is something they are quite interested in. And clearly, that is what we showed in the abstract, and we will be updating that further at ASH.

We remain very excited about this. We are really trying to optimize our development strategy across these multiple indications. So, stay tuned for that.

Rachel McMinn, Bank of America Merrill Lynch.

I wanted to follow up on the guidance a little bit, and also on discontinuation if I could. I guess do you -- the low end of the guidance actually implies further sequential declines, so are we to take away that it is nothing to do with new starts, it is still more of the potential discontinuations from the bullis that you had earlier in the year working through? And, that's what we are going to see in 4Q?

Clay, on the discontinuations, do you have a sense, even though you're not talking about detailed duration, why patients are discontinuing? Is it primarily just they get a great response, and so they stop therapy prematurely?

So, we will address both of those question. Let's start with the discontinuation first. Tom, would you like to talk a little bit about what we see in patients?

Yes, so what we have heard from the field -- I'll start and maybe turn it over to Chris for his perspective -- is that, often physicians here are used to treating to best response, or best response plus two. A lot of patients get a best response, they get a CR, or a very strong PR, and that's the culture in Hem-Onc. So, we are working to change that, but that is clearly an issue.

There are some people -- some patients who have adverse events. We have been surprised, looking at some of the chart audit data, about how few of those we are seeing in the real world. So, that actually feels very good.

Then, for some of these patients that are on a bit longer, there is a preference thing. They have been on for six months or so, and they want to go and do other things in their life and go off therapy. So, I think those are some of the major drivers.

Chris, do you have some additional color?

Yes, I think -- Rachel, thanks for the question. I think Tom has hit it right in terms of reasons that we are seeing, based on the chart reviews we've done, for discontinuations. We are encouraged that the number of physicians who are treating just to best response is a little lower than what we had anticipated. They are showing a willingness to move beyond that, which is great.

We still have our work cut out for us in changing duration of therapy mindset in this space, as we've talked about previously. But, we are seeing some positive signs there.

With respect to the discontinuations, I think you characterized it correctly, that we continue to see patients who initiated therapy earlier in the year, start to come off therapy. And so the trick to grow the brand commercially on label is to make sure that you are continuing to bring new patients on at a higher rate than those patients who are coming off. And, the positive sign there is that penetration in our on-label segments is really quite good.

And the second part of the question was about the guidance. And we are really -- as we have been guiding we are guiding to relatively flat sales for ADCETRIS, and we've really gone out there and had a great launch, and we feel great about this product. But, we wanted to be as accurate as we can with our guidance.

So, Clay, sorry to follow-up then, with all of these factors influencing the launch and things maybe being a little bit different than where your mind was at the beginning of the year, is there any change in your view of the size of the Hodgkin's lymphoma market beyond just this indication? But, as you go into maintenance and other types of things, do you think that some of your initial projections in that $1 billion number is that -- do you have any loss of conviction in that number or change of view?

We really don't have a change of view globally about ADCETRIS. In fact, if anything, and our view is more exciting -- we are more excited with ADCETRIS than ever. This is a great product. It really works in patients. It is not incremental.

Doctors love using it. The rate of doctors who are favorable to it is 97% or something -- higher than that, it is a very high level. We are really excited with it.

We -- it has been a three decades since there's been a Hodgkin lymphoma drug. There wasn't a lot of great data out there for us to draw on in the past. We are really in uncharted territory for determining and figuring out how many patients there are, and how many in the pool there are. So, we are trying to be as exact as possible.

We see many, many uses for this drug. We already know that in at least four other lymphomas we have strong activity. Now, we are not approved in those four lymphomas at the present time, but we have plans to try to very much broaden the label that we have and in lots of different ways. So, we are very excited, yes.

Mara Goldstein, Cantor Fitzgerald.

I guess I'm just trying to get -- as well with many others, a little bit better sense of where the reduction in guidance is coming stemming from, from a quantitative basis? How much is related to a penetration issue versus a duration of therapy? And just to also confirm, the commentary that you gave on the number and of orders and size of orders, that's an absolute decline as opposed to a deceleration, if you can just confirm that for me?

I'll start and turn it over to Chris.

I think that there is some market penetration we can work on. If we had a drug for a very large indication, colon cancer, lung cancer, and we told you we were nearing 60% market penetration in our first year, we would be getting a lot of applause for that. This is a smaller market opportunity.

We think we can grow it past 60%. We think that's very good, the launch is very successful from that front in the first year. So, we are working hard to do that, and we think there is room there.

As far as the duration, we think that docs went to a paradigm that they were used to using, as Tom explained. And we are working with them on it because our data and the durability of our responses in our trials were based on a certain amount of duration of doses. And, docs have to understand that that's the data that we can stand behind. Those data are what our reps can talk about, and stand behind, and that's what's in our label. And if they go away from that, there could be implications.

So we have to just share with them what our data is, and what we believe is the appropriate use of this, and not fixing it to any paradigms of the past. So we believe that both -- and thank you for the question -- that both in the market penetration and the duration, we believe there is room to increase that.

The second part of the question, Chris?

Mara, can you repeat the second part of the question because I'm not certain we got it here?

Sure, you had mentioned a decline in those number of orders and size. And, I wanted to confirm whether that was absolute, or it was a deceleration in the rate of orders and size of orders?

It is just quarter to quarter on average. The number -- the average size of the order and the average number of orders decreased quarter-over-quarter, which is what is accounting for the decrease in sales. I will say one positive around that, though, is that those accounts that discontinued the use of the product, or reduced the amount of use, are also in many cases accounts that have used the drug and used a lot of the drug previously.

So, we are not concerned about the underlying dynamics of excitement for the drug, enthusiasm for the responses they are getting. All of the indicators on that are very positive, and we think that what happened to those specific accounts was an issue with respect to patient volume in this quarter.

Okay, thank you.

Alan Carr, Needham & Company.

A couple of them -- one, are you aware of other investigator-initiated studies that are looking at CD30 prevalence across other indications like DLBCL that is going to be a ASH? And, I don't think this has been explicitly asked, but is incidence of the labeled indications where you expected or little less? Thanks.

As far as ISTs and other indications -- I believe that was your first question -- at ASH, Tom would you like to comment on the different potential indications that we could -- that were reflected in ISTs?

Yes. We are clearly looking at CTCL, obviously, we've got really strong data there. The non-Hodgkin lymphomas, both the T-cell lymphomas and the B-cell lymphomas look good. And, there is an investigator presentation on systemic mastocytosis, which is encouraging, and driven out of our study -- screening study.

What I think you will see in the new year is more results out of the screening study and how those translate into activity in clinical subpopulations of solid tumors, leukemias, and other diseased states. In addition, we are pursuing a number of ISTs in graph versus host disease, where CD30-positive T-cells may play a role in those aggressive diseases. And so, we are just starting that out. There should be a panoply of data emerging over the next 12 to 18 months that really help us understand the role of ADCETRIS in other CD30 diseases.

I guess to clarify little bit, one of the DLBCL studies, as you indicated before during the call, 20% to 25% are CD30-positive. Are there other studies like that? I know you have a 3,000 patient one in non-lymphoma tumors, but are you aware of other investigators out there that are also looking for CD30 prevalence across other cancers?

There is other work that our partner Millennium is working on with other institutions to identify additional populations. I can't really speak to that, but at some point, they would be putting those data out. So we've got a pretty broad effort.

And we continue to receive ISD proposals very frequently from investigators either to look for CD30, or if it is known like in post-transplant lymphoproliferative disorder, that's an area that people are wanting to study because those are known to be CD30-positive. We are going to -- this is going to be, as Clay mentioned, like Rituxan and CD20. Once there is a drug that targets that molecule, people are going out and looking for where it is, and trying to figure out ways they can use ADCETRIS because they think it's a great drug.

Thanks. Then, regarding the incidence question, is it at the level that you expected it to be or less?

For DLBCL, absolutely --

For on-label indications --?

Let me handle and answer this. Thanks for the question, Alan.

The incidence is exactly where we thought it would be. Let me even restate more from Rachel's question. When we talk about the future of this product and how we are excited with it and we are confident with the future the product and the market opportunities that we think this could be $1 billion-plus brand, we are talking about it based on the incidence models of these future plans that we have for the different diseases and front-line, et cetera -- not based on any prevalence models.

So, prevalence is something that is a little harder to figure out in some of these diseases. We think that with Hodgkin lymphoma now, as we said on the call in our prepared remarks, we are really going more and more toward where we have this incident base that we can rely on that comes in. So we can understand what our sales will be and we could go ahead and work on things like duration and market penetration and increase on-label sales.

Over time, we believe we will get additional labels. We will get additional uses like retreatment and extended duration. We are working hard to get cutaneous lymphoma, and we have trials like AETHERA and other trials that will come -- will get un-blinded over the next few years, all in front of our front-line. But, it is really incident that we believe that this will become a multi-billion dollar brand.

Okay, thanks.

David Miller, Biotech Stock Research.

First of all, Tom, best wishes to you and your wife and family going forward. Thanks for all the great chats around the posters we had over the years.

First question is, can you talk a little bit about how insurers are viewing retreatment? Are they covering it under the implied relapsed refractory label, or are they not covering it if patients maybe have used the number of doses up that's suggested on the label?

David, thanks, it's a very interesting question and it's an appropriate question. Certainly, under our label, which allows for up to 16 cycles, there are ways that docs could come and use the drug and then use it again in patients.

I will let Chris comment on a little bit more of the color of what docs can do and why a label is important for us.

David, thanks for the question. Just to be clear, we are currently not promoting to retreatment, and that is important. That is one of the reasons that we want to get this on label, potentially next year, and Tom's team is working closely with the FDA to do so.

In terms of what payers are saying now, there have been very few -- just to put this in context -- patients who have gotten to 16 cycles as commercial patients and have gone on to pursue either extended therapy or have come on therapy and come up for retreatment. That said, the cases we know of, particularly around retreatment, have gone through with limited, if any, pushback from payers.

Keep in mind, this is a relatively small patient pool that we are talking about here; and in general, as long as physicians are willing to make a case for those patients, we've seen it go through. But again, that is not a certainty, and it is something that we want to make sure that we can get on label so that we can take all of the uncertainty out of those types of cases.

All right. Then, I just want to re-ask a question that was asked earlier. You said you expected that 2013 US revenues would be flat. And I want to clarify that that means that it would be flat with your new 2012 guidance of $132 million to $137 million?

Yes, keep in mind what we said was on-label US sales --

Right.

And, flat to the guidance we just gave.

Okay. Then, last one is you didn't happen to mention your -- the Agensys prostate and pancreatic cancer, so just wondering where the update is on that?

Yes, phase I trials ongoing in a variety of different indications, and we will update those trials as appropriate as data come rolling in, absolutely. But, they are still active.

Okay, great. Thank you very much.

Thank you. At this time, I'd like to turn the conference back to Miss Pinkston for any closing remarks.

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

Ladies and gentlemen, if you would like to listen to a replay of today's conference please dial 1-800-406-7325 or 303-590-3030, using the access code of 4570300 followed by the pound key.

This does conclude the Seattle Genetics third-quarter 2012 financial results conference call. Thank you for your participation. You may now disconnect.