Seagen Inc (SGEN) 2012 Q4 法說會逐字稿

Good day ladies and gentlemen, thank you for standing by. Welcome to the Seattle Genetics fourth-quarter and year 2012 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, Tuesday, February 12, 2013. I would now like to turn the conference over to Ms. Peggy Pinkston, Senior Director of Corporate Communications. Please go ahead.

Thanks operator. I would like to welcome all of you to Seattle Genetics fourth-quarter and year 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. Following our prepared remarks today we will open the line for questions. If we are unable to get to all of your questions we will be 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'll now turn the call over to Clay.

Thanks Peg, and good afternoon everyone. Seattle Genetics is off to a great start in 2013, building upon a very strong 2012. Last year was successful in many ways. It was the first full year of ADCETRIS commercialization in the US and was approved in the European Union, making it a global brand. Additionally, we reported multiple sets of encouraging clinical data for ADCETRIS in front-line lymphoma, and in CD30-positive malignancies. And lastly we demonstrated continued progress with our internal pipeline and by our ADC collaborators.

Building on this momentum into 2013, we have initiated our fourth Phase III clinical trial with ADCETRIS, received approval for ADCETRIS in Canada, and advanced another proprietary ADC, SGN-CD19A into clinical trials. We are also in a very strong financial position, with more than $364 million in cash and investments at the end of 2012. This enables us to continue executing on our goal of bringing new and better therapies to cancer patients in need.

ADCETRIS net sales in the fourth quarter were $35.4 million, and $138.2 million for the year. Fourth-quarter revenues included $2.6 million related to patients treated in Canada from October 2011 to December 2012 under a paid special access program. We reported total revenues of approximately $64 million during the fourth quarter, and $210 million for the year in 2012. Both of these are record highs for Seattle Genetics.

Looking forward, we expect that ADCETRIS net sales in 2013 will be in the range of $130 million to $140 million. In addition to our on-label US sales, our guidance includes an assumption for a small amount of sales outside of our labeled indications. As you know we do not promote ADCETRIS outside of our label, and such usage is difficult to predict.

2013 guidance also includes modest expectations for sales in Canada. We are working now to secure both national and provincial Canadian reimbursement coverage, which will begin to occur in the second half of 2013. Our commercial team has done an excellent job of generating physician awareness of ADCETRIS, and ensuring high penetration in the US on-label patient population after just 18 months on the market.

As indicated in our last call, our market research suggests we've largely transitioned to an incidence flow of patients in our labeled indications. This has created a strong base from which to build. In parallel with our commercial activities, we are working on a range of label-expanding opportunities and clinical development initiatives designed to maximize the potential for ADCETRIS as the foundation of therapy for CD30-positive malignancies. This will take time but we and Millennium are making strong progress in establishing ADCETRIS as a global brand, and emerging data continue to reinforce our vision for the product.

On the global expansion front, we are pleased to have received approval for ADCETRIS in Canada. The Canadian label is broad, consistent with our label in the US, and includes both post-transplant and transplant-ineligible Hodgkin lymphoma, as well as relapse, systemic ALCL patients. This is another important milestone towards our goal of bringing ADCETRIS to patients worldwide.

Our collaborator, Millennium Takeda, continues to execute on a strong ADCETRIS launch in a number of European countries following the European Commissioned conditional approval in October. Millennium Takeda continues to actively pursue pricing and reimbursement applications in the various European Union member states, having achieved coverage in six countries to date.

Millennium Takeda is also pursuing regulatory approvals in many other countries worldwide. Prior to each individual EU country launch, and the regions outside of Europe, Millennium Takeda continues to make drug available through a paid named patient program.

From a clinical development perspective, we are making excellent progress with ADCETRIS. At the ASH annual meeting in December, data were reported from more than a dozen abstracts related to corporate or investigator-sponsored trials, or ISTs. These primarily focused on ADCETRIS in front-line Hodgkin lymphoma and mature T-cell lymphomas, or MTCL, as well as a variety of other relapsed lymphomas, including CTCL and DLBCLs. These data continue to reinforce the potential role of ADCETRIS in many types of CD30-positive malignancies.

In the first half of this year we plan to submit an sBLA to the FDA supporting use of ADCETRIS for retreatment, as well as treatment beyond 16 cycles of therapy. Our goal is to incorporate these data into our US label, thereby facilitating the best treatment decisions by patients and their doctors. We anticipate regulatory action in late 2013 or early 2014.

Also this year, we expect data from several corporate- and investigator-sponsored trials. One key corporate study with data planned during 2013 is our Phase II non-Hodgkin lymphoma trial, which includes DLBCL. At ASH, we reported a 44% response rate and manageable safety profile in relapsed DLBCL patients treated on this trial. We recently increased the target enrollment for this trial to more than 100 patients, including 50 with DLBCL.

We are also adding an arm to the study, combining ADCETRIS with Rituxan to enable future combination opportunities. We are actively evaluating regulatory and clinical pathways for use of ADCETRIS in DLBCL, which represents a significant patient population with an unmet medical need.

Additional data sets with potential to be reported during 2013 include those from our ongoing trial of single-agent ADCETRIS in newly diagnosed Hodgkin lymphoma patients aged 60 or older, or unable to tolerate combination chemotherapy. There are more than a dozen ongoing ADCETRIS ISTs in the US. During 2013 we expect data from several of these ISTs, including those in front-line and salvage Hodgkin lymphoma, as well as case studies of patients treated with ADCETRIS in non-lymphoma settings. All of these data will add to the body of knowledge regarding the appropriate use and application of ADCETRIS in CD30-positive malignancies.

Finally, in 2013 we expect publications from two ISTs in CTCL. Recall that at ASH we reported that both studies resulted in greater than 65% 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%. We plan to submit IST data from salvage Hodgkin lymphoma and CTCL to compendia review committees during 2013. We believe the data are compelling and worthy of consideration, although we cannot control the outcome or timing of these reviews.

Looking at head into the first half of 2014, we anticipate data from our Phase III AETHERA trial, evaluating ADCETRIS in Hodgkin lymphoma patients in high risk of residual disease post-autologous transplant. This trial is evaluating whether ADCETRIS can extend progression-free survival in these high-risk patients as part of the standard second-line regimen and will be informative on the use of ADCETRIS in a maintenance type setting.

In the 2014 to 2015 time frame, we anticipate data from our ongoing corporate Phase III trial in CTCL patients. This is a global, randomized Phase III study in relapsed CD30-positive CTCL patients to evaluate ADCETRIS versus physician's choice of methotrexate or bexarotene. The primary endpoint is objective response rate with duration of at least four months.

This trial is being conducted under an SPA agreement with the FDA and received scientific advice from the EMA. And importantly, we have significant efforts underway to bring ADCETRIS to front-line Hodgkin lymphoma and MTCL. Our goal is to redefine the way newly diagnosed patients are treated by increasing efficacy and decreasing toxicities associated with current combination chemotherapy regimens.

We are conducting two global, randomized, registrational Phase III trials in front-line patients, ECHELON-1 and ECHELON-2. ECHELON-1, is the front-line trial in Hodgkin lymphoma patients comparing ABVD to ADCETRIS plus AVD. At ASH we reported data from a Phase I trial in front-line Hodgkin lymphoma demonstrating a 96% complete remission rate, an acceptable safety profile with ADCETRIS plus AVD. Of note, there was no pulmonary toxicity observed in the ADCETRIS combination regimen after removing bleomycin.

ECHELON-2 is a front-line trial in MTCL comparing CHOP to ADCETRIS plus CHP. The Phase I data presented at ASH showed a 100% objective response rate and acceptable safety profile with ADCETRIS plus CHP, including an 88% complete remission rate. Both of these the Phase III trials are being conducted under an SPA with the FDA and with scientific advice provided by the EMA. In addition, the FDA has agreed that if successful either of these trials will be confirmatory for regular approval in both indications.

We expect our front-line trials to reach their primary endpoints within the next four to five years. 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. In the fourth quarter we continued to see very good progress in the commercialization of ADCETRIS. ADCETRIS has quickly become the standard of care in its labeled indications. Product awareness and satisfaction are extremely high among treating physicians. In evaluation of HL and ALCL patient charts showed increased penetration rates for ADCETRIS in the quarter across all on-label segments. In HL, penetration rates increased to approximately 60% among transplant-ineligible patients and 75% in the post-transplant setting. ALCL penetration surpassed 60%.

We are very pleased with the adoption rate at this level for the first year and a half post-approval. Since launch, over 1,200 accounts have ordered drug. We continue to see a steady number of new account ordering and accounts re- initiating use of ADCETRIS. More than 50 new accounts ordered ADCETRIS each month during the fourth quarter, and 110 accounts that had previously ordered drug re-initiated orders during the quarter as new patients within these accounts have been identified.

Duration for ADCETRIS is relatively unchanged, slightly below the median number of doses received in our pivotal clinical trials. While we saw penetration rates increase during the quarter, we also continued to see a large number of patients who had initiated treatment earlier in the year complete their therapy. Based on sales in the past two quarters we believe that business has largely shifted to an incidence population with the relatively few patients from the prevalence pool existing at the time of launch still available for treatment with ADCETRIS.

Our focus in 2013 is on entrenching ADCETRIS in our approved indications. We see opportunities for modest increased utilization in patients who are transplant-ineligible in HL, and among relapsed systemic ALCL patients. We are also continuing to reinforce the importance of treating patients to progression, 16 cycles, or unacceptable toxicity.

Finally, we are continuing to emphasize the J-code for ADCETRIS which became effective January 1. This should further simplify the billing and reimbursement processes, and augment an already very favorable ADCETRIS reimbursement environment.

Turning now to outside the United States. As Clay noted, we received Canadian notice of approval on February 1. We have started the process of obtaining pricing and reimbursement approvals in Canada on both the national and provincial levels. We hope to secure a national reimbursement decision in mid-2013 and expect provincial reimbursement to follow in the latter half of the year.

Thus, while we expect ADCETRIS to be commercially available within the next couple of weeks, we do not expect to see widespread Canadian adoption until provincial reimbursement approvals are received. We estimate that the Canadian market for ADCETRIS is approximately 5% the size of the US market. I will now turn the call over to Todd to review our financial results.

Great. Thanks Chris and thanks everyone for joining us on the call this afternoon. We ended 2012 in a strong financial position, with record quarterly and annual revenues and more than $364 million in cash and investments. This reflects both strong ADCETRIS sales and collaboration activities. In total, we generated cash receipts of more than $100 million in the fourth quarter, and more than $300 million for the year.

We are well-positioned to continue funding the important development activities that Clay highlighted, and we look forward to another strong year, including ADCETRIS sales in the US and Canada, royalties from international sales by Millennium, and progress from our collaborators, who combined now have more than one dozen ADCs with our technology in the clinic.

I'll highlight our fourth-quarter and 2012 financial results as well as provide our financial guidance for 2013. Total revenues in the fourth quarter of 2012 increased to $63.9 million, which included ADCETRIS net product sales of $35.4 million. For the year in 2012 revenues increased to $210.8 million, which included $138.2 million in ADCETRIS net product sales. Fourth-quarter sales in 2012 included $2.6 million related to our Canadian special access program. This was a one-time sales amount triggered by our determination of Canadian pricing.

2012 also reflects collaboration revenues of $26.4 million in the fourth quarter, and $67.5 million for the year. The EU approvals of ADCETRIS in the fourth quarter triggered $25 million in milestone payments under our collaboration with Millennium. Of this amount, $7.7 million was recognized in the fourth quarter with the rest being amortized over the remaining term of the collaboration.

ADCETRIS growth-to-net adjustments were approximately 12% in 2012. Looking forward, these adjustments will continue to be driven by government discounts and will be impacted by Medicaid and PHS program utilization, as well as price increases. We anticipate an increase in gross-to-net discounts by 1 to 3 percentage points in 2013.

Cost of sales continued to be less than 10% of net sales, primarily reflecting royalties and distribution costs as we continue to benefit from the sale of ADCETRIS product that was manufactured prior to FDA approval. 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 low to mid-teens.

R&D expenses increased to $47.7 million in the fourth quarter, and were $170.3 million for the year in 2012. This reflects spending for ADCETRIS clinical development activities as well as increased investment in our other ADC programs. SG&A expenses decreased for the fourth quarter of 2012 compared to 2011, but increased for the year in 2012 as planned. The decrease in fourth quarter reflects higher costs in 2011 related to the launch. Non-cash share-based compensation expense for the year in 2012 was $25.3 million, compared to $20 million in 2011.

Regarding financial guidance for 2013, as Clay already mentioned, we anticipate ADCETRIS net sales will be in the range of $130 million to $140 million. In addition, we expect that revenues from collaboration and license agreements will be in the range of $65 million to $75 million. This will be driven primarily by amounts earned under the Millennium collaboration, but also includes our ADC collaborations.

At this time, we are not providing guidance on ADCETRIS royalty amounts, but recall that we are entitled to receive royalties on net sales by Millennium at percentages ranging from the mid-teens to mid-20%s. Royalties to date have reflected sales under the paid named patient program, and royalties on commercial sales will begin in the first quarter of 2013. As previously discussed, royalties are recognized one quarter in arrears.

From an expense perspective, cost of sales is expected to range from 10% to 12% of net sales, or approximately $15 million in 2013. We expect R&D expenses to be in the range of $210 million to $230 million, and SG&A expenses to be in the range of $85 million to $95 million. ADCETRIS-related activities will continue to be the primary driver of our expenses, including commercial, initiatives, and clinical trials.

A significant portion of the year-over-year increase in R&D expense in 2013 relates to product that we are selling to Millennium under the collaboration. We take an R&D charge for the cost of this product and are reimbursed at cost plus a markup.

Lastly, as we mentioned last quarter, two of the four Phase III trials of ADCETRIS are being conducted by Millennium. Our 50% cost share of these trials reduces the reimbursement funding that we received from development work that we performed, which is reflected in collaboration revenue.

The planned increase in operating expenses also reflects investment in our ADC pipeline, including our four clinical stage programs, as well as two additional programs expected to advance into the clinic during 2013. Expenses also include non-cash amounts projected to be approximately $40 million, $30 million of which relates to share-based compensation expense, with roughly equal distribution between R&D and SG&A.

So, to conclude, we're in a very strong financial position, ending 2012 with approximately $364 million in cash and investments. With planned cash receipts from ADCETRIS sales as well as payments under our collaborations, we expect to end 2013 with more than $250 million in cash and investments. This means we are well-positioned to invest in ADCETRIS and our pipeline of ADCs and believe that will generate long-term value for the Company. With that, I'll now turn the call back over to Clay.

Thanks, Todd. Before we open the call up for Q&A, I'd like to provide a brief update on progress with our earlier-stage product pipeline and with our ADC collaborations. Our clinical programs include SGN-75, which is in a Phase IB trial in combination with everolimus, an mTOR inhibitor for renal cell cancer. ASG-5ME, which is in Phase I trials for prostate, pancreatic, and gastric cancers. We presented data last month from the pancreatic trial demonstrating tolerability and preliminary evidence of anti-tumor activity. We intend to review all of the Phase I data from these three indications with our partner, Agensys Astellas, and then make decisions on next steps for the program.

ASG-22ME, which is in a Phase I trial for solid tumors under our collaboration with Agensys Astellas. And SGN-CD19A, our fifth clinical stage ADC. We recently initiated two Phase I trials with the CD19A targeted ADC, one for acute lymphocytic leukemia, and one for B-cell non-Hodgkin lymphoma.

In addition to these programs we plan to advance two novel ADCs into clinical trials this year. The first is SGN-CD33A, an ADC targeted to CD33 for 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 conjugate terminology involving engineered cysteines, which we call an EC-mAb.

We expect to submit an IND for SGN-33A in the first half of this year and begin a Phase I trial in the second half of this year. We are very excited to bring our newest technology forward in this difficult to treat disease.

The second is SGN-LIV1A, an ADC targeted to an antigen called LIV1, which is expressed on several types of solid tumors, notably 90% of breast cancer biopsies. We are on track to submit an IND for this program later this year and to start trials by the end of 2013. Preclinical data from this program will be presented at the AACR meeting in April.

Our ADC collaborators are also making progress with programs using our technology. Recent highlights include receiving a milestone payment under our collaboration with ABVI, formally part of Abbott, triggered by their advancement of an ADC into a Phase I trial. We also recently expanded our ADC collaboration with ABVI, generating an upfront payment to Seattle Genetics of $25 million.

Achieving a milestone under our ADC collaboration with GlaxoSmithKline, triggered by their preclinical progress with an ADC utilizing our technology. And receiving milestone payments under our ADC collaboration with Genentech, triggered by their advancement of two ADCs into Phase II clinical developments. They're evaluating an anti-CD22 ADC, and an anti-CD79B ADC for the treatment of non-Hodgkin lymphoma.

As we look ahead, Seattle Genetics is on a great trajectory. ADCETRIS is performing well in its labeled indications and we believe the future opportunities for this exciting drug are tremendous. We anticipate building out the brand through label expansions and data over the course of the next several years. In addition, we expect to have six other ADCs in the clinic by the end of the year.

Our ADC technology is leading the field with widespread use by many other companies, and we are continuing to innovate with our next-generation ADC technology. And importantly, we are in a strong cash position and have no debt, allowing us to continue executing on our plans for ADCETRIS and our product pipeline, generating value in the Company and bringing important new drugs to cancer patients in need. At this point, will open the line for Q&A. We ask that you limit yourself to one to two questions and then requeue with any additional questions. Operator, please open the call for questions.

(Operator Instructions)

Matt Roden, UBS Bank.

First is on guidance, and then I'm going to have a follow-up on the pipeline. So question on two of your underlying assumptions in guidance, one is on price. Are you assuming price increases every six months for this drug, which is common for drugs reimbursed under ASP plus six? The reason I ask here is if the price is included, then guidance seems to imply there might be a potential for volume decreases on a year-over-year basis? If not, it seems like price might represent some upside to your numbers here. And then secondly, related, can you say whether or not there's any Compendia listings assumed in guidance?

Matt, thank you for the questions. On the price increase assumptions, you probably know that we had a price increase in January. And we have no comment on any potential future price increases, that's not just something we're planning to do, make any comments on that. And as far as compendia and including anything from Compendia into our assumptions for guidance, we're really not including that, so there's nothing in there for that.

Okay. Great. Thanks for that clarification. And then on the pipeline, you comment in your press release about the second line Hodgkin's combination with bendamustine, is this going to have a comparator arm? And if not, how would you define success in an open label Phase II relative to the standard chemos there? And related, how do you think about the registration pathway forward if the data are encouraging?

Right. Well, first of all it is single arm, it's not a comparison. So, you are correct in that. But what we're trying to do is take a look at earlier stage patients than we've been treating with just the single agent ADCETRIS, and taking a look at seeing if we can get patients that actually can get to transplants. And I think that would help us to define the metrics of what we're looking at with this trial, which could help lead us on deciding how to go forward with this trial. We think it's an exciting way to go forward and to try to provide the highest level of CRs in patients prior to going to transplant.

Okay, great. Thanks. And congratulations on the progress.

Jason Kantor, Credit Suisse.

I just had a question on guidance and a question on the pipeline. On guidance, you previously gave this, I don't know what you'd call it, preliminary guidance last quarter saying that 2013 would be relatively flat, looking at just on-label US sales, and now the guidance appears to be relatively flat, but now includes Canada and some off-label use. And I'm wondering if you've had any change in your view for the US on-label market over the last three months? And I'll wait for my second question.

Jason, thanks for the question. We really have had no change from what we gave with the foreshadowing guidance, relatively flat. And I think that's what we've indicated to make these are all really short-term drivers, and that's what 2013 represents to us. We're incredibly excited with our long-term drivers, and the big picture we have, and the strong base we've built up with ADCETRIS. And Chris, you want to make any comments in addition to that?

Sure, I'll focus Jason on 2013. As you think about '13 sales, I think it's important to keep in mind a few things. First, we do see some additional growth opportunities on-label that we'll be pursuing commercially, and important factors is as we move to incident patients being the main driver of on-label US sales, I think that's going to give us more stability in looking at the on-label portion of the Business. We do anticipate some Canadian sales but as we pointed out, we will not the really robust adoption there until after we start getting provincial reimbursement.

And then the final point I'd make is we are excited about the wealth of ADCETRIS data coming out, outside of our current indication. However, we don't promote in these areas, and as such it's difficult to predict actual position utilization, and that's also providing some uncertainty for the 2013 forecast.

Got it. And will we see data from the non-lymphoma treatment study this year? And can you tell us if the LIV1 antibody, is that using your new technology as well? Or is that using the same technology that is in ADCETRIS?

So that's not a second question. That's kind of a second and third, but we'll answer it anyway. The non-lymphoma treatment is something that is ongoing and our intention is to present it. I don't want to promise you what meeting or when it will be, but we are working at it, and it's something that we're very interested in, and will be presented at some time point looking into the future, could be in 2013. As far as LIV1, the antibody drug conjugate targeted to LIV1 or LIV1 as we sometimes call it, it includes the same technology that's in ADCETRIS. It's the enzyme-cleavable linker with mono-methyl auristatin E, so it's the same drug linker unit.

Thank you.

Thomas Wei, Jefferies & Company.

I wanted to ask a little bit about CTCL and then a little bit about diffuse large B-cell. So on CTCL I guess I'm curious if you can help size that opportunity for us if you were to get Compendia listing and it were to be used. And in particular I don't -- I don't think I fully understand how they might write something like CD30 eligibility for the drug.

And then in diffuse large B-cell, kind of a similar question, can you just go over for us what the potential pathways are for you to move forward into diffuse large B-cell, and what your latest thinking is on how to define CD30 eligibility into diffuse large B-cell? Thanks.

What thanks, Thomas. With CTCL we think there's a few thousand patients that are potentially eligible for this. I can't give you a very exact number on this, but it's something in that nature. I think what you're asking is how would they write a label, how would that be defined, because of the evidence we showed at ASH that if you have a high amount of CD30 that's easily detectable, with immunohistology we had a very high response rate there, very high. We were delighted with that in two trials. But that if you had a lower amount of CD30 down to very low, even below histology detection, we still had a very decent response rate there.

And we're trying to fully understand the relationship between the activity of ADCETRIS on patients that have relatively low amounts of CD30. It's something we are actually excited with, and we see that it has -- it's really a positive. There's actually some good upside there that we might be able to treat most, if not all of CTCL that may all have some extent CD30. We don't know that fully yet, but what we're seeing is that with histology once you're below a certain amount of receptor, it kind of gets in the noise of the background, so it's an accurate detection system if you have a lot of CD30, but if you have a little, it's not super accurate.

And with these drug conjugates they're so potent and so targeted, which is exactly how they're designed, that you don't need a lot of CD30 to really impact the patients. So, that's really positive, good news for us, and we're taking a look at that and trying to figure out how we can best satisfy the needs of patients and do the right things by patients and their docs. So, I don't have a perfect answer for you because it's still under scrutiny, but I think a real big opportunity for us.

Now with DLBCL, a second question you had, that's something that we have announced that we've expanded our trial that is underway, our Phase II trial that is with all different types of non-Hodgkin lymphoma to include more patients, which will include approximately 50 DLBCL patients single-treated single-agent, as well as another cohort of patients treated that our DLBCL patients once again but treated with ADCETRIS plus Rituxan. So we have those set of data coming out.

So the study is not complete, it's still a little early, but we are excited that we're seeing some substantial response in these patients with single agent ADCETRIS, and getting those 50 patients worth of data can really impact us as to how we think about this from a corporate standpoint, from an investigator sponsored trial standpoint, from a compendia standpoint. So we're really excited to finish this up, and accrual is going well and looking forward to getting more data in DLBCL before we come out with any formal guidance on the potential pathways going forward.

Rachel McMinn, Bank of America.

Yes, so just to follow up on that, Clay, is the 50 patients, do you think that that's going to be enough to help you figure out what the registration pathway is? I'm just trying to understand like what else do you need to see, is it just confirming the response rates or is there -- are there any plans to go into combination with chemotherapy?

And then the separate question is just going back to the fourth-quarter number. Is the $33 million, is that really like a pure number? A base that we can build off from? I'm just a little bit confused on the guidance. Do you have off-label already included and you're projecting no further increases, or do you think there's still more fall-off in the $33 million as a base? And that's why the low end is as low as it is? Thanks.

Okay, why don't we start with the second question and then I'll come back and talk about DLBCL. But Chris, can you address Rachel's second question?

Yes. Rachel, if I understand the question, it is just what have we assumed around off-label going forward, and how does that relate to what's in the fourth-quarter number. So, first of all it's difficult to get a firm read on off-label use at this point in the marketplace because it's just a really, really small number of patients that we've seen so far. So, as you think about the fourth-quarter number I would assume a very, very small percentage of that use is off-label.

As we look forward, we do it seems some amount of off-label, but again, like a lot of oncology products over time as a physician get more comfortable, and as data become more available, you will see that continue to increase. But as we look at 2013, as I think Clay mentioned previously, we've not assumed Compendia, yet and that is going to be with a drug like ADCETRIS, an important driver of when physicians will feel comfortable getting reimbursed outside the comfort of the label. So, there's not a lot of off-label use baked into the numbers that we've assumed for the guidance that Clay posted.

Okay, but again if you've $33 million and you assume a 1% hit to that and you analyze that, that's $130 million with like absolutely no growth from anything. So, that's the right way to think about it, and anything on off-label or longer duration, that's all upside to the $130 million?

Yes, I would look at the opportunities that we have outside of the label as largely being upside, and we'll continue to work on both getting new patients on drug; in our labeled indication though, we have very high penetration already, so you can imagine the room to grow there is relatively modest, as we mentioned. And then duration we'll continue to work on as well, and I would anticipate that we will see some growth, but again I think the extent to which that grows in 2013 is going to be something that's going to -- we'll have to monitor how things progress through the rest of this year. We have assumed some growth though on-label baked into that $130 million to $140 million guidance.

Thank you.

Okay the other part of your question is on DLBCL in the 50 patients. Well first -- and figuring out regulatory pathways. The first think that's important to us with these 50 patients and our patients on study today is looking at durability. Because we do have a very nice response rate and we certainly know that in Hodgkin lymphoma and in T-cell lymphomas we've had really great durability with the responses, we're pleased with that. But we want to see our data.

It's important to do the right thing by patients, and to really figure out what our response rate is in the 50 patients, what's the durability and we are -- we have set up a cohort with combination with Rituxan, and I think combination with chemotherapies, and especially some novel new chemotherapies and important ones for patients are definitely possible in the future. You asked about that.

The 50 patients I think is important for us because it gives us enough information that will allow us to make decisions on follow-up regulatory trials, it will allow putting together a package for Compendia based on response rate, and durability, safety, et cetera. And lastly, I think that all the data we're getting out of DLBCL will really give us a lot of food for thought about considering other possibilities such as, and including, frontline.

And you see with our MTCL data that we presented at ASH how effective ADCETRIS was with CHP. Now B-cell lymphomas are treated with Rituxan CHOP, not necessarily just CHOP like T-cell lymphoma, but there is an opportunity to potentially expand on and increase the CR rate, and the overall cure rate if you will on frontline DLBCL going on top of Rituxan CHOP and/or configurations. So that's an exciting thought that we have, but we are considering all of these different pathways to figure out salvage pathways and earlier stage, including frontline.

Perfect. Thank you.

Cory Kasimov, JPMorgan.

I'll follow with this theme of a guidance question and one on the pipeline. So first, does your 2013 guidance assume that duration of therapy is going to continue to remain relatively consistent for this year? I guess maybe until you get the treatment on-label and the AETHERA data?

And then on the pipeline and following up on the DLBCL questions, wondering if you have any updated thoughts on the potential significance of the lack of correlation between CD30 expression and response to ADCETRIS that was discussed at ASH, and maybe how that might be informing future development and trial design decisions for the syndication? Or maybe how your further teasing this out in your expansion cohorts with this ongoing Phase II? Thanks.

Yes. Cory we'll start on the pipeline question, and then I'll ask Chris to comment on the guidance. But on the pipeline, DLBCL, like I was discussing with CTCL we're already noticing that there's not an exact correlation between the amount of CD30 and the response rate in DLBCL, so you are correct with that. We're trying to understand it. We're try to see if there's any correlation or no correlation. And once again, to me, this is a positive good news story because it provides us with a potential bigger opportunity.

If you look just at histology, there were two reports at the ASH conference by two different academic investigators that were almost identical. One was, I think 24% of DLBCL is histologically positive, and one was 25%. So I consider that probably around the right number, two outside reports that correlate. Now that's just with histology, where you are identifying a substantial amount of antigen. So the question you're really asking is, what is the real expression profile in DLBCL?

Could there be upside on top of that 24%, 25% expression profile where ADCETRIS could be active, and are you taking any steps in your current program to evaluate that? And all of those are good questions. We are strategizing and talking about those and I can assure you that we are looking very closely, and will take steps to try to address how big of a potential opportunity do we have, or whether it's just limited to what we've been giving guidance out, the 25% or so of DLBCL is what we've been stating for a while. And the question is, is there really a bigger population.

So, to us this is potential upside and we're learning about this and trying to come back with some educated comments once we learn a little bit more about this. Chris, the guidance?

Cory, you are correct that the assumption that we've made for 2013 is that duration will largely be flat.

Thanks. That's helpful. Thank guys.

Adnan Butt, RBC Capital Markets.

The first question I have is on off-label use. Is off-label use a big enough amount that you can see a trend? And what kinds of patients are being treated off-label? CTCL, DLBCL, et cetera.

And then my pipeline question would be, can you tell us how enrollment of the Phase III CTCL study is progressing/ And will you update us when enrollment is completed?

Yes, thank you Adnan. As far as CTCL, and enrollment, we're not going to update specific numbers, that's not really what we do. When we're done with enrollment for any of our Phase III studies, I think those are types of things we certainly announce. And we have in the past. Such as with AETHERA, we were done with enrollment we announced that, and that was certainly included.

So we'll do that, we're excited with it, enrollment is ongoing, and there's a lot of hard work going on with trying to get the CTCL trial really moving very fast, as fast as we can, because we think there's a real benefit to patients and we need to go prove that. Now Chris, do you want to address the first part of his question?

Sure. The numbers as I mentioned on off-label are really quite small, and thus it's impossible to really assess a trend. What I will tell you is that we have had anecdotes of the use of ADCETRIS outside the approved indications, mainly in the areas that you highlighted, CD30-positive, CTCL, DLBCL, and a little bit of PTCL. But again these our anecdotes, and I would just go back to what we've said already, which is I would not make any major assumptions about the use of ADCETRIS outside of the label pending Compendia.

Thank you.

Howard Liang, Leerink Swann.

Just a question on your filings for retreatment and for longer duration? Is there any use of ADCETRIS currently as retreatment? And what is the claim of longer than 16 cycles of treatment based on? Would you simply say that it's safe to treat more than 16 cycles, or would you say that it's better?

Right. So, as far as retreatment, it's something that we hear about anecdotally. So, we hear that some doctors are understanding, just like they do with Rituxan, that they can take an antibody product and treat a patient that has previously responded, and then go on off of therapy to enjoy their life and forget they had cancer. And then if they have recurrence, and have a nodule in their neck or something like that, that they can consider going back to ADCETRIS.

It's a little bit complicated because we are approved for up to 16 cycles, as you know. So, if a patient has 10 cycles, let's say, and goes off trial, or off drug, and then comes back at a later time, are they still within label? And one could argue that for another 6 cycles they are still within label, but it's certainly something that past that 16 cycles has some ambiguity, and it would be very helpful for us and passed some time period where you're off-drug and then able to come back at a later time period. It would be much better with much less ambiguity to be able to have it part of the label so that we can promote to this, so we can remind doctors that this is something that it could be important and could help patients.

So that's really what retreatment is about for us. And yes we hear a little bit about it but we've only been out 18 months, so I think when you think about retreatment, that's something that really would be starting now, going into the future, because we've now been on the market for 18 months, and we'll probably see more with time.

As far as the longer duration goes, the basis of this is we had a trial that was open for literally any of our trials. So if you went on any of our early trials, and you went through 16 cycles, and the doctor and patient wanted to continue on drug for one of many reasons, usually because they are doing pretty darn well, that we set up a trial to capture data for that. And we did that on a substantial number of patients.

And we have data that shows safety, which is very important, but we also data that shows that patients continue to do well, and in some cases even get better responses by staying on drug longer than 16 cycles. So we think our data for retreatment and longer duration are very worthwhile to be submitting under sBLA rules, and we look forward to doing that in the near term and going through the process with the FDA and see if we can make our label larger to help patients.

Thanks very much.

Alan Carr, Needham.

You made some progress in penetration from your third-quarter call. I'm wondering if you could comment about why you would expect that to slow down substantially going forward in 2013? And can you comment on is there a particular profile for that last 25% to 40% that you haven't penetrated?

Okay. I'm going to turn that over to Chris. Chris, do you have any comments?

Sure. So, the growth that we've seen in our on-label indications is fairly dramatic given the length of time that we've been on the market, and I think as you get into penetration rates that are in the 60% to 70%, continuing to penetrate beyond that is certainly possible and we're going to be aggressively pursuing that, but the amount of headroom that you have for growth is just more limited.

I think that where we see the most opportunity for growth are going to be in those pre-transplant ineligible patients, as well as in patients who have relapsed systemic ALCL, and the profile of those patients are going to be twofold. One is patients who are still getting other chemotherapies, notably in Hodgkin lymphoma gemcitabine, and then in ALCL, one key area that we're focused on is the under-diagnosis rate of patients in that setting; we believe about 20% of ALCL could be misdiagnosed as a PTCL NOS, and so we are going to make sure we are focusing on correct diagnosis there.

Okay. Is there a profile in terms of physicians too that aren't using ADCETRIS?

Yes. So awareness of the drug is very, very high across the targeted physicians that we have. I think one of the key drivers to additional growth is purely based on patient population, and physicians have to see these patients in order to treat them. And that's particularly true in ALCL where in the community setting for example, a given physician may not see one of these patients for a couple of months, and so it's being there at the right time when those patients are available and that will be the main driver of growth.

Okay. Thanks very much.

John Sonnier, William Blair.

Maybe the first one for Chris. If I guess you look forward 12 to 18 months hopefully some of the initiatives you're working on now and have recently completed will come online commercially, and I'm wondering if you can help put a framework around that? Canada, the Compendia listing for CTCL I think Clay said earlier was a few thousand patients, the AETHERA trial. What does that look like in terms of new patient populations relative to that which you are treating currently?

Sure. So, let me try to address that in sort of a systematic way. So, if you look at the components of where we think 2013 sales are going to come from, the on-label components I think we've already spoken about, and again I think the growth you'll see is likely going to be in transplant ineligible patients in Hodgkin lymphoma, and most likely in relapsed systemic ALCL.

In Canada we believe that the size of that market is roughly 5% of what the US market is. In terms of timing for that, the key thing to note about Canada is while we have the drug -- while we have an approval it is subject to pricing and reimbursement, and we don't expect to see natural reimbursement until the middle of the year and then provincial reimbursement, which is really important in Canada will follow that. And so I would say that Canada comes online again at roughly 5% of the US market in the latter half of the year. And then Clay has already spoken to the size of the CTCL space, generally, but I think that again we don't anticipate Compendia this year for CTCL. If that were to occur then that's upside, but I would look forward to that as we get into 2014.

And AETHERA?

Our guidance of AETHERA is looking to read out in the first half of 2014.

No I guess I'm more curious about the incremental patient population that you think that's brings onto therapy?

John this is Eric. I think what you look at with AETHERA is a couple of things. One is you would be treating -- potentially you'd be able to treat everyone who was transplanted. Right now we're really -- patients who our cured by transplant are not often getting ADCETRIS. So it expands the patient population, the estimate of transplanted Hodgkin's patients per year in the US is somewhere between 1,000 and 1,500 patients, and we're only capturing roughly half of those now. And then the other thing is, it gives us more experience with the drug in a maintenance type or consolidation setting. So it could translate into better duration for the drug, as well.

Okay. Thank you.

David Miller, Biotech Stock Research.

I want to clarify something that Todd said. Did you -- does neither set of your revenue guidance, does either the $130 million to $140 million or the $65 million to $75 million include ADCETRIS royalties from Millennium?

That's correct. At this point we're not providing any guidance on those royalties, it's just too hard for us at this point to try to get an assessment of.

Okay, so any royalties that you'd get from them would be upside to your guidance then?

Right. That's right.

So that means -- so I think we're getting a lot -- I'm hearing a lot of questions about your guidance, because I think a lot of us are surprised that 2013 is guidance is mostly flat. And if I'm listening to the call I just want to make sure that I'm understanding this correct. It's really mostly -- the reason it's mostly flat is we've reached incidents, and then in any of the new markets that have already come online, or will likely to come online in 2013, were stalled from getting any increased revenues from that because of the delays in reimbursement decisions? Or is there something else going on?

There's really nothing else going on. I mean we have a process that we're doing whether it's with Canada, whether it's submitting data to Compendia, and really 2013 is a year of setting the stage and a year of progress with ADCETRIS, where we have this very stable base that is good, and we're helping a lot of patients. And I mean the stories that we get from patients and their doctors are amazing. So, we're doing great on that front.

But the growth, and the reason we're providing a relatively flat as we termed, and you termed it, guidance, is the growth in new markets and the new labels are all things that we're working to happen during 2013. So, we don't want to provide any guidance for these potential upsides that we have here.

So you're right for not providing revenue guidance on ADCETRIS royalties just because we don't have good clarity on that yet. And we want to when we have good clarity, that's something we could consider in the future. But we think all in all, a year where we're really looking at some of those short-term drivers, but working at and progressing on our long-term very important upside drivers.

I'm going to sneak another quick one in if that's okay. You've mentioned, you talked about the Canadian market is 5% of the US market. Are you talking in terms of revenues which would kind of factor in the reimbursement price differential up there? Or are you talking in terms of patients?

We're talking in terms of revenue.

Okay, great, thank you.

Bret Holley, Guggenheim.

This is Dimitri Laskoski for Bret Holley. We have one question and that is on the graft versus host trials that are currently going on. We noticed there is about four of them Phase I, Phase II trials that are going on, they seem to be investigator sponsored. But could you guys give us some idea of what's the rationale behind pursuing four trials, what do you hope to get in terms of a readout, what time line, and would you pursue that as an additional indication? Thank you.

Sure. So, congratulations on looking up all our clinical trials. We're certainly excited about the four GvHD trials. The rationale first of all to do any of these trials is that CD30 is on tumor cells, which are if you will, hyperactivated cells. But they're also on activated T-cells, while you really don't find CD30 on resting T-cells. So because it's on activated T-cells, it could have a profound impact in various autoimmune diseases where you have activated T-cells that are causing problems such as GvH.

And the way GvH is treated is where you're really -- you're putting in a sponge to soak up the inflammatory mediators that are spit out by these activated T-cells whereas what we can do here is potentially eliminate a population of cells before they spit out their inflammatory mediators and induce inflammation or rejection or whatever. So, the reason there is four trials is just because there are different ways to test this, and there's also chronic and acute GvH and there's different dosings, and schedules, and patient types.

So, we're trying to cover the gamut there. And in the future, we'll look for opportunities to have the investigators present data on our progress there. I don't want to predict totally the future, but I'd be disappointed if we didn't do additional non-cancer testing of ADCETRIS, just because of the potential we have to treat activated T-cells that are causing problems in inflammation and autoimmune disease.

Thank you.

Mara Goldstein, Cantor Fitzgerald.

Just on the AETHERA trial, can you share with us what you're looking for in terms of improvement in PFS and NOS if that's possible?

I could tell you a little bit about our thoughts on AETHERA and what we're looking at.

Great.

So what we're looking for a trial that really, I mean it's comparative, it's compared to placebo. Now the median PFS for high-risk patients following transplant is approximately 9 to 12 months. That's the median risk. So we believe that a meaningful improvement in this setting would be four to six month extension of PFS. Clearly we're looking for more than that. We want to really blow this out of the water and really show something that can benefit patients. We always do, but we think that meaningful improvement would be a 4 to 6 months over on top of the 9 to 12 months that is the median PFS.

Now the trial was designed to enroll 322 patients, we announced that we completed enrollment in the trial, and we are looking for data really in early 2014, and first half is what we've been guiding. And anything more than that right now, we're not providing, we're blinded to any data.

Do you think -- does the 2014 potential data readout on PFS include OS or are you likely to see that at a later point in time?

That would be a later point in time. But keep in mind that OS will become confounded because patients, ADCETRIS is an approved drug, patients who progress that are on placebo will have an opportunity to that won't have get ADCETRIS, but I think a lot of them will, and will be offered that. So it will be cumbersome to look at OS as a real end point here, because of the compounding nature of having ADCETRIS in both arms.

There our no further questions in the queue. I'd like to turn the call over to Ms. Pinkston for closing statements.

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

Ladies and gentlemen this does conclude our conference for today. If you would like to listen to a replay of today's conference please dial 303-590-3030, or 1-800-406-7325 with access code 4594-357. You may now disconnect. Thank you for your participation.