Seagen Inc (SGEN) 2016 Q4 法說會逐字稿

Good day and welcome to the Seattle Genetics fourth quarter and year 2016 financial results conference call. 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.

Thank you, operator, and good afternoon, everyone. I would like to welcome all of you to Seattle Genetics fourth quarter and year 2016 conference call.

With me today are Clay Siegall, President and Chief Executive Officer; Todd Simpson, Chief Financial Officer; Eric Dobmeier, Chief Operating Officer; and Jonathan Drachman, Chief Medical Officer and Executive Vice President, Research and Development. Following our prepared remarks today, we will open the line for questions. If we are unable to get 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 September 30, 2016, for information concerning the risk factors that could cause actual results to differ materially from those contained in any forward-looking statements.

And with that, I will turn the call over to Clay.

Thanks, Peg, and good afternoon, everyone. Thank you for joining us. 2016 was a year of important milestones for Seattle Genetics with our lead commercial product ADCETRIS, as well as across our entire pipeline. We delivered continued sales growth with ADCETRIS and are now positioned for several near-term Phase 3 catalysts that could establish ADCETRIS as a foundation of therapy for CD30 expressing lymphomas.

We also initiated the Phase 3 CASCADE clinical trial of vadastuximab talirine or SGN-CD33A in acute myeloid leukemia, and we reported promising Phase 1 data from enfortumab vedotin or ASG-22ME in urothelial cancer that we believe support advancement of this program into registration trials.

Our SGN-LIV1A program is also emerging with encouraging interim Phase 1 data that may ultimately lead to later stage trials. While ADCETRIS remains a key value driver for Seattle Genetics, we are involved in a global -- we are evolving into a global multi-product oncology company both in hematologic malignancies and in solid tumors.

We reported record product sales in both the fourth quarter and for the year in 2016. ADCETRIS sales for the US and Canada in the fourth quarter were $70.8 million and for the year were $265.8 million.

For 2017, we estimate that ADCETRIS net sales in the US and Canada will be in the range of $280 million to $300 million. Our expectations reflect modest growth of the brand in 2017 as we prepare for potential front-line labels through our ongoing Phase 3 trials. We believe that success of these trials will transform the brand and drive significant future growth.

Globally, ADCETRIS net sales in 2016 were approximately $520 million. Our partner Takeda continues to make strong commercial and regulatory progress in its territory. ADCETRIS is now commercially available in 66 countries worldwide.

At the ASH annual meeting in December, we presented the full data set from our Phase 3 ALCANZA clinical trial in CD30 expressing cutaneous T-cell lymphoma. The trial was highly statistically significant in favor of ADCETRIS across the primary and all secondary endpoints. The safety profile of ADCETRIS was generally consistent with the existing prescribing information.

In November, we received breakthrough therapy designation for ADCETRIS in CD30 expressing mycosis fungoides and primary cutaneous anaplastic large cell lymphoma. These represent the most common subtypes of CTCL.

In addition to the ALCANZA trial data, there are positive data from two investigator-sponsored trials of ADCETRIS in CTCL. These trials included patients with additional subtypes of CTCL and CD30 expression levels below the 10% cut-off used for ALCANZA. Based on discussions with the FDA under our BTD, we plan to incorporate data from these two ISTs, along with data from ALCANZA into our supplemental BLA. Our goal is to support a broader label in CTCL by including these additional data. In light of this opportunity, we now expect to submit the supplemental BLA to the FDA in mid-2017.

Another significant activity for the ADCETRIS program this year is planned data from our ECHELON-1 Phase 3 trial in front-line Hodgkin lymphoma. We continue to expect top-line data from the trial during 2017. Our goal with ECHELON-1 is to improve progression-free survival in newly diagnosed Hodgkin lymphoma patients by establishing an ADCETRIS containing regimen called A+ AVD as the new standard of care, replacing the decades-old regimen known as ABVD.

During the fourth quarter of 2016, we completed enrollment of 452 patients to the ECHELON-2 Phase 3 trial in front-line mature T-cell lymphoma, commonly referred to by clinicians as peripheral T-cell lymphoma. With ECHELON-2, we evaluated a progression-free survival in an ADCETRIS containing regimen called A+ CHP compared to the standard of care CHOP chemotherapy in newly diagnosed patients.

Today, we are narrowing our expected timeline for top-line data from ECHELON-2 to be during 2018.

I will now turn to vadastuximab talirine or SGN-CD33A. We are conducting trials of 33A in AML and myelodysplastic syndrome, both of which broadly express CD33. At the end of December, we announced that the FDA placed a clinical hold of several early-stage trials of 33A in AML. This was initiated to evaluate the potential risk of hepatotoxicity in patients who were treated with 33A and received allogeneic stem cell transplants.

We are continuing to work closely with the FDA on a resolution. AML is a devastating disease with a poor prognosis in most patients. Treatment is complicated because patients are often frail, older, and there are many underlying toxicities associated with standard regimens. We are committed to work towards making a difference in these patients' lives despite these difficulties.

The clinical hold does not apply to our ongoing CASCADE Phase 3 trial. This global randomized trial is comparing 33A plus decitabine or azacitidine to either of these hypomethylating agents alone in older patients with AML. Planned enrollment is 500 patients. Our goal is to improve overall survival in this disease setting where the unmet medical need is significant.

Our Phase 1/2 trial of 33A in myelodysplastic syndrome is also ongoing. In this trial, we are investigating 33A in combination with azacitidine in newly diagnosed patients with high-risk MDS. Approximately 15,000 patients with high-risk MDS are diagnosed annually in the US, and these patients are underserved by current therapies.

ADCETRIS and 33A represent our lead programs in development for hematologic malignancies.

I am also pleased that we are making strong pipeline progress with ADCs for solid tumors. This includes enfortumab vedotin which we are codeveloping with Astellas. This ADC targets Nectin-4 and is in development for metastatic urothelial cancer. In our Phase 1 trial, 22ME had a 59% objective response rate at the recommended Phase 2 dose and was generally well tolerated. We and Astellas intend to discuss with regulatory agencies our plan to advance enfortumab vedotin into registrational trials, including in patients who had previously been treated with a checkpoint inhibitor.

In summary, we made tremendous progress in 2016 and are strongly positioned moving forward. At this point, I will go through the commercial activities. Darren came in this morning, but he is under the weather so you have got me today. In the fourth quarter, ADCETRIS sales were $70.8 million. Net sales increased slightly from the third quarter and were up 12% versus the fourth quarter of 2015. For the year, net sales reached $266 million, an 18% increase over 2015. This robust growth in our fifth year since approval was predominantly driven by increased volume.

Sales in the initial ADCETRIS launch indications continue to be strong, and it is the preferred choice of physicians in relapsed Hodgkin lymphoma and ALCL. Market research indicates that patient shares remain stable, and duration is trending above six cycles.

The commercial team continues to focus on the most recent indications in the consolidation setting following autologous stem cell transplant in patients with Hodgkin lymphoma at high risk of relapse or the AETHERA setting. Based on market research, share in this setting has surpassed 50%, and duration is approximately nine cycles. The team continues to reinforce the AETHERA data with both transplanters and community physicians, ensuring that they appropriately assess patient risk of relapse and identify those most likely to benefit from ADCETRIS.

Looking ahead, 2017 is an important year as we continue preparation for possible new indications based on our Phase 3 trials.

Planning is well underway for a potential label expansion in CTCL. Upon approval, our goal is to rapidly raise awareness within the labeled indication among targeted healthcare providers who are most likely to treat these patients.

In anticipation of ECHELON-1 data, we are preparing for a potential front-line Hodgkin lymphoma indication. We recently initiated a disease state education campaign to increase awareness of treatment outcomes and the need to improve therapy for advanced front-line Hodgkin lymphoma patients, which is the single largest commercial opportunity for the brand.

In closing, the ADCETRIS business continues to grow, and we are excited for the opportunities that potential future indications represent.

Commercial launch readiness will be a significant focus for the team this year, and we look forward to updating you on our progress on future calls.

Now I would like to turn the call over to Todd to discuss our financial results. Then Jonathan will cover key research and development progress.

Thanks, Clay, and thanks, everyone, for joining us on the call this afternoon. In addition to significant progress with ADCETRIS and our pipeline during 2016, we are in a strong financial position to drive our key programs forward in 2017.

During 2016, we generated cash inflows of over $400 million. This came primarily from ADCETRIS sales and royalties, as well as our collaborations. We entered 2017 with a cash position of $619 million. Today, I will highlight our financial results for the fourth quarter and year-end 2016, and then I will provide our financial outlook for 2017.

Total fourth-quarter revenues were $105 million, which included ADCETRIS net sales of $71 million. For the year-end 2016 and consistent with our guidance, revenues increased by 24% to $418 million, including ADCETRIS net sales that increased by 18% to $266 million.

Royalty revenues were $14 million in the fourth quarter and $67 million for the year-end 2016. This primarily relates to international sales of ADCETRIS by Takeda. As a reminder, royalties included a $20 million sales milestone reported in the first quarter of 2016. Excluding this milestone, royalty revenues in 2016 increased by 15%, reflecting ADCETRIS sales growth by Takeda in this territory.

Collaboration revenues were $21 million in the fourth quarter and $85 million for the year-end 2016. These revenues are driven by amounts earned under our ADCETRIS collaboration with Takeda and our ADC deals.

R&D expenses were $108 million in the fourth quarter and $379 million for the year-end 2016, which was within our expectations. The increase in annual expenses over 2015 primarily reflects investment in 33A, ADCETRIS, and our broad pipeline. SG&A expenses were $139 million for the year, also within our expectations.

Regarding our financial guidance for 2017, we anticipate total revenues to increase to a range of $405 million to $445 million. There's three main components to our revenues. First, we expect ADCETRIS net sales in the US and Canada to be in the range of $280 million to $300 million. This represents an increase over 2016 of about 10% and is predominantly volume driven.

Second, we expect 2017 revenues from collaboration and license agreements to be in the range of $75 million to $90 million.

And third, we expect royalty revenues in 2017 to be in the range of $50 million to $55 million, based primarily on sales of ADCETRIS by Takeda in its territory.

We report royalties one quarter after Takeda sells ADCETRIS and expect royalty revenues in 2017 to follow the same general pattern seen in 2016 with higher amounts in the first quarter followed by a reset of the royalty rate reflected in the second quarter and then growth through the remainder of the year. Also bear in mind that first-quarter 2016 royalty revenue included a one-time sales milestone of $20 million.

Turning now to expenses, we expect R&D expenses to be in the range of $460 million to $500 million. The increase from last year reflects investment in ADCETRIS, 33A, and 22ME. For ADCETRIS, this includes several clinical trials, as well as the cost of drug supply sold to Takeda under the collaboration. For 33A, the investment includes the Phase 3 CASCADE trial and other planned activities, and for 22ME, it includes the potential registrational trials and supporting activities.

SG&A expenses are expected to be in the range of $160 million to $170 million. This reflects activities to prepare for potential expansion of the ADCETRIS label, as well as additional headcount in support of our commercial and operational needs. We expect the cost of sales as a percentage of sales will continue to be in the range of 10% to 12% in 2017.

And with that, I will now turn the call over to Jonathan.

Thanks, Todd. As Clay highlighted, we are making strong progress in advancing ADCETRIS, 33A and enfortumab vedotin, while also expanding our clinical pipeline and introducing innovative new technologies.

We had a broad presence at the ASH annual meeting in December. There were more than 25 abstracts on our programs, including seven oral presentations from corporate-sponsored trials. Highlights included the long-term follow-up from our ADCETRIS pivotal Phase 2 monotherapy trial in relapsed and refractory systemic ALCL. Remarkably, the median overall survival still had not been reached, and the estimated five-year survival rate is 60%.

We also presented four-year survival and durability data from our Phase 1 trial of ADCETRIS plus CHP in front-line PTCL. In this trial, the combination showed a four-year PFS of 52% and overall survival rate of 80%, unchanged since the three-year data with no new reported events.

At ASH, we reported the first data from a trial evaluating ADCETRIS plus nivolumab prior to autologous stem cell transplant in patients with Hodgkin lymphoma in first relapse. This trial is being conducted under our clinical collaboration with Bristol-Myers Squibb.

The objective response rate pre-transplant was 90%, including complete remissions in 62% of patients, and the regimen was reasonably well-tolerated. We recently amended this trial to add more patients and further investigate the combination.

In addition to the second-line Hodgkin lymphoma trial, we are working with BMS to evaluate ADCETRIS plus nivolumab in relapsed and refractory non-Hodgkin lymphoma, a trial that was expanded to include two rare subtypes of B-cell lymphoma known to frequently express CD30, and we will also evaluate the combination in front-line older Hodgkin lymphoma patients.

And lastly at ASH, there were four oral presentations on our 33A program, both as monotherapy and in combination with other agents for newly diagnosed AML patients. Our 33A clinical development program includes the ongoing global randomized Phase 3 CASCADE trial in front-line older AML patients. We are also running a Phase 1/2 trial in high risk MDS patients.

Moving on now to enfortumab vedotin, we are preparing for discussions with regulatory agencies on registrational trials based on our promising Phase 1 data for patients with metastatic urothelial cancer. An estimated 80,000 people are diagnosed annually in the United States with urothelial cancer, which includes carcinoma of the bladder, ureter, and renal pelvis. Outcomes are poor for patients diagnosed with locally advanced or metastatic disease. Front-line therapies in this setting generally consist of platinum-based chemotherapy combinations with significant toxicity and limited clinical benefit.

Increasingly, patients are being treated with a number of immuno-onocology agents targeting the PD-1, PD-L1 pathway. However, most patients treated with checkpoint inhibitors fail to respond and are in need of additional therapies. We believe that enfortumab vedotin could potentially play an important role in this setting.

Looking ahead, the development opportunities for enfortumab vedotin may include clinical trials in earlier lines of therapy for patients with metastatic urothelial cancer, including in combination with checkpoint inhibitors. We look forward to working closely with our partner Astellas and regulatory agencies to define next steps for this program.

Shortly after ASH, we presented data on our SGN-LIV1A program at the San Antonio Breast Cancer Symposium. SGN-LIV1A is an ADC utilizing the same technology as ADCETRIS. The target, LIV1, is expressed by the majority of metastatic breast cancers. Our clinical program is focused in particular on patients with triple negative disease where we reported an objective response rate of 37% in patients who had received a median of four prior systemic therapies. We are continuing to enroll patients to further refine and optimize dose and schedule.

In our earlier stage pipeline, we have advanced two new programs into clinical trials recently. First, SGN-CD352A is in a Phase 1 trial for relapsed or refractory multiple myeloma. This is a novel ADC that utilizes our proprietary PBD dimer payload and site-specific conjugation technology.

And second, SGN-2FF, which is in a Phase 1 trial for solid tumors, including non-small cell lung cancer. SGN-2FF is an oral agent that has been shown in preclinical models to inhibit fucosylation of proteins, which is intended to stimulate the immune system and slow the growth and spread of cancer cells.

In 2017, we expect to submit an IND for an additional program, SGN-CD48A for multiple myeloma. Preclinical data were described at ASH on this novel ADC that utilizes our latest technology, including a new, highly stable hydrophilic linker, more drugs per antibody, increased potency, and a favorable therapeutic index in preclinical testing.

Our ADC collaborators are also making progress with programs using our technology. This includes AbbVie with an anti-EGFR ADC for glioblastoma and Genentech Roche with its anti-CD79b ADC, polatuzumab vedotin, for non-Hodgkin lymphoma. And we recently achieved a milestone under our collaboration with Genmab when they initiated a Phase 1/2 trial of HuMax-AXL ADC for solid tumors.

As a reminder, we have an opt-in after Phase 1 for tisotumab vedotin, an ADC being developed by Genmab targeted to tissue factor.

I am proud of all that we have accomplished in 2016 across a growing and robust pipeline. I expect 2017 to be another year of substantial progress with our programs in the clinic and laboratory-based research.

Now I will turn the call back over to Clay.

Thanks, Jonathan. In closing, 2016 was a year of substantial progress for Seattle Genetics. We have grown to more than 900 employees, including key senior hires in clinical development, commercial, and other parts of our organization and made progress establishing our international offices in Switzerland.

We have one approved product, ADCETRIS, with the potential to be a major global brand, three promising ADCs, and a broad pipeline of seven other proprietary programs in the clinic. Our primary focus is on the development of our four lead programs: ADCETRIS and vadastuximab talirine for hematological malignancies and enfortumab vedotin and SGN-LIV1A for solid tumors.

Looking ahead to the remainder of 2017 and 2018, we anticipate a series of important clinical, regulatory, and commercial milestones. For ADCETRIS, these include submitting a supplemental BLA to the FDA for ALCANZA in mid-2017, reporting data from the Phase 3 ECHELON-1 trial in front-line Hodgkin lymphoma in 2017, and reporting data from the Phase 3 ECHELON-2 trial in front-line MTCL in 2018.

For 33A, we are advancing the Phase 3 CASCADE trial in front-line older AML and a Phase 1/2 trial in front-line MDS.

In addition, we are working closely with the FDA to resolve the clinical hold on several earlier stage trials. For enfortumab vedotin, we and our partner, Astellas, will be talking with regulatory agencies about advancing the program into registrational trials in metastatic urothelial cancer. And lastly, with SGN-LIV1A, we will continue dose refinement in our Phase 1 trial for triple-negative metastatic breast cancer towards our goal of moving this ADC into later stage development. We will keep you updated on our progress on these expected milestones, as well as activities across our earlier stage pipeline programs.

At this point, we will open the line for Q&A. Operator, please open the call for questions.

(Operator Instructions) Michael Schmidt, Leerink Partners.

I had a couple. The first question is a commercial one around the ADCETRIS sales figure in the fourth quarter and 2017 guidance. It looks like growth has been a bit slower this quarter, and guidance also reflects a slowing down relative to this year and the prior year. Can you just provide some more color on the underlying market dynamics? What do you see in terms of your market research, and what are the driving assumptions behind the 2017 guidance number? Then I had a follow-up.

Okay. So, thanks for the question, Michael. So, for the fourth quarter, we had record revenues of ADCETRIS. So we think it was actually a really strong quarter. For 2017 sales guidance, these are increased by about 10% above net sales. So keep that in mind.

Second of all, what is really important with ADCETRIS is not the sales we have now. What's really important is going toward the big items of E-1 and E-2, and you can even include ALCANZA in there.

E-1 and E-2 represent very substantial markets, larger than we have ever gotten into with front-line Hodgkin and front-line T-cell lymphoma, and so we see very big potential upside there.

Lastly, our guidance does not include any positive E-1 data. So there's no impact on our guidance on getting E-1 data at any time during the year. So we have chosen not to do that.

Okay. Thanks. And can you break out if you -- to what degree you account for price versus volume in 2017 guidance?

I could comment on that. It's really a volume increase that we think will take up the bulk of our 10%.

Understood. And then the second question relates to SGN-CD33A. I was just wondering if you could provide an update regarding where you are in the process around the investigation of the safety events that were reported in December and maybe provide some more color on the background rate and the setting and also how this compares to the experience that has been made with Mylotarg in the past. Thanks.

So, first of all, we remain excited about the 33A program. Second of all, I just want to make sure we point out that enrollment is ongoing in the Phase 3 CASCADE trial and the Phase 1/2 MDS trials. Third, to address your question, I would say we are continuing to work closely with the FDA on a resolution, and it would be inappropriate to give you any more color on that. So really no comments on regulatory interactions.

Okay. Thank you, Clay.

Cory Kasimov, JPMorgan.

Hey. Good afternoon, guys. Thanks for taking my questions. I guess on 33A, to follow up on the safety thing from another perspective, I am curious how accrual for CASCADE has gone so far relative to your expectations, and has that hold for the earlier stage -- unrelated studies had any sort of impact in terms of demand to get into the trial? And then I have one other question.

The enrollment of 33A has gone as we have expected it. There clearly are a lot of AML patients in need of treatment, and so we have quite a number of sites across the globe for this trial. Nearly all of them are open, and enrollment is going as expected.

What was your second question? I'm sorry.

That was it. And then the second question I wanted to ask you about was, Clay, your comments on the real important thing with ADCETRIS being the future growth of the brand, and I completely recognize that most of the focus right now is on ECHELON-1. But can you talk a little bit more about the market opportunity for that ECHELON-2 patient population, so PTCL?

Sure. For the grouping that will be under MTCL or as doctors refer to it more often as PTCL, so either one can really work, there's about 5,000 or so patients in that sector, and it really depends on data and what you get with data and patients that have CD30 expression on it. But we think it's a very substantial market. A lot of patients have CD30 on it. We have even shown that patients can respond with lower -- almost very small detectable CD30 expression that is histology being a blunt tool. And using more fine-tuned analysis, you can really see CD30 in almost every patient with T-cell lymphoma.

So we think there is substantial upside there, and the study is fully enrolled. We are guiding now to 2018. I would say -- note that we just announced in November that we finished our enrollment of all the patients, and they are treated for up to six months. So we are still treating quite a number of patients, and then it takes time to put all the data together. So that really contributed to giving our guidance to 2018. So we think that is all -- it is what we expected.

Jonathan, would you like to add a little bit to that?

Sure. I think the -- what is interesting is as we have done the follow-up from the Phase 1b trial and I mentioned that there was the four-year follow-up at ASH showing that there was still 52% of the patients who haven't progressed at four years and such a high survival rate in this patient population, which is traditionally -- doesn't do well is quite encouraging, and we're hoping that the results from ECHELON-2 will similarly show a really strong benefit across this population for patients.

Okay. Great. Thanks for taking the questions.

Kennen MacKay, Credit Suisse.

Clay, maybe one for you on CTCL. I think we're actually pretty significantly under the street here in 2017, and maybe some of that was people thinking maybe we would see some sales there in 2017 and, gosh, under -- about $30 million under the street there in 2018. So I was hoping maybe you could discuss some of the commercial plans there, how you really plan to target the patients and the opportunity for the prevalent patients in addition to some of the newcomers that are out there? I'm just wondering maybe we are thinking about something wrong there. Thank you.

So you are right. There is actually a fairly substantial prevalence pool out there. It's -- we don't have a label right now. So it is something that we can't be promoting to at all.

As you know, we are in guidelines, and you only get a limited amount of use when you are in guidelines. So we are pleased with guidelines, but it's limited. We are not promoting this at all in our commercial group.

Also note that we talked about what we are planning to do with CTCL, and we have this ALCANZA data set that really is superb.

And we are very -- we hit the primary endpoint easily, and we hit every secondary endpoint and the p-values were incredibly small. You rarely see a study with as little p-value -- as low p-value as we had. So really good statistical power on everything we did.

So we got breakthrough designation with the FDA, and we've had discussions with them. And there are other trials that have been done and they have been presented. There's a lot of other data using patients that have other subtypes of CTCL and also using different levels of CD30 below detection from histology, whereby finer-tuned technology, you definitely see CD30, but you don't necessarily see it. It's more at the ends of the ability of histology to see it. And the data is really good there. So we have been discussing with the FDA, under our BTD designation, ways to bring in all of the data to have a discussion.

And while I can't promise what we will get, our goal is to get a broad label. And so we are guiding that we would be submitting that midyear. We are working with the FDA on it. It's a very strong discussion that we are having with them, and I think we have a really good opportunity to end up with a bigger market if we can get a bigger label. So I just think that as far as your model and what you have said, perhaps it's just in there too early.

Okay. Thanks, Clay. And maybe just a follow-up. We saw on the Pfizer call obviously that they had submitted their -- resubmitted their BLA for Mylotarg, maybe potentially de-risking some of the concern around CD33 as a target. And it looks like that's actually on top of 7 plus 3 or at least sounds that way from what we saw on the ALPHA trial [0701] that they had mentioned. Just wanted to get your perspective on whether that could be any kind of read in terms of the safety of CD33 as a target.

I think that Mylotarg stands alone. It's a very different drug than 33A. And I don't think you should connect them at this point in any way until we have data that would indicate such. But given that AML is such a life-threatening disease, we totally believe at Seattle Genetics that all new therapies that can offer any positive benefit to risk ratio for patients should be advanced forward and provide hope and opportunity for patients and their physicians.

We believe 33A is an important therapy, and we are working very hard on 33A in different patient populations: older, younger, myelodysplastic syndrome. That's our intention to really cover the gamut with it, and we will see what the FDA does, we'll see what Pfizer does. I can't comment on what they've done, but we are very proud of our 33A program I should say.

Fair enough. Thanks so much, Clay and team. Really appreciate you taking my questions.

Adnan Butt, RBC Capital Markets.

Clay, perhaps I will ask the question more directly. In terms of guidance, would guidance have been higher if the CTCL sBLA had been filed sooner?

Perhaps. The goal here is not -- the goal is always to get label fast. You always want it as fast as possible. But in speaking with the FDA, we had an opportunity here with two pretty large ISTs that had a lot of other data to bring forward. And since there is already some use based on NCCN guidelines, it makes the most sense to go for the broadest label possible. I cannot promise we will get that, but it just makes sense to do that, and that means incorporating data that is not from a corporate study. It is from an IST. And so there are things we have to do to bring the data together and summarize it and chart it and table it in a way that the FDA expects from an investigator-sponsored trial.

So we are very pleased with our discussions under BTD with the FDA. We are very pleased they will consider to look at our entire package, and we are hopeful that we can get a great opportunity here that actually exceeds your expectation. So it is worth a little bit, a short timeframe that it needs to take to put all this together to get a much better label. So that is why you point out to early 2017 a submission which we previously said to a midyear submission is the only -- to me it's not a delay. To me it's taking advantage of an opportunity.

Understood. And if I can get a pipeline question. Maybe Jonathan, for ASG-22ME, when would you be able to provide -- thinking around what a pivotal could look like, and are you considering also combinations of checkpoint inhibitors? And if so, is there any work that has been done with 2020 in combination with the PD-1 or PD-L1?

So let me start that, and then I will turn it over to Jonathan. First of all, we and Astellas, working together, are planning to have discussions with regulatory agencies on potential registration trials. And these can include trials that have already seen -- or patients, I should say, that have already seen checkpoint inhibitors. And note that there is two approvals now that I see and probably more coming. I would say highly likely, but Roche had atezolizumab approved, TECENTRIQ as they call it, with, I think, a 14% or 15% response rate, and Bristol recently got Opdivo approved with, I think, it was 19.6% response rate. So 80% or more of patients treated with checkpoint inhibitors failed to respond. So there's a real need here.

Jonathan, do you want to comment on our history of working with combinations, with checkpoints, and how that can be applied to this?

Sure. Thanks, Clay. So, as you are aware, we have already combined ADCETRIS with nivolumab or Opdivo in clinical trials and have really seen some exciting early results there. And we have also shown pre-clinically that MMAE, which is the payload on 22ME, combines -- the way it kill cells causes immunogenic cell death. And so pre-clinically, MMAE containing ADCs work really well with checkpoint inhibitors. So that is an area where we would be very excited to do some clinical testing. So stand by and we will update you when we can about our plans going forward.

But, overall, I think it would be -- I think it is likely that we will be working with this agent as a single agent and in combination moving forward. I think that's the most likely scenario, but stay tuned, as Jonathan said, to hear from us and Astellas on concrete plans.

Great. Thank you.

Tazeen Ahmad, Bank of America.

The first one, Clay, maybe can you give us a little bit more color on ECHELON. I know you've said that in the front-line setting, you think you'd be able to try to go for a broad label. So does that mean that in addition to enrolling Stage III and Stage IV patients, you were able to include some Stage I and Stage II, or do you think that you wouldn't need to show efficacy in those patients in order to still get a broad label?

And then I have another follow-up question.

Well, you know, a broad label is something that we think is kind of dependent on our data, and the summation of all the data has been evaluated with ADCETRIS in front-line. So, right now, I think that when you look at our trial on its own, we use Stage III and Stage IV patients in the trial. So that is the immediate focus. But certainly, they are -- in other trials, there's been different stages used, and we've seen great data.

And so it is -- I think it is really data dependent here, and Jonathan, perhaps you want to add a little color on to what you think is possible and how they would view this and potentially look at what a label could be.

Yes, thanks. So we wanted to enroll a population with the highest unmet need, and so we really focused on the advanced patient. It also gives us an opportunity to really understand the benefit to risk in patients.

And so I think when those data are available, oncologists will look at this broadly to understand where they think their patients would be most -- which patients might be most likely to benefit.

I think that if this -- if this new therapy results in fewer patients needing additional therapies and fewer patients needing radiation at the end of treatment, that could be a real benefit that people would think about potentially with maybe some of the more high risk Phase 2 or Phase 2b patients.

Okay. Thanks for that color. And then maybe one question about what you had said earlier about R&D expenses moving up this year. Being distributed among ADCETRIS 33A and 22ME, just for modeling purposes, would it be correct to assume that the contribution from ADCETRIS is still the biggest, or should we assume that 33A is going to be taking on more weight?

Thanks for the question. This is Todd. I will try to answer that. Just historically, ADCETRIS has been the primary component of R&D expense. We expect that that will continue. I think last year it was about half of the expenses that we at least report in the Q. And programs like 33A now with the Phase 3 CASCADE trial running will become bigger contributors to expense as will 22ME. So I think ADCETRIS will continue to be the primary driver, but we are seeing programs like 33 and 22ME now starting to contribute more as well.

Okay. Thank you.

Salveen Richter, Goldman Sachs.

So we are getting closer to the ECHELON-1 readout. Can you just remind us how your modified PFS endpoint differs from the regular PFS and then your rationale for using this in the trial?

Sure. There was a presentation at the International Hodgkin Symposia that was in Cologne, Germany by Joe Connors, who is a world expert in lymphoma and with his strong belief that modified PFS is the best readout for Hodgkin lymphoma. It's the best determination of how patients will do. It had nothing to do with ADCETRIS. And so this was an endpoint that we used and was agreed upon with FDA and EMA when we began this study, and we think it is the right endpoint. Joe -- and maybe Jonathan, you can talk about what Joe said and the differences and why this is important?

So they are very similar. So really the only difference is that at the end of your front-line treatment with ABVD or A+ ABD, if you have residual disease that needs additional therapy, that's an event, even if it's not a progression. So, if you finish with reduced disease, maybe it is a PR, but you still had active disease that needed treatment, that would be considered an event. That's really the only difference. And it results in rates that are just a little bit lower than traditional PFS because of the opportunity to salvage patients with additional therapy. But this is really -- the goal of this is to provide definitive therapy and for patients at the end not to require additional therapy to try to complete getting them into a CR.

And that additional therapy could include something like radiation therapy, for instance, which we are really trying to get away from and say, can we treat people, can they get A+ABD and not have to go get radiation as those patients go on to get a very substantive rate of secondary malignancies.

And so to give you a real number, I think Joe Connors reported at the International Hodgkin Symposia just generally between front-line Hodgkin lymphoma patients treated with ABVD, it was, I think, somewhere between 4% and 6% different on a PFS rate when you look at, let's say, a two-year PFS or something like that.

So it's something like that. It's not 10% to 20%. It's 4% to 6% different, but we think it's the right way to really know what you have and to keep patients away from getting substantive additional therapies.

And then in terms of the pipeline, when do you think you will be able to give timelines for CASCADE? Are you waiting until enrollment is complete here? And then why not move forward with the LIV1A program versus expanding the current trial specifically in triple-negative breast cancer?

Jonathan, do you want to take that?

So we'll start with the timeline on the CASCADE trial. I think we have talked about three years for a readout, and I don't think we have more -- any more specificity than that right now. And then the question on LIV1, was that -- that was about -- can you repeat that question?

Yes, why not move forward versus expanding the current trial, especially with regard to triple-negative breast cancer?

Well, we are thinking about all different possibilities for what to do there, and as we presented at San Antonio, we're still in the phases of choosing exactly what the right dose is to take forward, and then we will be able to talk about what our plans are moving that forward aggressively.

Yes, but you can -- I think you can say that we are really interested and excited about our data, and you will be hearing some pretty discrete plans of this, I think, likely this year.

Thanks. And then just one last question. There's been some energy behind the notion of rolling Medicare Part B into Part D, and I'm just wondering if you have any thoughts -- some early thoughts here on the impact to you just given Medicare Part B exposure?

You know, at this point, we don't have a comment on that.

Thanks, Clay.

Chad Messer, Needham & Company.

Wondering if you could just help quantify what the expanded opportunity with a broader ALCANZA label might be? I know I think of CD30 CTCL or at least CD30 positive the way it's historically been measured is about 1,000 patients. What is the potential upside if you can get a broader label?

Well, you know, there is -- the incidence of CTCL is about 2,000 patients a year. And these are US incidents, by the way, not global. You know, a little bit more than 1,000 of them are easily detectable with CD30.

So looking at different levels of CD30 is really important. Sometimes it's heterogeneity even in the sample. So this is actually complicated to determine. Sometimes docs will look at one sample and it'll be negative and then the next sample, positive, because often these patients have dozens of lesions. So -- and there might be a temporal nature to the expression of CD30.

So it's not a very simple way to assess it, but the opportunity could be double if we get a broader label. So it's worth taking the time and effort to put together all the potential data. Not only the corporate data, but the IST data, which really covers a lot of this in our package. And the FDA has -- as I said, has indicated its willingness to look at the whole thing.

Now going back a little bit to something Kennen brought up earlier, the prevalence. The prevalence of CTCL is a little over 20,000 patients in the US alone. So that would -- that really looks and says about 10,000 of them would be -- or a little bit more than that would be CD30 positive, and the prevalence includes a lot of different patients, and it includes patients that have low disease burden and includes patients that have high disease burden. And it's more likely that the ones with higher disease burden would be the ones that would get systemic therapy with something like ADCETRIS. And if you have very low disease burden in these prevalence cases, sometimes they get these non-systemic therapies in the -- with skin lymphoma.

So I think that it's not that we think you get all the prevalence, but I think that having a label really would help getting the prevalence patients or at least some of them and having a broader label would help getting more.

Okay. Understood. And if I may, just one more in a different direction. Your guidance for ADCETRIS next year, 10%, mostly volume driven. Historically, for most of the launch, you have had mid-high percentage price increases, so this implies something substantially below that. Is that correct, and maybe your thoughts on price increases going forward changing as we approach a launch into a larger market?

Sure. Todd?

Thanks for the question. So we did do a 3.9% price increase in January, and sort of to put that into context with the increase that we are projecting with our guidance this year, just keep in mind that about 45% to 50% of our business is subject to government-mandated discounts. So when we take a 4% price increase, that doesn't go through to the whole business, it only goes to part of it. So we did have a small price increase in January, but most of our growth for 2017 is going to be based on our goal to drive file usage higher.

Okay. Thanks for taking my questions.

Geoff Meacham, Barclays.

Hey, guys. Jason Zemansky on for Geoff. Thanks so much for taking our question. Real quickly, I just wanted to explore operating expenses, specifically SG&A. I noticed it's up about 15%, but if you could give us an idea of how that is evolving this year and into next year, 2018, given the rollouts of all the different presumable ADCETRIS indications? Thanks.

Yes, so, it's I would call it a modest increase over last year. Keep in mind, the organization is now over 900 people. We are a fairly good sized organization. We have a lot going on in order to support that.

So the growth is -- or the growth in expenses is primarily attributable to just growth in the size of the Company, but we've also got some projected increases in the commercial side of the organization. You know, we want to be prepared for a potential label in CTCL with the ALCANZA submission midyear, and we were already thinking proactively about making us ready for a label for E-1 and ultimately E-2.

So it's a little bit of growth. It is focused on our commercial infrastructure being ready for label expansions and then just general increasing corporate requirements.

Perfect. Thanks. And then just to switch gears a little bit, with regards to the CASCADE 33A trial, I know you mentioned that enrollment is still continuing as planned, but is there a sense from any of the regulatory agencies that they are going to take a longer look given the clinical hold, or is there no read-through there?

You know, we do not see a read-through there. This clinical hold was really related to a early-stage trial that we were doing that was pre-transplant where you use 33A on top of conditioning regimen which has been published that you see hepatotoxicity and VOD. So that is what this was -- were related to.

In the CASCADE enrollment, the expectation is we will have a de minimis number of patients go onto transplant, a very low number. And it's expected that because these are patients that don't qualify for intensive therapy and as a result wouldn't qualify for transplant. So it is really a complete separate issue there.

Perfect. Thank you so much. That's very helpful.

Yatin Suneja, SunTrust.

Just a couple questions on ADCETRIS. Starting with the AETHERA setting, you are already at 50% of penetration there. Duration about nine cycle as you mentioned. What sort of peak share do you expect there, and how do you expect that duration to trend? And I do have a couple more.

So the duration I would say, it's hard to know exactly, but I wouldn't say it's going to go much higher or much lower. I think we are probably at a steady-state. We will keep following it.

As far as the market penetration goes, we are at a strong market penetration. I think it's possible that we could go a little higher than that, but there are some docs that just feel very confident about using ADCETRIS on the original label or even in retreatment. And so it's really dependent on when you do a transplant. It's getting docs to put the patients on ADCETRIS really fast after the transplant.

And so if a transplanter doesn't put the patient right onto ADCETRIS, they go back at a later timepoint. So, in a sense, it's almost get ADCETRIS now or potentially get it later. So I think we can go a little bit higher than that, but I do not think that we will get up to the kind of market penetration we did when we first launched where we had 80% to 90% market penetration. But I think there's a little bit of room there.

Got it. And then on ADCETRIS, I think, if I remember correctly, last year in Q1, you saw some weakness. Is there anything to worry about this quarter, specifically Q1 of 2017? And any changes in gross to net that you are seeing, or how should we think about gross to net in 2017?

I'll take the first part, then ask Todd to comment on the gross to net. You saw something that is kind of interesting, and I have talked to my clinical team -- commercial team, excuse me, about this. What we have seen year over year over year is the first quarter is little softer and then it picks up and picks up and picks up through the year. And I don't know what that is, and I don't know if the holidays -- there is less people that, let's say, are arranging transplant right before the holidays, and maybe they are doing that through January into February and starting later or whatever. We don't know the exact reason for it, but we have seen this now for a couple of years in the first quarter.

Now we haven't obviously -- I don't know first quarter of this year, but that is something we've seen historically. So you are correct with that if you're looking back historically.

Todd, do you want to comment on gross --?

Yes, so our gross to nets last year were in the 23% range. We expect that to go up a few percentage points this year to the mid-20% range.

And then the final question, let's say, E-1 is positive, how quickly you might be able to find -- we understand ALCANZA you need to incorporate these two trials, so it took a little longer. What about E-1 if that is positive? Thank you.

Yes, so we are really ready to get the data. We are ready and positioned. We have our teams ready. Between us and Takeda, we are -- we are really looking to get this going as soon as we get the data. So we're going to try to do it really fast. And I think that depending on how the data looked and if the data are really strong, our lead-in data from our trials is spectacular. That is from a smaller section of patients. And so if our data are anything close to our lead-in trial, I think there's a good chance the FDA could work on this in a pretty rapid clip and work with us on it and make it into something where we could change the life history of Hodgkin lymphoma patients in the shortest time period that we can get there. So you bet we're going to be right on top of this.

Great. thanks guys.

Tony Butler, Guggenheim Securities.

Just one question per the last comments on the lead-in data. Aside from the lead in data and I recognize that E-1 is shortly to unveil, do you actually need OS in order to really drive home the notion that this is the new standard of care, or what do you really need to see maybe even minimally to believe that from only a PFS perspective, it is the new standard of care? If you could comment, I would appreciate it. Thanks very much.

Our primary endpoint as agreed to by the FDA and the EMA is PFS. That is the primary endpoint, and so it is not OS. So I do not believe based on all our interactions with them that an OS endpoint is what they are going to be looking for here. These are patients that that would be a different study and a different power and different timing for that. So it is PFS.

Boris Peaker, Cowen and Company.

Many of my questions have been asked already, but just another on 33A. You mentioned that the hepatotoxicity may be due with the transplant per treatment regimen. Is there any mechanism, at least, that you know of hepatotoxicity that may be from the actual SGN-CD33A itself?

We have not reported this in our findings yet. We did say that the FDA wanted us to do an evaluation of hepatotoxicity. It was over all the patients that we've treated with our product. We have treated now over 350 patients. I think the number is a lot higher than that actually, and we have presented data on numerous occasions here, and we have presented the top findings. Hepatotoxicity was not in the top toxicities, and we presented all our data over and over at different conferences, including recently at ASH.

So we are doing -- right now, we are doing an extensive analysis, but keep in mind at ASH, we did not present any data on the pre-transplant in patients with active disease. So that's a separate, small trial that's very early stage, exploratory trial that we've been working on, that really is the center of what the hold was about.

Great. Got you. And my second question, in terms of the mycosis fungoides and the primary cutaneous ALCL, how long of a duration of treatment do you anticipate on these patients?

That's a good question. I would say that the -- I would anticipate somewhere between four and six months in the real world. I think that in clinical trials we will have a lot of patients on it for six months, but in the real world, it will be a little smaller. It will be a range. Some will take it more, some will take a little less, and then there will be the occasional patients who take it long, long time.

So it's going to be a little bit of a mixed bag, but I would say the mean will probably be treated four and six months, which is maybe five to six cycles, something like that.

Got you.

Every cycle is once every three weeks.

Got you. Great. Thank you very much for taking my questions.

That does conclude today's question-and-answer session. At this time, I will turn the call back to management for any concluding remarks.

Okay. Thank you, operator, and thanks, everybody, for joining us this afternoon. Have a great evening.

This does conclude today's conference. Thank you for your participation. You may now disconnect.