Seagen Inc (SGEN) 2016 Q2 法說會逐字稿

Good day and welcome to the Seattle Genetics second-quarter 2016 financial results conference call.

(Operator Instructions)

Today's conference is being recorded. At this time I would like to turn the conference over to Peggy Pinkston, Executive Director, Investor Relations. Please go ahead, ma'am.

Thank you, operator, and good afternoon, everyone. I'd like to welcome all you to Seattle Genetics' second-quarter 2016 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 Darren Cline, Executive 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 regarding future events or the future financial and operating performance of the Company. Such forward-looking statements are only predictions based on current expectations and actual results may vary materially from those projected. Please refer to the documents that we file from time to time with the SEC, including the Company's form 10-Q for the quarter ended March 31, 2016, for information concerning the risk factors that could cause actual results to differ materially from those contained in any forward-looking statements.

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

Thanks, Peg, and good afternoon, everyone. Thank you for joining us. I am pleased by the progress we have made over the past several months toward building ADCETRIS into a major franchise and advancing our pipeline to support our goal of becoming a global multi-product oncology company. For ADCETRIS, we reported record net sales in the second quarter and are approaching phase 3 trial readouts that are designed to support future label expansions and transform the way CD30-expressing lymphomas are treated.

For SGN-CD33A, our lead clinical stage program, we have five ongoing clinical trials including the pivotal phase 3 CASCADE trials, where our goal is to improve overall survival in older AML patients. We have reported promising anti-tumor activity from several other ADCs in solid tumors including, most recently, ASG-15ME and ASG-22ME for urothelial cancer as well as SGN-LIV1A for breast cancer.

We advance our pipeline and positioned several novel programs for upcoming clinical trials. Today we will update you on these and other recent highlights as well as planned activities.

Total revenues in the second quarter were $95.4 million. This included record ADCETRIS net sales of $66.2 million, up 20% compared to the second quarter of 2015. We continue to be confident in achieving our 2016 ADCETRIS net sales guidance in the US and Canada of $255 million to $275 million.

ADCETRIS is now commercially available in 65 countries and in July the EMA approved ADCETRIS as consolidation in post-transplant high-risk Hodgkin lymphoma based on data from the AETHERA trial. This is the third ADCETRIS indication in the US -- in the EU, excuse me, and another meaningful regulatory milestone for the global franchise.

Looking ahead to the broader opportunity for ADCETRIS as the foundation of care for CD30-expressing lymphomas, we are approaching top-line data from three ongoing phase 3 trials, ALCANZA, ECHELON-1 and ECHELON-2. The first of these will be data from the phase 3 ALCANZA trial planned for this quarter.

As a reminder, the ALCANZA trial enrolled patients with CD30-expressing cutaneous T-cell lymphoma. Patients were randomized to receive single-agent ADCETRIS or physician's choice of either bexarotene or methotrexate. The ALCANZA trial is based on encouraging objective response rates from two investigator sponsored trials that were conducted at MD Anderson and Stanford.

CTCL has many subtypes, two of which are included in the ALCANZA trials, primary cutaneous ALCL and mycosis fungoides. Unlike HL and ALCL, MS is characterized at by variable levels of CD30 expression. Evaluations of response are multifaceted, involving skin assessments, often covering much of the body surface area, as well as radiographic assessment of visceral or internal spread in some cases.

The primary endpoint in the ALCANZA trial is a rate of objective responses lasting at least four months. This novel end point negotiated with FDA and the trial is being conducted under a special protocol assessment. We look forward to reaching this data readout soon.

Following ALCANZA there are two phase 3 trials that represent the most important commercial opportunities for ADCETRIS, ECHELON-1 and ECHELON-2. These trials are in front-line advanced Hodgkin lymphoma and front-line matured T-cell lymphoma patients, respectively. Both are being conducted under SPAs with the FDA.

ECHELON-1 is fully enrolled and we are following patients to the primary endpoint, which is progression free survival. We continue to expect top-line data in the 2017 to mid-2018 timeframe. The ECHELON-1 trial has the potential to transform the way newly diagnosed advanced Hodgkin lymphoma patients are treated.

The lead-in data from our phase 1 trial in this setting indicate the potential to both improve efficacy and reduce toxicity by removing bleomycin, which is associated with significant pulmonary toxicity. We continue to monitor the blinded pooled PFS events and expect to further refine our expectations for timing of top-line data in future calls.

Our ECHELON-2 trial continues to enroll up to 450 patients with CD30-expressing untreated MTCL. Enrollment is going well and we remain on track to complete accrual of ECHELON-2 this year with top-line data in the 2017 to 2018 timeframe.

The unmet need in T-cell lymphoma is significant, as these are generally aggressive forms of non-Hodgkin lymphoma that are currently underserved by existing chemotherapy regimens. We estimate that approximately 4,000 patients are diagnosed annually in the US with CD30-expressing mature T-cell lymphoma.

During the second quarter we advanced SGN-CD33A, or vadastuximab talirine, into a global phase 3 trial called CASCADE in older patients with acute myeloid leukemia. The randomized trial is comparing 33A plus decitabine or azacitidine to either one of these hypomethylating agents alone. CASCADE is based on promising data from a phase 1 trial that were recently featured in an oral presentation at the European Hematology Association Annual Meeting.

AML treatment has not meaningfully changed in more than three decades. We believe 33A has the potential to change this paradigm and is an important late-stage product opportunity for Seattle Genetics. We are also conducting several earlier stage trials with 33A and expect to report more data during 2016.

Another key milestone during the second quarter was presenting data at ASCO from ASG-15ME and ASG-22ME, also known as enfortumab vedotin, both of which are being co-developed with Astellas. These ADCs are in phase 1 trial for metastatic urothelial cancer, primarily bladder carcinoma. The data are strong and we are actively engaged with our partner to determine potential later-stage trials.

Overall, continued progress with ADCETRIS, 33A and our pipeline illustrate increasingly important role that ADCs will play in the treatment of cancer. We are well positioned financially and look forward to several upcoming milestones.

At this point, I will turn the call over to Darren to discuss commercial activities. Next, Todd will discuss our financial results and then Jonathan will highlight key research and development progress. Darren?

Thanks, Clay. We posted a strong Q2, with sales up 13% from the first quarter of 2016 as we head into the second half of the year. ADCETRIS patient share remains high in the initial launch label indications despite some increased competition from checkpoint inhibitors, including the recent approval of nivolumab for relapsed HL following autologous transplant and ADCETRIS. Our market research confirms that physicians prefer to use ADCETRIS prior to nivolumab. Duration of ADCETRIS treatment has remained stable as well.

In the year since approval of ADCETRIS in the post-transplant consolidation setting, we are pleased with the uptake in this indication and still see more opportunity as we strive to establish consolidation with ADCETRIS as the standard of care in this high-risk patient population.

The commercial team continues to prepare for a potential new ADCETRIS indication in CD30-expressing cutaneous T-cell lymphomas based on the upcoming results of the ALCANZA trial. We estimate that in the United States, approximately 1,000 patients diagnosed annually with CTCL could be eligible for ADCETRIS based on the ALCANZA enrollment criteria.

It is important to note that ADCETRIS was added to the NCCN guidelines in 2014, for treatment of certain cutaneous T-cell lymphomas. As a result, some physicians have already independently chosen to treat CTCL patients with ADCETRIS, even though we do not promote to this use. If the ALCANZA data are positive and we label expansion, we would expect growth from this new indication.

The future growth opportunities of ADCETRIS will be partially driven by the data from the front line ECHELON-1 and ECHELON-2 trials. We eagerly anticipate the results of these potentially transformative trials and we continue our early launch planning efforts. I look forward to updating you on our ongoing process.

I will now turn the call over to Todd to discuss our financial results.

Thanks, Darren, and thanks, everyone, for joining us on the call this afternoon. In addition to significant pipeline progress, we had very strong quarter financially, with record ADCETRIS sales. Total revenues in the second quarter were $95 million, up 24% from the second quarter of 2015, driven by ADCETRIS sales of $66 million. For the first half of 2016, total revenues were $207 million, including $125 million in ADCETRIS sales.

Royalty revenues were $9 million in the second quarter and $42 million for the first six months of 2016, increases from $8 million and $19 million, respectively, in 2015. Excluding the $20 million milestone payment recorded in the first quarter, royalty revenues in the first half of 2016 increased by 15%, driven by higher sales of ADCETRIS by Takeda in its territory.

Collaboration revenues were $20 million in the second quarter and $40 million for the year to date in 2016. These revenues were driven by amounts earned under our ADCETRIS collaboration with Takeda an our ADC deals. R&D expenses were $86 million in the second quarter and increased to $178 million for the first half of 2016. The year-to-date increase over 2015 reflects investments in ADCETRIS and 33A. SG&A expenses were $33 million for the second quarter and $63 million for the year to date, modest increases from the comparable periods in 2015.

The Company remains financially strong. Our ADCETRIS franchise is growing and we look forward to several phase 3 trial readouts designed to enable additional label indications. We ended the second quarter with more than $650 million -- $659 million in cash and investments. This positions us strongly to continue investing in our programs, now including the phase 3 CASCADE trial for 33A.

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

Thanks, Todd. Good afternoon, everyone. I'll start today with a few additional comments on ADCETRIS and SGN-CD33A, building on Clay's remarks.

Last week the Journal Blood published final five-year follow-up data from our pivotal trial of ADCETRIS monotherapy in Hodgkin lymphoma patients who had failed an autologous stem cell transplant. For all 102 enroll patients, the five-year overall survival rate was 41%. Of note, patients who achieved a complete remission had five-year overall survival of 64%.

Of the 34 patients who achieved a CR, 13 patients who continued to be followed remain in remission after more than five years, including nine who received no further therapy after ADCETRIS. These data reinforce why ADCETRIS has become the standard of care for relapsed Hodgkin lymphoma.

Our ongoing efforts to improve outcomes in Hodgkin lymphoma will also be demonstrated this October at the International Symposium on Hodgkin Lymphoma, which takes place every three years in Cologne, Germany. We expect a strong presence with clinical data from both corporate and investigator sponsored trials of ADCETRIS in an array of treatment settings and novel regimens.

Moving on now to 33A, our phase 3 CASCADE trial is being conducted globally and will enroll 500 older patients with AML. It is based on strong data from a phase 1 trial that were presented at the European Hematology Association meeting in June. When combined with hypomethylating agents, we reported that 33A has a manageable safety profile with adverse events that were consistent with on-target myelosuppression.

Among 49 efficacy evaluable patients, 71% achieved either a complete remission or CR with incomplete recovery of platelets or neutrophils. Notably, many remissions were deep, with undetectable minimal residual disease in 42% of CRs and 33% of CRIs.

The 30- and 60-day mortality rates were 2% and 8%, respectively. The median overall survival data from the trial our interim and will continue to evolve. However, among the 25 patients enrolled more than a year ago, the estimated median overall survival was 12.75 months. This compares favorably to historical overall survival data with HMAs alone in this patient population of approximately 7 to 10 months.

In addition to the phase 3 CASCADE trial, we are evaluating 33A and other myeloid malignancies in which CD33 is broadly expressed. This includes ongoing trials in front-line younger AML patients in combination with the 7 plus 3 regimen, a 33A monotherapy trial in pre- and post-alginate transplant patients, and a trial of 33A plus azacitidine in previously untreated intermediate and high-risk MDS patients. We expect to report additional data from our 33A clinical programs this year, including the first data from our trial in younger AML.

ADCETRIS and 33A are part of a growing pipeline that now includes a dozen programs in clinic or soon to be in clinical trials. In hematologic malignancies, we are advancing SGN-CD19A, or denintuzumab mafodotin, in phase 2 trials for both salvage in front-line DLBCL. Our goal is to establish that 19A in combination with standard-of-care regimens increases the cure rate by incorporating an effective, easy to administer and well-tolerated drug into novel regimens to treat aggressive lymphoma. In addition, we've recently advance SGN-CD19B an ADC using our PBD-based technology into a phase 1 trial for relapsed DLBCL.

In solid tumors, our lead clinical stage ADC programs include ASG-15ME and ASG-22ME which, as Clay mentioned, are in phase 1 trials for metastatic urothelial cancer. At the likely recommended doses for future development, we reported objective response rates in the 40% to 50% range with each of these programs. We expect to report additional data from both trials at the European Society of Medical Oncology meeting in October, and are collaborating with Astellas on next steps for these promising programs, including registrational strategies.

We are advancing SGN-LIV1A for metastatic breast cancer. We expect to report additional data from our phase 1 trial later this year.

Two new programs are on track for phase 1 trial initiations during 2016, including SGN-CD123A for AML and SGN-CD352A for multiple myeloma. These ADCs utilize our PBD-based ADC technology. We look forward to advancing these novel programs into clinic based on promising preclinical data.

With that, Ill turn the call back over to Clay.

Thanks, Jonathan. Before we open the line for questions I would like to recap a few of the key upcoming activities across ADCETRIS and our pipeline. For ADCETRIS, these include reporting data from the phase 3 ALCANZA trial in CTCL this quarter; highlighting data from our broad clinical development program, including at the International Symposium on Hodgkin lymphoma in October; reporting data from the phase 3 ECHELON-1 trial in front-line Hodgkin lymphoma in the 2017 through mid-2018 timeframe; and completing enrollment in the phase 3 ECHELON-2 trial in front-line MTCL during 2016 and reporting data in the 2017, 2018 timeframe.

Near-term events for 33A and our other pipeline programs include reporting data from ongoing trials with 33A, including a phase 1B trial in combination with cytarabine and daunorubicin, known as 7 plus 3 for front-line younger AML patients; reporting clinical data from multiple pipeline programs, including ASG-15ME, ASG-22ME and SGN-LIV1A; initiating a phase 1 trial of SGN-CD123A in relapsed or refractory AML; and initiating a phase 1 trial of SGN-CD352A for multiple myeloma.

We look forward to keeping you updated over the remainder of 2016. At this point I will open the line for Q&A. Operator, please open the call for questions.

Thank you.

(Operator Instructions)

Kennen MacKay, Credit Suisse.

Thanks so much for taking my question. Maybe one for Darren quickly. You mentioned uptake of ADCETRIS in the consolidation setting in Hodgkin's. I was wondering if you could talk a little bit about maybe why some physicians are not yet using ADCETRIS there? And I guess on the sales force, what you are hearing the holdup could be? And also maybe what you are doing to maybe get past that there? Thank you.

Sure, Kennen. We have been really pleased with the uptake and our progress towards establishing ADCETRIS as a standard of care in the post-transplant setting. We have had really quick uptake and we continue to see upside as more transplant centers integrate ADCETRIS consolidation as their standard practice and community oncologists become more familiar with the data. We are please overall with the uptake. We do -- the label -- the expansion was about a year ago and we're pleased and our field force keeps executing against our plan, again, to make this a standard of care.

Kennen, this is Clay. Perhaps I can add one more thing. When we did our original trials in relapsed refractory disease, we had about eight cycles in our trials and then in the commercial setting, as we've reported on quarterly calls, we have been averaging about six cycles rather than eight in the trials and that was in relapsed refractory.

In the AETHERA setting, consolidation setting, our clinical trial averaged about 12 cycles and it is too early yet for us to get real good numbers on this but it is certainly longer than what we are seeing in the relapsed refractory state, but we just don't have numbers yet to provide specifics.

Got you. Thanks, Clay. I appreciate that color. Clay, maybe one more for you. I was wondering if there are plans to submit an sNDA for the five-year data we recently saw in Hodgkin's in blood, or if maybe that would be something after it is presented at the Hodgkin's symposium.

Thanks for noticing that. We are really proud of the impact we have had on patients. As far as specific submissions and regulatory work that we are doing with other agencies, that is confidential until we decide to release it. I appreciate the question, and happy that you noticed our great data.

Got you. Thanks, Clay, and maybe one final one. Regarding the front-line setting, giving the shortage we have seen in bleomycin announced on several governmental sites, is there interest among the physician community in getting ADCETRIS in use front-line? Do you have any sense of what they're doing given the bleomycin shortage? Thanks so much.

Thanks for the question. Most of ADCETRIS is used on our labeled indications and we have strong label -- on-label business in three different labels. Our most recent label, as you asked Darrin earlier as to consolidation label, and as you can see from this quarter, sales have been very strong. Top 20% year over year and we certainly know a lot about the bleomycin shortage. Doctors certainly know a lot. They ask questions about this but we really don't promote off label and definitely our market research indicates that there is some use of ADCETRIS outside of the label but that is not something that we will discuss at length with specifics.

As you know, our focus is on getting rid of bleomycin from front line and so our focus is on what we would call the ECHELON-1, or E-1, trial. Combining AVD without bleomycin with ADCETRIS into the front-line regimen that we hope can be the standard of care in helping patients with enhanced efficacy and decreased pulmonary toxicity for the next many decades after ABVD has been used for now almost four decades.

Got you. I really appreciate the color, Clay. Thank you very much and congratulations on the quarter.

Adnan Butt, RBC Capital Markets.

Thanks, folks, and nice progress on multiple fronts. I wanted to ask a question on 33A. The EHA data showed an OS of 12 to 13 months. Do you expect that data to be updated at (inaudible) here and would you expected it to increase? That is the first question.

First of all, thanks a lot for asking about 33A. We are very excited about our phase 1 data and the potential to improve OS in older patients with AML.

As you know, we are focused directly on enrolling this 500 patient CASCADE trial. That is our most important thing we are looking at. It's going to take opening more than 100 sites on an international basis to get there.

Now, you are asking a little bit about the OS data. We presented OS from the first 25 patients and we also have 53 patients in total and we really -- the other 28 patients were not mature as far as an OS standpoint, but we will be presenting these data as we look forward. I don't want to give you a specific conference. Jonathan, do want at any color to that?

I think that Clay summarized that well. The data were present at the European Hematology Association.

When you look at the overall population, it is immature. The total 53 patients and that will evolve over time. The 25 patients that were enrolled initially, those data -- they have been enrolled for more than a year so those data are a little bit more mature and we have more confidence in what the median is.

However, those patients continue to be followed and we will have additional data on that as well. Those patients hopefully will be alive a long time, the ones who are still on the trial.

Okay. If I can ask on ASG-15 or 22, what stage would you be able to decide how to advance? Is the next stage phase 2, phase 2/3 and do you go after PDL1 that is approved or in combination? Any thoughts there?

Adnan, thanks for the question. Just to remind everyone, we have two products that we are developing with our partner, Astellas, and it is under 50-50 collaborations, ASG-22ME and ASG-15ME. They bind to separate targets. They are both in phase 1 trials, advanced phase 1 trials, for urothelial cancer which is primarily bladder cancer. It's about 90%, 95% of the cancer is bladder cancer.

At the higher doses, as we've done a dose escalation, at doses that are likely doses for future later stage trials that we have not yet announced, the response rates between 40% and 50% from what we showed at a recent conference. This compares very favorably to drug -- other drugs in the area. It is a much higher response rate than you see with the taxanes or the recently approved drug, the anti-PDL1, atezolizumab, which was approved with an overall response rate of something around 15%.

Now our data was in heavily pre-treated patients so we really -- we really value our data and we are continuing to enroll patients to make sure that we are picking the absolutely appropriate dose, but we are getting close to that. We plan on presenting more data at ESMO in October.

To your question, what are exactly we going to do? Phase 2/phase 3, after atezolizumab, with atezolizumab or other PD1s, those are all excellent questions and we are actively working with Astellas, our partner, on the next steps. What I can tell you, Adnan, is you are asking the right questions. You are right on base. I just can't tell you yet. It not only Seattle Genetic; we're with a partner.

Okay. Thank you.

Jonathan, would you -- perhaps Jonathan, any more color you would like to add?

Yes. I think the fact is that for many years bladder cancer has been a disease where there really wasn't anything once somebody had become relapsed or refractory and there were no options. Now there appear to be some really promising options and that has led to a lot more interest in developing drugs for these patients.

The fact that many patients can have benefit from new drugs like checkpoint inhibitors is great, but most of those patients still aren't getting responses and aren't getting durable responses so we do need drugs that are able to be used after checkpoint inhibitors as well as potentially in combination, where you can get higher percentage of durable responses. There was a little bit of data in the posters that we presented showing that we have treated patients who have already been exposed to checkpoint inhibitors and we are seeing responses in those patients as well.

Excellent. Thanks.

Chad Messer, RBC Capital Markets -- I'm sorry with Needham & Company.

Yes, great. Thank you. Thanks for taking my question. Just going back to commercial preparations for ALCANZA data, which is right around the corner. I know you guys think there is about 1,000 patients relevant to that label, maybe some number of them already being treated. How much is the overlap in terms of the call points with doctors with the existing ADCETRIS force? Are there any additional folks you need as you look at ALCANZA?

Then just a second question on duration of treatment. I think it's, if I am remembering correctly, eight doses per protocol. Do you have any -- is that a good expectation in terms of how we should think of on-label ALCANZA patients if it is approved? How long we should think about them getting treated? Do you have any data points that would suggest anything different? Thanks.

Chad, thanks. We are really looking forward to releasing ALCANZA data as soon as we can and what we have guided is un-blinding of the data to be this quarter. The answer is soon.

You are right. We have been pointing to that the incidence of CD30-positive CTCL is about 1,000 patients in the US. I may point out also that the prevalence of CD30-positive CTCL is over 10,000 patients, although some of those patients, a lot of them have lower disease burden and they can be treated with non-systemic therapies, but certainly a decent amount of the prevalence needs systemic therapies. We think that there is a market here and that is important.

Now it is certainly not as big of a market as we see with E1 or E2 and we are in guidelines because we already had two phase 2 studies were done as investigator-sponsored trials that put out very strong data. Those data were brought into guidelines and the group of physicians that represents putting new information in guidelines decided that this should be added to guidelines. So yes, we do -- we don't give guidance to what we treat that's not on the label even if it is included in guidelines but we certainly know that there are quite a number of physicians using this, so we are not going to go from zero use to 100%. We already are getting some use so the uptick will be smaller than going from 0 to 100.

Darren, maybe you can talk a little bit about the overlap in the duration or whatever we know.

Yes. Our aspiration to make ADCETRIS the foundation of care for CD30-expressing lymphomas or excited about the opportunity with the ALCANZA data set and to be able to promote to that label.

Regarding the field force, we will evaluate, particularly as we look at ALCANZA E-1, E-2, on what the right size is to maximize the opportunity with reach and frequency of the targeted physician list, of which we have a good idea of what that will be. Regarding duration, we will focus as we always do with ensuring that we are promoting to the label and to the fact that if physicians want to get the outcome in the clinical trial in real life and patients to follow what that data set and protocol are and duration will be a key driver of that. We will be focused on both the disseminating the clinical data, both the protocol as well as the duration, but we will be poised to execute upon an approval.

Great. Thanks. Looking forward to that data soon.

Cory Kasimov, JPMorgan.

This is Whitney on for Corey. Just a question on ECHELON-1. I guess given that the ABVD comparator is very inexpensive, I guess what scenario analysis have done around the efficacy outcome there and what feedback are you getting from payers and doctors, I guess, if you were to say only show a trend on PFS but there was a clear difference in safety?

Whitney, thanks for the question. As we look at E1, we have done a lot of market assessment and talking to doctors about this. This is a long-term, many year trial so we have a lot of time to interact with doctors and we also interact with doctors regularly because we are selling ADCETRIS in the relapsed refractory and now consolidation settings, so we have a lot of interaction with docs.

I think doctors are excited about this. Obviously, it depends of the data that we see and that is important here, but doctors really don't like using bleomycin. That's first and foremost. So the ability to get rid of bleomycin and not have patients getting this really profound pulmonary toxicity, which in some small instances is lethal in patients, that is a big gain.

In addition to that, we think it is really also important to gain on efficacy. If you look at our lead-in trail, we had 96% CR rate. We had a 92% three-year failure-free survival rate. The data that we had in our lead-in trial, albeit a small trial, was spectacular.

I don't think we need that level of data to prove efficacy. I think even less than that would be pretty exciting for docs, so I think we have-- I can't give you a line in the sand that will be needed for docs, but I think we are in great shape and really look forward to helping patients and maybe get more patients to cure here.

Jonathan, do you want to add anything to what we are thinking on for E1?

Yes. I guess when an oncologist is seeing a patient with a new onset advanced Hodgkin's lymphoma, their immediate thought is, can I cure this patient and so they have the rest of their life ahead of them. Most of these people are young. They're in their 20s and 30s generally. That is going to be the most important thing for physicians and patients, is not having to treat patients who have failed this curable disease.

The other thing to keep in mind when you think about cost is yes, ABVD is not very expensive but the consequences of not being cured is very expensive. The consequences of chronic pulmonary toxicity are very expensive and so we are doing a superiority trial and that is the goal, is to cure more patients and have them be able to live out their lives.

Perhaps, Darren, you make a little color commentary on the payers and as we talked to payers and what they say.

Yes. We are preparing for ADCETRIS in the E1 setting. To your point, it is going up against a pretty low-cost alternative but as we talked to payers, one, if you look at ADCETRIS and just the value that it brings in our current indications, we see the same optimism and so do the payers in the E1 just to Jonathan's point. We will be ready to prepare and to show not only the value that ADCETRIS can benefit these patients in the short-term treatment, but over the long haul because you recall these are younger patients being treated.

We'll being well-prepared. We have talked to a lot of payers. We continue to do that and to prepare a lot of the health economics and value that we know will accompany the data, the ECHELON-1 data.

Thanks for all the color.

Tazeen Ahmad, Bank of America.

Good afternoon. Thanks for taking my question. A couple on ECHELON-1. As the year progresses, do you think, Clay, that you'd be in a position to potentially narrow the timeline for when we could expect the top-line data? Right now it is a pretty wide range.

It's a great question, and yes, I think that as we go further, we are expecting to narrow the timelines. I don't want to give you an exact time right now but it is our expectation that we will do that.

Okay. Great. Secondly, just to follow up on the bleo portion of ABVD, at least conversations that we have had with physicians indicate that they feel that the bleomycin might contribute 10% to 15% to the efficacy of that combination therapy. Is that your view as well? If it is, how does that sort of impact your view with how you designed the primary endpoint? As you mentioned, you are looking to show superiority in ECHELON-1.

That is a very good question. There was a study a number of years ago that compared AVD with ABVD. It was not done by Seattle Genetics. It was done by an international consortium. I think it was the difference with our without bleomycin was less than 10% in the study. I think was 6% to 7% different, if I recall. Jonathan may know better.

I think that when you look at our lead-in trial data, you would expect about a 75% CR rate in advanced Hodgkin lymphoma with ABVD. We've got a 96% CR rate and so we saw a profound difference. Keep in mind that ADCETRIS as a single agent is the most active single agent promote with the highest CR rate of any single agent that really has been evaluated in Hodgkin lymphoma.

We would be replacing bleomycin with something that has very strong activity and is approved as a single agent for Hodgkin's lymphoma in the relapsed refractory setting, so we are not just taking out bleomycin and putting anything in. We are putting what arguably is the best single agent for Hodgkin lymphoma on the planet in there instead of a very toxic drug.

Okay. The last question on bleo is, based on your conversations with physicians, how well understood, do you think, or well appreciated is toxicity associated with bleo when given (multiple speakers) patients.

That is a great question. I thought about this a lot because you look at publications out there and publications have not focused a lot on this. There is no clear, exact, precise paper that I can point to that has everything there on bleo and the toxicity and the amount. When you talk to docs, some docs say, well, it does not happen that much; other doctors say they see it much. There are reports of it in the 15% range, 20%, 25%.

I think what our study is going to show because we are exactly looking for it, we are looking and measuring it and comparing the two arms and it is a big study, 1,334 patients. I think we are going to be very clearly demonstrating the pulmonary toxicity associated with bleomycin.

I would not be surprised to see it being even stronger than people have previously thought. We are excited to see that. I think that it will be real.

Okay, great. Thank you.

Seamus Fernandez, Leerink Partners.

This is Rich Goss calling in for Seamus. Thanks for taking my question. A couple on the timeline for 33A. First, do you have a rough estimate on when the CASCADE trial could read out? Are there any interim looks scheduled?

Secondly, assuming you see strong data from the phase 1B study in combo with 7 plus 3 later this year, would you expect to move directly into a registrational trial in that setting?

First question (technical difficulty). What was your second question again, sorry? (Multiple speakers )

So the first one is, the trial, the CASCADE trial we are estimating a 3- to 4-year time frame and the specifics of the trial, interim looks and all sorts of other stuff that are not listed on clintrial.gov are confidential. You can find whatever we will provide any non-confidential specific information. It's a competitive area and we like to keep as much confidential as we can.

As far as the 7 plus 3 data, we look forward to providing the data of 33A plus the standard front line in the younger, fit AML patients later this year. We think that it is possible for ASH. I think that the obvious next step would be a randomized trial because this is a single-arm dose escalation -- single-arm dose escalation trial in the phase 1B setting.

The obvious next one is randomized. Whether that's a phase 2A, phase 2B, phase 3, we have not yet announced but certainly, my expectation is a randomized trial. So far, we have a lot of patients on there. It's a robust trial and we really are excited to be presenting data this year.

Great, thanks. Quickly turning to ADCETRIS, in your experience, how are physicians reacting to the warnings in Opdivo's label regarding subsequent allogeneic transplant? How has this impacted the competitive dynamics of ADCETRIS? Also, how is (inaudible) the design or recruitment of your ADCETRIS/Opdivo combo trial?

Thank you for the question. First of all the label for nivolumab is pretty much what we expected based on all their data. It basically tells physicians to use it after ADCETRIS. ADCETRIS has a very high response rate. It is a great drug. But there are people that slip through and we are thrilled that there is a drug to treat the patients that slip through in fourth line, if you will, because ADCETRIS additional approval was third line in the relapsed refractory setting.

We know, we talk to a lot of physicians and we knew about this issue before the warning because physicians told us. They said, here is what we are seeing. This is an issue going to allo. This is something you do not want to do. They told us about it well before we heard about it elsewhere because we are so connected with physicians that treat Hodgkin lymphoma.

I think that as far as what we are doing in our commercial sales of ADCETRIS I think you intimated a little bit in the question there, you just saw that in the face of an approval of Opdivo we just had a record quarter of sales of ADCETRIS. I think ADCETRIS is doing really well. Docs still -- they generally use it first the way it was prescribed to use it. They're using Opdivo in the way that the label is. I think that is really good.

As far as our combination study, we have an ongoing robust combination study. We have not presented any data yet so I do not want to give you any specifics on used of it, how we would use it. Certainly we are aware of the potential toxicity and looking at that, but I say stay tuned because we look forward to presenting data on ADCETRIS and nivolumab at the soonest possible opportunity.

Okay, great. Thank you.

Jon Eckard, Barclays.

Good afternoon. Thanks for taking the question. The first question is on ECHELON-1. I was just wondering, have you disclosed -- are the stopping rules around ECHELON-1, are they only around progression events? Or are there a fixed number of deaths in the trial that you want in order to have the appropriate amount of statistical powering for the secondary endpoint of overall survival?

Jon, thanks for the question. There is a fixed number of events and the events are progression-free survival and so at that point we can get the fixed number events which are adjudicated by a third party. That is when the official stopping rules are.

Great. The other question was on the average duration for ADCETRIS. I think there was a comment that it was stable during the quarter and I know that there is still some potential room for further AETHERA penetration. I was just wondering, how should we be thinking about duration just in the current approved settings? As time goes by, is there still a potential for that to grind slowly higher if AETHERA kicks in a little bit more? Thank you.

Certainly we have more room to grow with AETHERA. The average number of cycle we're getting in the relapsed refractory setting, as we've said a number of times, is about six. The average number of cycles -- that has been pretty flat. That has been pretty stable now for a couple of years. That has not changed. We have reported it a lot and I think that, that is what they're going to use in the relapse refractory setting.

A lot of it is good. ADCETRIS works very well and a lot of patients, they get a few cycles of ADCETRIS, go into CR and get a transplant. That is a success. While we are not selling a lot of ADCETRIS to those patients, that is exactly what ADCETRIS was intended to do, so having six cycles of being flat is what it is for the relapse factory setting.

Now for the AETHERA setting it is clearly going to be more than six and we just don't have yet a firm handle on it exactly. It is kind of balancing around a little bit. We're watching patients.

Remember, we only got approved within the last year and if patients stay on this for almost a year, that's the entire time we have been selling into consolidation. So we do not have enough information there but -- so I think that when you blend the average duration of in the relapse refractory with an increasing marketplace to consolidation, the average number's going to be a little higher than six because we're going to have the consolidation to blend in with it.

Very good. Thanks so much.

Salveen Richter, Goldman Sachs.

Thanks for taking my questions. You had previously guided to ADCETRIS plus Opdivo data in HL by year end. Is that still on track and is there any chance that we can see data from the NHL study by year end too?

I think that we are still very helpful to present data on HL study by year end. That is something we would really like to do.

As you know ASH abstracts aren't even -- the deadline is not even today. It is in the future and to sit there and say we promise something that is just hard to do until you submit abstracts, until they're reviewed and accepted.

I would say it is our intention to present ADCETRIS plus Opdivo dated this year. Any more than that, I don't know. I am blind to this at this point.

As far as the NHL, as you know, we have two trials going on with Bristol-Myers Squib, our partner in doing these clinical trials and we are running the Hodgkin lymphoma trial and they are running the NHL trial so I would not want to make a comment yet on when that was going to be presented. I would rather them make that comment.

Thanks, Clay. In just in terms of your R&D expense guidance, it looks like based on guidance we would expect an uptick in the second half. Is there a sense of when this uptick might come, based on your trials?

I think you said it right, uptick in the second half of the year. Keep in mind, we have got 33A now. The CASCADE trial is up and running. That's going increase expenses, but in addition to that we have got a number of other trials underway with 33A and the rest of the pipeline continues to advance and expand, so we feel good with our guidance for the year halfway through it.

Thank you.

Boris Peaker, Cowen.

Thank you for taking my question. My first one is on ECHELON-1. Looking clinicaltrials.gov, it lists modified PFS as the primary endpoint. Can you remind us again, what does modified mean in the context of PFS.

This is Jonathan. It is pretty much PFS. In other words, progression or death from any cause. The addition here is that the intention of front-line therapy is to have a pet negative CR, so if you do not have, at the end of the treatment, the six cycles of treatment, if you do not have a pet negative CR and you require additional therapy, even if you have not progressed, even if you have, say, a PR or stable disease, that is an event. It is very similar to PFS, it is just that slight modification. The goal is really pet negative CR.

Got you. My next question is on the nivolumab in Hodgkin's lymphoma. You mentioned that the overall -- the average duration for treatment (inaudible) hasn't changed. Nivolumab has only been on the market for about six weeks, I think, so far in this indication. I was just curious, in patients that end up going onto nivolumab after ADCETRIS, are you seeing a change in duration of treatment?

At this point it is really too early to speculate on that. What we hear from doctors are they still are using ADCETRIS as the label. They use that first.

Then if patients are not responded or they responded and relapsed at a later time point, they consider using nivolumab/Opdivo and so I think that right now it seems like doctors are using the drugs appropriately and yes, Opdivo has only been on the market for three or four months but our sales of ADCETRIS are doing great. Darren, you have a little bit more color?

I think, too, when you look at -- our data stacks up really well against nivolumab, particularly the complete response rate. I think that's number one. Number two, the recent long-term follow-up data that Jonathan alluded to from the Blood article really I think cements the initial treatment intent in these relapsed refractory patients. If they do not respond to ADCETRIS, then is a great option on the back half. I think that is how physicians are viewing the sequencing of these two therapies.

Great. My last question is the CASCADE study design. You have 500 patients, or are targeting 500 patients across two arms. It seems like a relatively large study considering these are elderly patients who generally don't live very long.

I am just curious, what kind of a delta at least are you looking to show here in terms of between the two arms?

I think that the trial of 500 patients is actually appropriately sized. We are doing this at more than 100 sites. I think it is probably more like 120 sites around the world. It is important also to get this done around the globe in a lot of different countries because our intention is to registered this and submit and file in countries around the globe so it is really important not to just do this in a few countries, because we think this is a very active drug and really can help patients. I think that there is a big demand from docs for a drug like 33A, so I think it's going to have a strong uptick of enrollment. I think that, that is not a problem here.

As far as looking at the specifics of what we need, there is no line in the sand that any regulators have really said you must do this. I think one of the things that is important is to know what the control arm does.

There is not a lot of representative trials for the control arm. There is one that uses a very similar patient populations to what we've used and that was a trial that was published using (inaudible) and showing a 7.7 month median survival. That is probably the best of any of the publications.

There was a different publication that showed 10.4 months median but that was an eight arm study and used about 18% of the patients were fit that were in the trial, which really skews the survival there and probably makes it longer. It is hard to know exactly to see is in the other arm but we think we have a great shot at really helping patients and it is readily usable. It is outpatient therapy. It is relatively non-toxic compared to types of therapies these patients were getting so we're pretty excited about it.

Great. Thank you very much for taking my questions.

Yatin Suneja, SunTrust Bank.

Thank you for taking my question. A couple on ADCETRIS. Obviously you guys had a good quarter. Could you maybe give us a little more color on the demand trends? Did you see any inventory buildup? How much was driven by volume?

Yes. Thanks for the question. We did not see any changes in the ordering patterns. There was no stockpilings or anything at ends of quarters and beginning of next quarters. It was really just fill demand. It was demand, vial demand, normal vial demand. We looked for that. We always look to see, are we seeing anything different? But this is pretty straightforward. Normal demand.

Okay. Maybe another question on the competitive dynamics. Obviously there are a lot of trials that are currently ongoing in combination with your drug and PD1, PDL1, including a phase 3 trial with (inaudible). Do you think you think these trials might become competitive in the sense that these trials might take patients away from commercial ADCETRIS at some point?

It is a good question. I think the one that you talk about, the (inaudible), I think that uses commercial ADCETRIS, so I don't think that takes away from anything because they do have an arm with ADCETRIS on it.

But we feel great about ADCETRIS. We just put out long-term data with single-agent ADCETRIS that is really dynamite. It is great data. It was just published in Blood. I would encourage you to take a look at that.

When you look at the PD1 inhibitors that have been put out, ADCETRIS has a substantially higher CR rate. Once the -- with the data that the FDA has adjudicated, ADCETRIS had a 33% or 34% CR rate out of a 70% or close to 75% overall response rate. The Opdivo, which is approved in the relapsed setting, had a CR rate of about 7%.

Our 34% CR rate is substantively higher than the single-digit CR rate that you will see with a PD1 inhibitor. Together with our five-year data and the doctors being very comfortable with it and without any issues of warnings going on to transplant, which you have with PD1s, I think we are in very good shape.

Also, in the relapse refractory market, and also I think that what's really, really in our focus is E-1, for Hodgkin lymphoma patients. Our intention is to after almost four decades of ABVD to in the not too distant future to come out with data that could show an increased cure rate getting rid of pulmonary toxicity and then these third- and fourth-line markets will actually be smaller at that point. That is our intention.

We intend to, with strong data, get more cures in patients, especially these young patients and give these patients a chance to have a life without pulmonary insufficiencies due to lung scarring. Then there should be less patients being treated at the very late stages. That is what we look at.

Thanks for the color, Clay, and congrats on the quarter.

Mara Goldstein, Cantor Fitzgerald.

Thanks very much for taking the question. I had a question on the mycosis fungoides indication in the ALCANZA trial. Around that OR endpoint, can you just speak to whether that is a composite of multiple skin lesions versus internal or they're separate end points and how we should think about that?

Sure. Jonathan, do you want to talk little bit about our primary and secondary endpoints in the ALCANZA trial?

Sure. The primary endpoint is a response lasting for four months or more and that was agreed to by FDA and is under the SPA. There's also some important secondary endpoints to look at which, would include the overall response rate in general and also the PFS. There is a lot of things that we will be looking at in terms of the outcomes for these patients who need systemic therapy for their advanced disease. (Multiple speakers)

I guess given that -- I apologize. Given that -- I guess my question really relates to what is encompassed in the overall response? Is these single individual points or is it some composite of -- for patients who have systemic disease as well as skin disease? (Multiple speakers)

It does follow the global response score which is the consensus recommendation and that is a composite of the skin lesions as assessed by the physician as well as scans to look at visceral and internal invasive disease as well as blood assessment for circulating cells. So it is the composite.

Okay. Thank you. If I could just ask a commercial question on ADCETRIS royalties in Europe, it's not something that we tend to discuss a lot but I am curious if you could talk about the complexion of the royalties and where they are coming from and perhaps where they are skewed to from a territory perspective?

Yes. This is Todd. I can give you a short answer. The short answer is we don't get a lot of clarity there from Takeda. Takeda does periodically in its investor events give some territory breakdown, but that is information that you would need to get from them directly.

Okay. Well, thank you very much.

John Sonnier, William Blair.

Thanks for taking the question. Clay, it seems like there could be a relatively narrow window. We have three major inflation points with E1, E2 and maybe shortly thereafter CASCADE.

The question is how do you prepare the organization for that? I would think minimally it would have a profound change on Darren and Jonathan's organizations, but where do you add headcount? When does that start? How do you -- how are you thinking about that?

John, it is a really, really good question. We have loads of meetings to talk about how all the hows and whats and wheres we are going do to expand what we can do to make sure we manufacturer and QCQA enough material for a bigger demand, to what would be the impact on the commercial sales team and medical affairs and requests and SeaGen Secure, which helps patients that potentially can't afford it. We look at that for E-1 and E-2 and we talk about it and we have really good strategic game plans on this with E-1 and E-2. That is in the USA and Canada.

As far as CASCADE goes, that is a different thing. CASCADE, we own the globe on that, and for E-1 and E-2, we developed this drug. We kept the US and Canada and partnered the rest with Takeda.

And we have spent a lot of time watching what Takeda does, learning from them. They've submitted around the globe. We have helped in answering questions and in the manufacturing and distribution of this and we also learned a lot from Canada. With Health Canada, that's more like an European approval process in each of the provinces and then you've got the approval and then you have reimbursing approval, so it is very similar, more similar to that European than the US. So we had a lot of experience now and we are planning on launching CASCADE globally.

Now, Darren and Todd have led an initiative that we have done over the last year to build up an international expansion so we now have SeaGen International that's based in Switzerland, right outside of Zurich. We have hired a person to head that up who's got about 20 years-plus of industry experience with Bayer and Astellas. His name is Chris Thompson. He is now hiring people.

So we are building this site internationally where we're going to have people in regulatory, commercial, med affairs and other -- clinical and other specialties. We are planning and plotting a lot. This is not simple. I do not want to trivialize the answer, but we are on top of this and I think we are going to kick butt.

Thanks.

Tony Butler, Guggenheim Securities.

Thanks very much. Thank you for squeezing me in. It is really hard to follow up a kick butt, comment but I wanted to go back to CASCADE very briefly and ask, I might think that the way the trial is designed, enrollment would be rather rapid. Could you maybe elucidate when you think total enrollment, or at least a range of time total enrollment might occur?

Second, at 10 microgram per kg, I'm curious if it maybe that dose could not have been pushed higher. For example, maybe the trial could have had two doses, a higher and a lower dose. I am just wondering around that level of 10 being the most optimal that you chose. The thoughts within that decision other than what you saw on the phase 1, why you might not have wanted to push that little higher? Thanks very much.

Tony, on the total enrollment timing for 33A, you have a commitment from me that we will announce when that is totally enrolled. As far as giving you a specific time, it is really hard to do that.

I cannot impress upon you more that I have told the team this is our most important noncommercial product and whatever is needed to get that enrollment, move it along, which includes opening sites around the globe, which is what leads to the enrollment we need to be doing. We are regularly talking about that and it is a major thing that we talk about and put investment into in terms of time and money. I can't give you a specific on that, because it is just not appropriate (technical difficulty) but we're pressing hard on it.

As far as the dose, 10 microgram per kilogram, and Jonathan could chime in with color here, we evaluated a number of dosings and paradigms and we treated a lot of people with this drug first before we decided what to do. We think that from a combination of the safety and efficacy and user friendly nature of it, that this does is an excellent dose.

You can always look at every drug in the world and say is this the right dose? Could you tweak it here and there? But we think this is a really strong dose. Jonathan, do you want to add anything?

Exactly. I think we chose a great dose. We have -- when you are treating these frail elderly patients, and keep in mind on our trials that the median age was 75, so half the patients are over 75 that are going onto this trial. The two really important things to look at is, are you depleting the blasts and getting people into remission. We had over 70% remission rate and many of those were MRD negative, which is something that has never been reported before for unfit AML. We are really excited about the efficacy data.

But the other side of that is, the patients aren't dying early. So many drugs that fail in this setting died because patients get toxic doses. They get infections. The end up doing really badly. We had a 2% 30-day mentality and 8% 60-day mortality. Those are great numbers and we really think we have a great regimen here.

Jonathan, Clay, thank you very much.

We have no further questions at this time. I would like to turn the call back over to our speakers for any additional remarks.

Okay. Thank you, operator. Thanks, everybody, for joining us this afternoon we certainly appreciate all the good questions. Have a good evening.

That does conclude today's presentation. Take you for your participation.