Seagen Inc (SGEN) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Seattle Genetics third-quarter 2013 financial results conference call. (Operator Instructions).

This conference is being recorded today, Tuesday, November 5, 2013. I would now like to turn the conference over to our host, Ms. Peggy Pinkston. Please go ahead, ma'am.

Thank you, operator, and good afternoon, everyone. I'd like to welcome all of you to Seattle Genetics' third-quarter 2013 conference call.

With me today are Clay Siegall, President and Chief Executive Officer; Todd Simpson, Chief Financial Officer; Eric Dobmeier, Chief Operating Officer; Jonathan Drachman, Chief Medical Officer and Executive Vice President, Research and Development; 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.

With that, I will turn the call over to Clay.

Thanks, Peg, and good afternoon, everyone. Thank you for joining us. We are pleased to update you today on our recent activities and upcoming milestones. We're making strong progress with ADCETRIS while continuing to grow our pipeline of clinical stage programs and advancing our antibody drug conjugate technology.

Over the past several months, our accomplishments have included securing an updated ADCETRIS US label to remove the 16-cycle limitation on duration of therapy; building on our broad development program for ADCETRIS by initiating a Phase II trial in frontline diffuse large B-cell lymphoma; and expanding our ADC pipeline with the initiation of two new clinical programs, SGN-CD33A and SGN-LIV1A.

In addition, the American Society of Hematology, or ASH, has accepted multiple abstracts for presentation at their meeting in December. These include ADCETRIS data from our Phase II trial in B-cell non-Hodgkin's lymphoma; data from our Phase II trial in Hodgkin lymphoma patients age 60 and above; and extended survival and durability data from our pivotal Phase II trials in relapsed Hodgkin's lymphoma and systemic ALCL.

We will also report interim clinical data from our Phase I trial of SGN-CD19A in acute lymphoblastic leukemia.

We ended the third quarter in a strong financial position with nearly $374 million in cash and investments, up from $338 million at the end of Q2. This increase reflects cash inflows from ADCETRIS sales, royalty revenues, and collaboration activities. ADCETRIS net sales in the third quarter were $36.5 million and were $106.1 million for the year to date. Collaboration revenues for the first three quarters of 2013 were $84 million. These results have led us to increase our revenue guidance for both ADCETRIS and collaborations which Todd will describe later in the call.

Our vision for Seattle Genetics remains focused on three key corporate priorities. First, building ADCETRIS into a $1 billion-plus drug in the US, which we believe we can achieve by maximizing the potential in its currently approved indications and by executing on our broad clinical development plans. ADCETRIS has now been approved in 36 countries and is making a meaningful difference in the lives of patients with relapsed Hodgkin's lymphoma and systemic ALCL. I look forward to the future when ADCETRIS can help more patients through approvals in earlier lines of therapy and other CD30-positive malignancies.

Second, investing in a strong pipeline of product candidates that could ultimately become future commercial drugs.

And third, enhancing our leadership position in the field of ADCs by capitalizing on our proven technology, as well as by continuing to develop innovative new approaches.

We are demonstrating significant progress on all of these strategic priorities, and I believe we have tremendous opportunities in front of us to impact the way cancer is treated.

Today, Chris Boerner will talk about our ADCETRIS commercial efforts. Then Jonathan Drachman will cover specifics of the ADCETRIS clinical development program and our product pipeline. Jonathan is our newly appointed Chief Medical Officer and Executive Vice President of Research and Development. He has been with Seattle Genetics for nine years and has shown strong vision, leadership, and a passion for helping patients. I am confident that he will bring all of these strengths to the CMO position.

After Jonathan, Todd Simpson will discuss our third-quarter financial results, and then we will open the line for questions. Chris?

Thanks, Clay. ADCETRIS product sales for the third quarter were $36.5 million. We saw an increase in sales for ADCETRIS during the quarter, reflecting both a price increase and an increase in vials sold.

In terms of the US business, ADCETRIS is well established as the standard of care in our labeled indications. Market research and feedback from customers conducted in Q3 suggests that utilization rates, as well as satisfaction with ADCETRIS, remain high in each of the approved settings.

As we've said previously, duration of therapy is a key growth driver in our on-label business. Current duration in the commercial setting remains below what patients experience in our clinical trials. Our commercial efforts, particularly in the community setting, are focused on reinforcing the use of ADCETRIS consistent with our US label. The recent label update removing the 16-cycle limitation simplifies the messaging around duration and has been received positively by physicians.

While we do not promote outside of our labeled indications, anecdotal evidence and market research suggests that interest by physicians continues to grow in using ADCETRIS for other CD30-mediated diseases, notably PTCL-NOS, CTCL and DLBCL.

In addition, over 90% of surveyed physicians in Q3 indicate that they would use ADCETRIS in the retreatment setting.

We have also seen some limited use of ADCETRIS in frontline HL among patients who cannot tolerate standard ABVD therapy.

Turning to Canada, we're in negotiations with Provincial health officials to secure coverage and reimbursement for ADCETRIS. Since Canadian approval in February 2013, most provinces have reimbursed ADCETRIS through different provincial exception processes that have enabled some patients to access the product. We will continue to work through Canadian reimbursement processes over the remainder of this year.

In closing, we are encouraged by the results of the quarter and remain committed to ensuring that all on-label patients who can benefit from ADCETRIS will have access to the drug.

Now I would like to turn the call over to Jonathan to discuss progress in our pipeline.

Thanks, Chris. It's a pleasure to be here today to review the work that our teams are doing on our development program. ADCETRIS is a remarkable drug, and we're gratified to be able to bring this therapy to patients with relapsed Hodgkin's lymphoma and systemic ALCL. Our goal now is to focus on demonstrating that ADCETRIS can be incorporated into novel frontline regimens for Hodgkin's lymphoma and mature T-cell lymphoma and to identify other subtypes of lymphoma in which ADCETRIS may provide clinical benefit.

I will begin by reviewing the key initiatives in our comprehensive ADCETRIS development program, which includes four Phase III trials that we are conducting in collaboration with Takeda. Then I will move on to discuss our pipeline programs.

In Hodgkin's lymphoma, we're conducting two international Phase III randomized placebo-controlled trials. The AETHERA trial is assessing ADCETRIS compared to placebo in 329 Hodgkin lymphoma patients with increased risk factors for disease progress after autologous stem cell transplant. We're evaluating whether ADCETRIS can extend progression-free survival in a consolidation or maintenance-type setting for these patients.

During the third quarter, we completed treatment of all patients on AETHERA. As previously described, the current rate of progressions suggests that reaching the targeted number of events is likely to extend into at least 2015. We and Takeda are aligned on a strategy that could enable unblinding of the trial in the second half of 2014 while maintaining the integrity of the safety and efficacy evaluations.

To this end, we are in active discussions with regulatory agencies in the US and Europe.

Moving to frontline Hodgkin lymphoma, the Phase III ECHELON-1 trial is designed to determine if ADCETRIS plus AVD is superior to standard frontline ABVD therapy while removing what is believed to be the least active and most toxic component of the regimen, bleomycin.

We believe that data from our Phase I trial of ADCETRIS plus AVD demonstrating a 96% complete remission rate with manageable safety profile and no pulmonary toxicity highlight the exciting potential we have with this study to redefine standard frontline treatment for patients with advanced Hodgkin lymphoma. ECHELON-1 will enroll approximately 1040 patients worldwide.

We're also evaluating ADCETRIS in two other Hodgkin lymphoma corporate trials. One is a monotherapy Phase II frontline trial for patients 60 years of age or older who are unable to tolerate combination chemotherapy. Interim data from this ongoing trial will be reported in a poster at ASH.

The other is a Phase II trial of ADCETRIS in combination with brentuximab in the salvage setting. Data from this ongoing trial are planned during 2014.

Turning now to non-Hodgkin lymphoma, there's a great deal of activity to report in three different types of lymphoma -- cutaneous T-cell lymphoma, mature T-cell lymphoma, and diffuse large B-cell lymphoma.

In CTCL, we are conducting the Phase III ALCANZA trial intended to support registration in the relapse setting. This is a global randomized Phase III trial in approximately 124 patients to evaluate single agent ADCETRIS versus physician's choice of methotrexate or bexarotene. The primary endpoint is objective response rate with duration of at least four months. The ALCANZA trial is designed to confirm the promising data from two investigator-sponsored trials in these patients, which showed approximately 70% objective response rates in relapse patients. One of these ISTs will be featured in an oral presentation at ASH.

Our fourth Phase III ADCETRIS trial is ECHELON-2, a frontline trial in patients with mature T-cell lymphomas comparing ADCETRIS plus CHP to the current standard regimen CHOP or C-H-O-P. As with Hodgkin lymphoma, this study has the potential to redefine the frontline standard of care in MTCL. ECHELON-2 will enroll approximately 300 patients, and the primary endpoint is progression-free survival. We previously reported data from a Phase I combination trial in this setting with a 100% response rate and 88% CR rate, providing a strong rationale for the Phase III trial.

Follow-up data from the Phase I trial are planned at ASH.

Another accomplishment in this area was our recent receipt of FDA orphan drug designation for angioimmunoblastic T-cell lymphoma. AITL is an aggressive subtype of MTCL. In our Phase II single-agent trial of ADCETRIS for NHL, we reported data that five of 10 AITL patients achieved an objective response, including four complete remissions.

Now turning to diffuse large B-cell lymphoma, at ASH last year we reported encouraging single-agent activity for ADCETRIS in relapsed and refractory patients. Data from the Phase II trial will be updated in an oral presentation at ASH this year, including response rate and duration of response.

Earlier this year, we added two additional arms to the trial. One arm is assessing activity and safety of the combination of ADCETRIS plus rituxan. Another arm is evaluating single-agent ADCETRIS in patients whose tumors do not express detectable CD30 using standard immunohistochemistry methods. This will allow us to further evaluate activity of ADCETRIS in patients with low or undetectable CD30 expression.

Finally, we recently initiated a Phase II trial to evaluate ADCETRIS plus R CHOP in newly diagnosed DLBCL patients. This trial is designed to assess objective response rate, complete response rate, and PFS, as well as the safety of adding ADCETRIS to the frontline standard of care. The trial is open to high-risk patients regardless of CD30 expression level. With these ongoing efforts, we are well-positioned to quickly advance ADCETRIS development in DLBCL, which is the most common type of B-cell non-Hodgkin lymphoma.

At this point, I would like to highlight some key activities from the rest of our product pipeline. We have advanced three new ADC programs into the clinic already this year and are on track for a fourth before the end of 2013.

First is SGN-CD19A, a CD19-targeted ADC that is in two Phase I trials, one for acute lymphoblastic leukemia and one for aggressive B-cell non-Hodgkin lymphoma. We will report interim clinical data from the ALL trial at ASH, and we plan to report data from the NHL trial during 2014.

Second is SGN-CD33A, a CD33-targeted ADC that is in an ongoing Phase I trial for acute myeloid leukemia. CD33 is a validated target for AML. This ADC utilizes an innovative new technology, consisting of a highly potent cell-killing agent called a PBD dimer, a novel linker and a proprietary site-specific conjugation technology known as EC-mAb. This trial began a few months ago, and we expect to report interim clinical data during 2014.

Third is SGN-LIV1A targeted to LIV-1, which is another proprietary auristatin-based ADC that uses the same drug linker as ADCETRIS. We recently initiated a Phase I trial of SGN-LIV1A for patients with multiple subtypes of metastatic breast cancer for which there are no currently curative therapies.

And fourth, the fourth ADC we plan to advance into the clinic this year is ASG-15ME, which we are codeveloping under our collaboration with Agensys Astellas. Agensys submitted an IND earlier this year, and we expect to initiate a Phase I trial in bladder cancer during 2013.

Now I would like to take a moment to talk about SGN-75, a CD70-targeted ADC. We have made a decision to discontinue this Phase I program. Although SGN-75 has shown some single-agent activity, our focus is on developing new therapies that represent significant and important advances for cancer patients. We remain very enthusiastic about CD70 as a cancer target, and we have developed a second-generation ADC that is more active in preclinical models. This molecule, which we are calling SGN-CD70A, utilizes our proprietary PBD dimer payload and our EC-mAb technology. We plan to submit an IND and initiate a Phase I trial during 2014.

Finally, I want to say that I am thrilled to be stepping into the role of CMO at Seattle Genetics at a time when there is such tremendous opportunities ahead for ADCETRIS and our product pipeline.

At this point, I will turn the call over to Todd to discuss our third-quarter results. Todd?

Thanks, Jonathan, and thanks to everyone for joining us on the call this afternoon.

Our financial performance in the third quarter was strong. We generated substantial cash flow during the quarter from sales of ADCETRIS, collaboration payments, and royalties, and we ended September with a cash position of nearly $374 million.

Today I will highlight our financial performance and also provide updated guidance for ADCETRIS sales and collaboration revenues.

Total revenues for the third quarter of 2013 were $71 million, which included ADCETRIS net sales of $36.5 million. For the year to date, total revenues were $201.9 million, including ADCETRIS net sales of $106.1 million. Based on strong ADCETRIS sales, we're increasing our 2013 sales guidance to $140 million to $145 million.

We also recorded ADCETRIS royalty revenue of $5.3 million in the third quarter and $11.2 million for the year to date as our partner, Takeda, continues to obtain reimbursement approvals and launch ADCETRIS throughout the world. As a reminder, we report royalties one quarter in arrears.

Collaboration revenues increased to $29.2 million in the third quarter and to $84.5 million for the year to date in 2013. We are increasing our guidance for 2013 collaboration revenues to now be in the range of $95 million to $100 million. Contributing approximately $30 million to collaboration revenue growth this year has been the upfront payment received under the new Bayer collaboration in the second quarter and ADCETRIS drug supply sold to Takeda throughout the year as it establishes its commercial and clinical inventory of ADCETRIS. We believe that these sales have now largely been completed, and they illustrate the progress that Takeda is making in its territory.

R&D expenses were $67.8 million in the third quarter and $167.9 million for the year to date in 2013 compared to $41.4 million and $122.6 million for the same periods in 2012. These planned increases reflect ADCETRIS development activities, as well as increased investment in our other ADC pipeline that now includes five clinical stage programs. It also includes the cost of drugs sold to Takeda under our collaboration, and as I previously mentioned, this has also contributed to higher collaboration revenues this year.

SG&A expenses were up modestly year over year, primarily attributable to increased staffing levels. Noncash share-based compensation expense for the first nine months of 2013 was $21.6 million compared to $17.9 million for the same period in 2012.

In addition to a strong quarter financially, operationally we advanced four new clinical stage ADCs this year and continue to execute on our strategy to expand the ADCETRIS franchise.

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

Thanks, Todd. At this point, we will open the lines for questions and answers. We ask that you limit yourself to one to two questions and then re-queue with any additional questions.

Operator, please open the call for questions.

(Operator Instructions). Thomas Wei, Jefferies.

Just wanted to ask a couple of things. The first on CTCL and how much of a contribution there might have been during the quarter from that. And I thought that we'd spoken earlier about compendia listing as a possibility near-term for that indication. Would love to get your updated thoughts there.

And then on the CD19 data at ASH, can you just remind us, you said that it was interim. How many patients or dose cohorts? It sounds like you have not hit an MTD, so should our expectations be largely gauged around really just getting some initial safety data, or is there enough for there to be interpretable efficacy data as well? Thanks.

On CTCL, first of all, we certainly don't promote to any off-label uses, but we have heard some anecdotes about contributions to our sales from some docs prescribing ADCETRIS for CTCL.

Concerning compendia, we have worked with the guideline committees. What we understand is that it's very important to get publications here, and we're working with the two centers. We have a study from MD Anderson and a study from Sanford that we've talked about. Both of them have 70% objective response rates. We've talked about those and presented data there. It is one of our focuses to make sure we get these papers published, and we're working hard on that. And I think that that is one of the items that we really need to have working with compendia on that.

Now switching over to CD19, as we said in the prepared remarks, we are only going to be presenting on the ALL Phase I. There's two Phase Is, one in ALL and one in NHL. The NHL one in our remarks we said that it is our intention to present in 2014, and we will be excited to do that.

For this specific presentation at ASH, it's really initial data only. It is during dose escalation. Our intention was to present as much as we can, and we're still dose escalating. And so there will be -- and there's always a data cut off point for when you present to ASH so that we can summarize data effectively. So it will only be some dose escalation with some data on safety and initial responses, things like that. So it is just an interim data report on our CD19 program, much more in 2014.

Howard Liang, Leerink Swann.

If I could just follow up on CD19, I think you previously said there are other compounds against the same target, but you think yours is differentiated. Can you talk about how might SGN-CD19A be differentiated from the Sanofi CD19 antibody drug conjugate? I think they have seen some ocular toxicity. Do you think that is a target effect or more compound specific?

When you think about CD19, there's been molecules for quite a number of years. Years ago there was CD19 ricin conjugates; they were just pioneering molecules that we had. There was efficacy you can see, but they were also very immunogenetic. And that was with a plant toxin, ricin.

So the molecule we have is much more amenable to being a commercial product because it is a drug conjugate. Doesn't have immunogenetic plant toxin attached to it.

And you asked a question about the differentiation versus where ImmunoGen is with Sanofi on their program, and there's also a bi-specific antibody to CD19, brentuximab, that was acquired by Amgen. So there are a number of different CD19 molecules out there.

We really like ours. We think we have a really great antibody that binds and internalizes well. We like our drug conjugate system, and we like our technology with our drug linker. We think it's got a really good stability of a linker, and we think that's very important when you look at this.

And I think that ultimately when we put out a really good data report -- and that will probably be in 2014 where you have much more data than you will have just at ASH this year, which is more of an interim report. I think you will be able to decide on your own for what you think of our molecule.

But we really like our molecule. We like our technology, and we are investing strongly in our program for CD19. And we think that if we stick to it and work hard, that perhaps we can bring something forward that is differentiated and really helps patients.

So is the ocular toxicity linker specific or target specific?

Ocular toxicity is something that you can see with certain types of drugs and certain types of antibodies. We certainly reported some ocular toxicity in a minor way with our CD70-targeted program, SGN-75, in the past. Certainly you've seen reports of it in drug conjugations using [Machancen] from the ImmunoGen technology, and I think there is not a definitive thought out there that it is specific definitely for certain antibodies. Perhaps it is linked more to certain drugs. I think that the linkers are very important, and trying to have the most stable linker you can is really important.

But I think we are -- everyone in the field studies that very closely, and for CD19, specifically we certainly are monitoring this very closely. But so far, we are very pleased with our program and investing strongly in it in two disease types, ALL and NHL, and I look forward to presenting an interim look at ASH this year, as well as much more complete Phase I data sometime in 2014.

Thanks very much.

Matthew Roden, UBS.

Congrats to Jonathan and Eric for their new responsibilities.

We would all like to see the AETHERA data sooner rather than later, but I guess I'm most concerned that that data be as good as possible to drive maximal utilization. So as you think about strategies to maybe get a readout in the second half of 2014, how do you balance the need to get the data and move on with the need to minimize risk to the readout and maximize the impact that the data will have with the clinician community?

Matt, it's a really, really good question, and I think that just judging from your question, you must have a microphone in our executive suite as we have discussions. Because we've been discussing this for over a year. We've been bringing it to conference calls now for at least three or four conference calls. We've been trying to be as transparent as possible saying, this is going a heckuva lot longer than we think and trying to really state that our goal is to have a balanced strategy of trying to get the readout so we can help patients versus not damaging the integrity of the study and not damaging any data potential. So then you are really thinking clearly about this.

And I think that as we looked at it, there were discussions internally of, hey, let's open this right away because it is going later. And then there was discussions, let it go many years. And I think what we have come to is something which we think is the right level of risk to the study, but the right timing from trying to bring something that could benefit patients. And we think that that really is towards the second half of 2014.

And to that end, we have started a dialog with regulatory agencies. We talked extensively with our partner, Takeda, about this, and we are in lockstep on it, and we are really working with regulators on the best way to do this. And what we've said before in conference calls still stands, that the second half of 2014 is a time where every single patient on the trial, even up to the last patient in, will get through all the pre-prescribed scans. And so it is really something where we think that from a standpoint of someday looking at curves on a line for progression-free survival, some day looking at that you want to have as many scans and pre-prescribed scans as you can to have as clear a data as possible. And we think that's the right level of risk and really the right level of being aggressive and moving forward to try to get the data for patients.

So I appreciate your question. There is no perfect answer to this. But after studying it for a long time, this is where we came down, together with our partner, and are working with regulators to doing the right thing as we speak.

Okay. That's very clear. Thanks for that. I guess my follow up is on diffuse large B-cell data you expect to have at ASH. It sounds like that's only going to be the single-agent follow-up in refractory patients and not the later two arms. Is that correct?

And then related, when we do get the response rate and duration of response data, at what comps do you guys look at to assess the activity in the refractory setting? Should we be looking at the historical numbers in that group, or do you also consider newer data from the ITKIs?

There's a lot of questions there. First of all, why don't I turn this over to Jonathan to talk a little bit about the data from ASH that we're expecting to present. Clearly you know we can't give you all the information because that remains for ASH, but Jonathan, can give you a little bit of clues into what we're thinking about with DLBCL?

There were, I think, two parts to that. The first is, what data would be presented?

And yes, it would be the single-agent relapsed and refractory patients with response rates and duration, and it would be a follow-up, an extension of the data that was presented at ASH last year. We will not be presenting the other two arms, which are currently being enrolled, and we look forward to presenting those at some point in the future.

The second question was about what comparable data we look at, and we really look at all the data that's out there in diffuse large B-cell lymphoma. There are other antibody drug conjugate. There are TKIs, and we will look at all of those in comparison, not just at response rate but tolerability, duration, and importantly complete responses are also important, and we look at all of that.

Great. Thanks very much for taking the questions.

Rachel McMinn, Bank of America Merrill Lynch.

I wanted to ask on revenues actually. When we look to 2014, last year at this time you guided us to expect flat revenues, and you're not doing that now. So I guess I just want to understand how to think about just qualitative thoughts at least if you're not prepared to give specific guidance. But should we think about flattish revenues, or how do we interpret some of your comments about off-label frontline use? Does that have momentum to drive sustainable quarter-over-quarter growth?

And then, Clay, I just wanted to check in with you on the $1 billion US sales target. I know it's a number that you've quoted in the past. Just given the trajectory right now of two years of flat sales, what do you think needs to happen there? Do we need to wait for frontline? Can some of these other indications read out before then? I just want to get a sense of trajectory. Thank you.

Sure. I will turn it over to Todd to talk about the revenues first. Then I will come back on and address your question. Todd?

So if you will recall going back to the beginning of the year when we set guidance, one of the things that we talked about was how we believe that we were largely moving away from a prevalence pool of patients and into a incidence pool of patients. So that was the reason really behind relatively flat revenues projected for this year.

I think now as the year has unfolded, what we're seeing is that was the case, but I think the commercial team really did a great job of managing the transition into the incidence pool of patients. And as a result, we were able to see some modest but nice revenue growth this year.

Going into next year, we will give guidance on our year-end call, but I think what is safe to say now is the growth would come from things like Canada. We expect to have our reimbursements in place for next year, perhaps a little bit from compendia, but really what is going to drive future growth is label expansion. And as you know, we've got four Phase III studies that are underway. The AETHERA trial could read out toward the end of next year. We think that will give us a nice lift, and then ALCANZA follows that and ultimately the two frontline trials, ECHELON-1 and ECHELON-2.

So basically that was the same way I was going to address your question. To get to the $1 billion target in the US for ADCETRIS, which I still firmly believe is in our sites that we will get there, is the excitement around the many steps that we're going to be taking that Todd mentioned -- AETHERA, cutaneous T-cell lymphoma, DLBCL, ways that we could get label and ways that we could get it to compendia, and we are looking and working hard toward that.

But ultimately, to make it a $1 billion product annually in the US, we're going to really, I think, need frontline. And we have two frontline trials that we're doing in Phase III right now, the Hodgkin lymphoma and the mature T-cell lymphoma trials. And we're excited about this, invested in this heavily, and we believe that we will be doing two things. One is really benefiting patients and redefining therapy in a variety of indications and in the frontline, as well as benefiting the Company.

And then I'm sorry, just to follow-up on the diffuse large B-cell lymphoma, do you have a better sense of timelines on when that could move into pivotal or what level of data would be required for registration and indications that you are thinking about there?

Actually, we've had a lot of discussions about that. We're very interested in DLBCL. It's a really exciting time. We've seen and reported on responses in patients that are either relapsed or a lot of them are refractory. You are refractory to R CHOP, you are in pretty bad shape, and we've had some really nice data. And so we're pleased with that, not just the PRs, but seeing CRs, as well. With a single-agent molecule and pre-treated patients, that is pretty rare to see that.

So we are really excited about it. Right now we are really involved in trials. We have a lot of trials going on. We added two additional arms Jonathan referred to from our DLBCL trial, one in combination with retuxin, one in patients that basically have undetectable CD30 based on histology, so keep that in mind. Because as we do fine-tune analysis, we find that most if not all of them have CD30; it's just at a low level.

And we're going to present some data at ASH. There's a lot of interest with KOLs in this, just a lot. And as far as our specific regulatory strategy, though, I look to really talking about that more into 2014.

So we are not prepared right now to outline that. That's something we want to make sure that all our Is are dotted and Ts are crossed with regulators and everything and making sure exactly what we're going to do before we lay it out. That's something I look forward to doing in 2014.

So there is a lot of excitement around DLBCL, and we're just not outlining everything right now.

Thank you.

Adnan Butt, RBC Capital Markets.

I will ask two. First, in terms of pursuing DLBCL where there is a very low level of detectable CD30, is that a tumor-specific strategy, or does that help you broaden where receptors can be used?

And then secondly, so relapsed refractory, obviously DLBCL has had interesting data. At this time, which sub-tumor type are you seeing the most off-label use in? Is that CTCL, or are you seeing DLBCL as well? Thanks.

As far as off-label use, keep in mind, we don't promote to it, and it's not something we're going to list. We have seen off-label use in CTCL and in DLBCL. I'm not prepared to tell you which one we see more or less, but we have seen in both. And so it's a fair question. It's just something that we're not going to be commenting on the specifics of.

As far as the level of CD30s and how we think about ADCETRIS, I'd like to turn it over to Jonathan to talk a little bit about levels of CD30 and DLBCL and other tumor types as well, and you could talk about that.

Really, so to your question, obviously we see really excellent activity where there's a lot of CD30. We're very happy to note that in multiple indications where we see variable and low CD30, we continue to see really good response rates. And specifically to your question, this does not appear to be specific to DLBCL. Certainly in CTCL, in addition, we see very good response rates in patients with low CD30 or undetectable by current IHC. And I really want to reinforce what Clay said, which is when you look with more sensitive techniques, almost all of these patients express some CD30. And we're doing the studies now to understand exactly what that means for ADCETRIS to DLBCL, CTCL and beyond.

Thanks.

Jason Kantor, Credit Suisse.

I've got a commercial and then a clinical one. On the commercial side, you've been talking about pushing for a longer duration of treatment for a while. Can you comment on what successes you may have had there? You mentioned also growth from price and volume. Could you break that out a little bit so we know what components are contributing?

And then really interested in this new CD70 antibody drug conjugate you are bringing forward. I'm just wondering if the decision to move this new technology forward for CD70 reflects anything that you might be seeing in the clinic in terms of safety at least for the CD33 conjugate, which uses the same technology?

Sure. Let's start out with commercial. Chris, would you like to address that?

Yes, absolutely. Thanks for the question, Jason. With respect to duration, we spent a lot of time over the last year or so looking into the reasons that we see discontinuation commercially. And they really largely mirror what we have seen in our pivotal studies, which is patients progress or they are coming off from known side effects, notably peripheral neuropathy.

So the key challenge, obviously, is to try to address both of those.

So what we have been doing commercially and will continue to do is to emphasize the clinical data that we have in our pivotal studies and continue to educate staff on how to best manage through these side effects that could lead patients to come off therapy early.

We feel that we have the resources in place to be successful on both of those. The majority of physicians that we talked to continue to believe that ADCETRIS will be used for longer duration, either in the initial therapy or potentially in retreatment. So we still are focused on those areas and driving duration of therapy as we think that is the biggest near-term growth opportunity.

Great. Could you repeat the second part of your commercial question again, Jason?

You mentioned that you saw growth both from price and volume, so I just wondering what the contribution of each of those was in the quarter?

Jason, this is Todd. I will handle it. It was roughly split 50-50 between the two.

Okay. Now switching to CD70 and we have a new ADC that we're working on, we did not make a decision for this based on safety. Our goal is to really make an impact on patients. SGN-75 had some objective responses. This is not a dead drug. This is a drug that had some level of activity, but the activity didn't reach the level that we were excited about continuing. And in a laboratory we were working on because we like to target a new form, and I'm going to turn it over to Jonathan to talk a little bit about why we're excited about the new one. And we made a corporate decision to invest in the new one, rather than investing in the one that was active but not active enough. Jonathan?

So, Jason, I think what you asked was about the CD33 PBD, and did that influence our decision. And this decision was really made based on the CD70 PBD pre-clinical data, which we're very excited about, and I think could be a very exciting and important way to address the CD70-positive tumors.

Okay. Thank you.

Cory Kasimov, JPMorgan.

One on the pipeline and one on the recent label amendments. So first on the pipeline, I realize it's very, very early. But I'm just curious in the level of investigator interest at this point in CAD33A compound for AML given the unmet medical need, and I apologize if you already mentioned this, but should we expect initial data from that in 2014, I assume?

And then on the updated label, do you have any updated feedback from the FDA on what might be required to get the retreatment component added to the label? And I'm wondering too, if you've seen any early impact or maybe feedback is more appropriate, given how recent this happened, for the removal of their 16-cycle limitation?

Thank you for the question, Cory. So first off on CAD33A, the level of interest in that is incredibly high. It's a huge unmet medical need, AML is. And I can tell you that so far in our trial, accrual is going well, and things are going well. We are dose escalating, but I don't have anything more specific to tell you at this point. It's something that it was too new to submit to ASH. So we just when the abstracts were due in August or whenever it was, it was just too early in the program to submit anything. So we are very excited to pursue this. We're excited to try to make a difference in the life of patients with AML, and we are investing strongly in this.

As you know, we've been interested in AML for many years.

We developed a product that didn't work in AML, SGN-33, the initial antibody. That was a naked antibody, and we really worked hard at some very good studies, but it didn't pan out for the patients. But we learned a ton, and we learned really what we needed and what kind of potency we needed. And sometimes it's okay to fail if you learn a lot from it and grow from it. And I think that our experience with targeting AML really gave us a lot of insight into the disease and what was needed. And we worked for many years to develop the CAD33A drug conjugate, and it's got all of this different new technology in it. It's got a new linker, a new payload; it's got a new engineered antibody system we call EC-mAbs or engineered cystine mAbs. So I think you should expect data in 2014 on that.

As far as the label and retreatment goes, I think that by the removal of the 16-cycle cap, it really gave us a lot of the flexibility that we needed for retreatment, and I'm going to turn it over to Chris to make some comments on your questions.

The removal of the 16-cycle limitation has been viewed very positively by customers. It does a number of things. First, it simplifies the duration messaging to treatment to progression or unacceptable toxicity, which is very important. Second, it removes what was a relatively arbitrary 16-cycle limitation based purely on a year of therapy that was used in our pivotal studies. So that has important potential reimbursement benefits.

And then finally, it puts the decision as to when to discontinue a [patient] back in the hands of customers where we think it belongs.

So all of those things have been viewed very positively by customers.

All right. That's helpful. Thank you.

Navdeep Singh, Goldman Sachs.

Just a couple of questions. For the CD19 ADC, what do you need to see in terms of response rates to advance it into larger Phase II trials in ALL? And then I have a couple of modeling questions.

So as far as CD19 ADC, there's not a set number that is out there that you must do or else the project goes away. That's not really the way it works here. But I would say that we would need something that is differentiated, and you need to see something that does provide CRs.

I think coming into a disease, whether it is ALL or NHL and seeing a nice amount of PRs that are durable for a few months, is not meaningful. I think that that's not what the market wants to see. That is certainly not what we want to see. We want to really help patients.

So we want to see a fair amount of CRs. You never get all CRs. I would be a great dream, but we'd want to see a decently strong number of CRs and we'd want to see durability. And if we take patients that are refractory relapsed and we can see that, then we have a real drug to build on. And so that's what I would look forward to -- a little bit of data presented this year, interim data on ALL only, but 2014 where the substantive data on this exciting program could come in.

Your next question?

And then I noticed that R&D came in much higher than the Street had expected. It came in at $68 million. Should this be the go-forward quarterly run rate?

Todd?

No, I'd caution you not to do that. One of the things I commented on earlier in the call is the drug supply that we're selling to Millennium as it establishes its commercial and clinical inventory. So impacting Q3 quite a bit in the R&D line was the cost of that drug. As we sell it, the cost of that drug gets reflected in the R&D line.

Okay. Thanks.

Alan Carr, Needham & Company.

Wondering if you could comment on how enrollment is going for the ADCETRIS frontline Phase III trials? And you touched on some off-label use frontline for ADCETRIS. I was wondering if you could comment a bit more on that, too? Thanks.

So as far as the frontline trials, we don't make specific comments on the enrollment. The enrollment is ongoing, but the specific level of the enrollment in both of our frontline trials and, for that matter, for any of our four Phase III trials, we don't make any specific comments, except to say when we start enrollment and that it is enrollment, and when enrollment is complete.

As far as off-label use, also in frontline, every now and then you hear something that is interesting, and some doctor was able to write a prescription or something and get ADCETRIS involved in some setting, in very different settings. Sometimes it is in relapsed settings of disease where it's not approved; sometimes it is in earlier lines of settings.

So we do care about those now and then, but please note we do not promote to off-label uses, which include frontline for now, and we do not list specifically what sales are in that regard.

Okay. And then a follow-up in Europe. You guys haven't provided much detail on this in the past, but I'm wondering if at this point, you can comment on any significant expansions over there in terms of countries that will be reimbursing -- have any of those happened recently, or do you expect any soon?

Sure. Well, as far as you are -- I will start this, and I will turn it over and see if Todd and Chris want to put in some words. We are real excited about what Takeda has done there. And Todd, you have a few comments?

Yes, first, I will point out that in Takeda's call last week they talked a little bit about the launch of ADCETRIS, and I think the takeaway is that it has been going very well, and I think they are saying it is exceeding their expectations.

So I think their experience with their launch is similar to what we saw. This is a drug that provides a lot of benefit to patients and the commercial uptake that we saw and they are seeing has been good.

There's now been approvals in 36 countries, so 34 of those countries are in Millennium's territory. I would point out, though, that for the most part, those approvals are the initial step in the launch. Many of these countries need reimbursement approvals. I don't know what the exact count on reimbursement approvals in countries are now, but that's something that Millennium continues to execute on well. And again, their comment is that the launch of ADCETRIS is going great.

Okay. Great. Thanks very much.

Mara Goldstein, Cantor Fitzgerald.

Just as it relates to -- we spent a fair amount of time talking about ASH and the data at ASH this year versus next year and next year being the more pivotal year for you. So my question would be, as we think about ASH and all of the data points that will come out in the abstracts next week, what would be the most important one from a commercial perspective for 2014? Is there something in particular that you would point to in that upcoming data set?

We don't point to anything specifically in our data that is going to be presented at ASH 2013 as saying this is the most important for commercial. I really -- that is something I would not be looking to do.

As far as you made a comment also that ASH could be pivotal next year for data, I wouldn't rule out some pretty exciting ASCO data, as well. So I want you to not just -- we are not trying to push off all our data to the end of 2014. I think all of 2014 could be a very exciting year for us.

Okay. And what then might be available earlier in 2014?

Well, we have -- we talked about our CD19 program; we talked about our CD33 program. We have new data that consistently merges with ADCETRIS. There could be a lot of different things. We now have -- and I'm not making any promises at all -- but we now have a drug that is in clinic targeting LIV1. And that is for breast cancer.

I just don't know where we will be, and I don't know whether it is -- and there's other conferences, too. It's not just ASCO and ASH. There's other EORTC and other important conferences. So I think that 2014 -- I am really excited about it. I'm excited about our pipeline. I think we have some great technology, and I'm looking forward to continuing helping patients.

Okay. Thank you.

Boris Peaker, Oppenheimer.

This is Matt in for Boris. Following on the discussion about CD30 expression levels, what is the ratio of antibodies delivered to actual antigens and various malignancies where ADCETRIS is being investigated based on actual tumor load, dosing, and half-life?

And secondly, how does that compare to Hodgkin's disease? Is there any ideal window for ADC that you can think of that optimizes the efficacy and minimizes the off-target effects? Thank you.

Wow. If you are starting to talk about the ratio of antibody to antigen, I could take a step back from there, and I could try to ask you to think about some of the data that we've had and how we think about antibody drug conjugates. You look at Hodgkin lymphoma, and the only thing in Hodgkin lymphoma that has CD30 is the Reed-Sternberg cell. And that represents around 5% to 6% of the entire tumor molecule itself, yet we have really profound activity.

When you look at ALCL and you have a much more homogeneous expression profile for CD30 on that, and we have really good activity there. So when you use an antibody drug conjugate, I think it doesn't necessarily mean you have to have a lot of expression on all the cells. And as we are learning from CTCL and DLBCL, we're having expression levels at high and low expression levels and different responses -- or I am saying responses in all the areas that are high and low. So it's a rulebook that we are really trying to write right now and trying to understand really the ratio of antibody/antigen to where this could be used. And we don't know all the answers. But I think what we're finding out that histology, simple histology is not as precise as we would love it to be, and that a small amount of antigen on a tumor can represent a great target for an ADC.

Operator, are you still there?

We have no additional questions, sir.

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

Ladies and gentlemen, this concludes our conference for today. We thank you for your participation, and you may now disconnect.