Seagen Inc.
Q2 2016 Earnings Call Transcript

Published: 27 Jul 2016

[Operator:]

Please standby. Good day, and welcome to the Seattle Genetics' Second Quarter 2016 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Peggy Pinkston, Executive Director, Investor Relations. Please go ahead, ma'am.

[Peggy Pinkston:]

Thank you, operator, and good afternoon, everyone. I'd like to welcome all of 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're 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.

[Clay B. Siegall:]

Thanks, Peg, and good afternoon, everyone. Thank you for joining us. I'm pleased by the progress we've 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 trial, where our goal is to improve overall survival in older AML patients. We've reported promising antitumor activity from several other ADCs and solid tumors including most recently, ASG-15ME and the ASG-22ME for urothelial cancer as well as SGN-LIV1A for breast cancer. And we advanced our pipeline and positioned several novel programs for upcoming clinical trials. Today, we'll 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 U.S. 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 EU 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

[Darren S. Cline:]

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 preferred to use ADCETRIS prior to nivolumab. Duration of the 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 uptick 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 obtain label expansion, we would expect modest sales growth from this new indication. The future growth opportunities of ADCETRIS will be largely driven by the data from the frontline 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.

[Todd E. Simpson:]

Great. Thanks, Darren, and thanks to everyone for joining us on the call this afternoon. In addition to significant pipeline progress, we had a very strong quarter financially with record ADCETRIS sales. Total revenues in the second quarter were $95 million, up 24% from the second quarter 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 2015. These revenues were driven by amounts earned under our ADCETRIS collaboration with Takeda and 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 labeled indications. We ended the second quarter with more than $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. And with that, I'll now turn the call over to Jonathan.

[Jonathan Drachman:]

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 in autologous stem cell transplant. For all 102 enrolled 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 9 who received no further therapy after ADCETRIS. These data reinforce why ADCETRIS has become the standard-of-care for relapse 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-day and 60-day mortality rates were 2% and 8% respectively. The median overall survival data from the trial are 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 months to 10 months. In addition to the Phase 3 CASCADE trial, we are evaluating 33A in other myeloid malignancies in which CD33 is broadly expressed. This includes ongoing trials in frontline, younger AML patients in combination with the 7+3 regimen, a 33A monotherapy trial in pre-allogeneic and post-allogeneic 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 program 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 and frontline 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 recently advanced SGN-CD19B and ADC using our PBD-based technology into a Phase 1 trial for relapsed DLBCL. In solid tumors, our lead clinical-stage ADC programs include

[Clay B. Siegall:]

Thanks, Jonathan. Before we open the line for questions, I'd like to recap a few of the key upcoming activities across ADCETRIS and our pipeline. For ADCETRIS, these include

[Operator:]

Thank you. We'll go first to Kennen Mackay with Credit Suisse. Kennen Mackay - Credit Suisse Securities (USA) LLC (Broker) Hi. Thanks so much for taking my question. Maybe one for Darren quickly. You'd mentioned uptick of ADCETRIS in the consolidation setting in Hodgkin's. Was wondering if you would talk a little bit about – maybe why some physicians aren't yet using ADCETRIS there. And I guess from the sales force, what you're hearing the holdup could be and also maybe what you're doing to maybe get past that there. Thank you.

[Darren S. Cline:]

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

[Clay B. Siegall:]

And perhaps, Kennen – this is Clay, perhaps I could 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've been averaging about six cycles rather than eight in the trials and that was in relapsed/refractory. Now in the AETHERA setting, consolidation setting, our clinical trial averaged about 12 cycles and it's too early yet for us to get real good numbers on this. But it's certainly longer than what we're seeing in the relapsed/refractory state. But we just don't have numbers yet to provide specifics. Kennen Mackay - Credit Suisse Securities (USA) LLC (Broker) Got you. Thanks, Clay. Appreciate that color. And Clay, maybe just one more for you, I was wondering if there were 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's presented at the Hodgkin's Symposium.

[Clay B. Siegall:]

Yeah. Well, thanks for noticing that. We're really proud of the impact we've had on patients. And as far as specific submissions and regulatory work that we're doing with (24

[Clay B. Siegall:]

Yes. 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 Darren earlier is the consolidation label. And as you can see from this quarter, sales have been very strong, topped (24

[Operator:]

We'll take the next question from Adnan Butt with RBC Capital Markets.

[Adnan Shaukat Butt:]

Thanks, folks, and nice progress on multiple fronts. I wanted to ask a question on 33A. The EHA data showed an OS of, I guess, 12 months to 13 months. Do you expect that data to be updated at ASH this year and then would you expect it to increase? That's the first question.

[Clay B. Siegall:]

Yeah. So, 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're looking at. It's going to take opening more than 100 sites on an international basis to get there. Now you're 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 weren't 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 you want to add any color to that?

[Jonathan Drachman:]

I think that Clay summarized that well, Adnan. The data were presented at the European Hematology Association. When you look at the overall population, it is immature, the total 53 patients and that – that will evolve over time. The 25 patients that were enrolled initially – those data, they've been enrolled for more than a year. And 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'll have additional data on that as well. And those patients hopefully will be alive a long time than ones who are still on the trial.

[Adnan Shaukat Butt:]

Okay. And if I can ask on ASG-15 or ASG-22, at what stage would you be able to decide how to advance? Is it the next stage of Phase 2, Phase 2/3 and do you go after PD-L1 that's approved or in combination, any thoughts there?

[Clay B. Siegall:]

Adnan, thanks for the question. So, just to remind everyone, we have two products that we're developing with our partner Astellas, that's under our 50-50 collaborations, ASG-22ME and ASG-15ME, they bind to separate targets. And they're 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. So, at the higher doses, as we've done at dose escalation, at doses that are likely doses for future later-stage trials that we have not yet announced, the response rates were between 40% and 50% from what we showed at a recent conference. And this compares very favorably to drug, other drugs in the area, it's a much higher response rate than you see with the taxanes or the recently approved drug at the anti PD-L1 atezolizumab, which was approved with a overall response rate of something around 15%. Now our data was in heavily pretreated patients. So we really value our data and we're continuing to enroll patients to make sure that we're picking the absolutely appropriate dose, but we're getting close to that. We plan on presenting more data as ESMO in October. And we – to your question of what exactly we're going to do, Phase 2, Phase 3, after atezolizumab, with atezolizumab or other PD-1s, those are all excellent questions and we are actively working with Astellas, our partner, on the next steps. And what I could tell you, Adnan, is you are asking the right questions. And so you're right on base. I just can't tell you yet; it's not only Seattle Genetics who were the partner.

[Adnan Shaukat Butt:]

Okay. Thank you.

[Clay B. Siegall:]

Jonathan, would you – well, perhaps Jonathan, any more color you'd like to add.

[Jonathan Drachman:]

Yeah, I think that 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. And now there appear to be some really promising options and that's led to a lot more interest in developing drugs for these patients. So 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. And so we do need drugs that are able to be used after checkpoint inhibitors as well as potentially in combination where you could get higher percentage of durable responses. There was a little bit of data on – 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.

[Adnan Shaukat Butt:]

Excellent. Thanks.

[Operator:]

We'll take the next question from Chad Messer with RBC Capital Markets – I'm sorry with Needham & Company.

[Chad Messer:]

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's about 1,000 patients relevant to that label; maybe some number of them already are being treated. How much is the overlap in terms of the call points with doctors, with the existing ADCETRIS sales force, are there any additional folks you need as you look at ALCANZA? And then just the second question on duration of treatment, I think it's – if I'm 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's approved, how long we should think about them getting treated or do you have any data points that would suggest anything different? Thanks.

[Clay B. Siegall:]

Yeah. Chad, thanks. Look, we're really looking forward to releasing ALCANZA data as soon as we can. And what we've guided is the unblinding of the data to be this quarter. So, the answer is soon. And you are right, we have been pointing to that the incidence of CD30-positive CTCL is about a thousand patients in the U.S. I may point out also that the prevalence of CD30-positive CTCL is over 10,000 patients, although some of those patients, or all of them have lower disease burden and they could be treated with non-systemic therapies, but certainly a decent amount of the prevalence need systemic therapy. So we think that there is a market here and that's important. Now it's certainly not as big of a market as we see with E-1 or E-2 and we are in guidelines because we already had two Phase 2 studies that were done as investigator-sponsored trials that put out very strong data and those data were brought into guidelines and the group of physicians that represents putting new information and 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're 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. And Darren, maybe you could talk a little about the overlap and the duration or whatever we know.

[Darren S. Cline:]

Yeah. So we're – our aspiration to make ADCETRIS the foundation of care for CD30-expressing lymphomas, we're excited about the opportunity with the ALCANZA data set and to be able to actually promote to that label. Regarding the field force, we'll evaluate, particularly as we look ALCANZA E-1, E-2, on what the right size is to maximize the opportunity with reads and frequency of the targeted physician list, of which we have a good idea of what that'll be. Regarding duration, we will focus, as we always do, with ensuring that we're promoting to the label and to the fact that if physicians want to get the outcome in the clinical trial in real life in patients to follow what that data set and protocol are and duration will be a key driver of that. So we'll be focused on both the – dissemination the clinical data, but the protocol as well as the duration, but we'll be poised to execute upon an approval.

[Chad Messer:]

Great. Great. Thanks. Looking forward to that data soon.

[Operator:]

We'll take the next question from Cory Kasimov with JPMorgan.

[Whitney G. Ijem:]

Hey, guys. This is Whitney on for Cory. Just a question on ECHELON-1 and I guess given that the ABVD comparator is very inexpensive, I guess what scenario analysis have you done around the efficacy outcome there and kind of 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?

[Clay B. Siegall:]

Whitney, thanks for the question. As we look at E-1, we've done a lot of market assessment and talking to doctors about this. This is a long-term many-year trial. So we've had lot of time to interact with doctors. And we also interact with doctors regularly because we are selling ADCETRIS in the relapsed/refractory in our consolidation settings. So, we have a lot of interaction with docs. And I think doctors are excited about this. I mean obviously it depends on the data that we see. And that's important here. But doctors really don't like using bleomycin, that's first and foremost. And 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, I mean, we – that is a big game. But in addition to that, we think it's really also important to gain on efficacy. And if you look at our lead-in trial, 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 care here. Jonathan, do you want to add anything to what we're thinking on for E1?

[Jonathan Drachman:]

Yeah, I guess, when an oncologist is seeing a patient with new onset advanced Hodgkin lymphoma, their immediate thought is, can I cure this patient? And so that they have the rest of their life ahead of them, most of these people are young, they are in their 20s and 30s generally. And so that's 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 costs is yeah, ABVD is it 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's the goal, it's to cure more patients and have them be able to live out their lives.

[Clay B. Siegall:]

Yeah. And perhaps Darren, you make a little color commentary, just the payers and as we talk to payers and what they say.

[Darren S. Cline:]

Yeah. So, we're preparing for ADCETRIS in the E-1 setting. And to your point, it is going up against a pretty low cost alternative. But as we talk 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 E-1, just to Jonathan's point. And we'll 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. So, we'll be well prepared. We've talked to a lot of payers; we continue to do that and prepare a lot of the health economics and value that we know will accompany the data, the ECHELON-1 data.

[Whitney G. Ijem:]

Great. Thanks for all the color.

[Operator:]

And we'll take our next question from Tazeen Ahmad with Bank of America.

[Tazeen Ahmad:]

Hi, 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's a pretty wide range?

[Clay B. Siegall:]

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

[Tazeen Ahmad:]

Okay, great. And then secondly, just to follow up on the bleomycin portion of ABVD. At least conversations that we've had with physicians indicate that they feel that the bleomycin might contribute, say, 10% to 15% to the efficacy of that combination therapy. Is that your view as well and if it is, how does that sort of impact your view about how you designed the primary endpoint, as you mentioned, you are looking to show superiority in ECHELON-1?

[Clay B. Siegall:]

Yeah. That's a – it's a very good question. There was a study a number of years ago that compared AVD with ABVD and it was not done by Seattle Genetics, it was done by an international consortium. And I think it was the difference with or without bleomycin was less than 10% in the study, I think it was 6% or 7% different. If I recall, Jonathan may know better. But 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 got 96% CR rate. And so we saw a profound difference. And keep in mind that ADCETRIS, as a single-agent, is the most active-single agent provider – with the most highest CR rate of any single-agent that really has been evaluated in Hodgkin lymphoma. So, we're – we'd be replacing bleomycin with something that is – has very strong activity and is approved as a single-agent for Hodgkin lymphoma in the relapsed/refractory setting. So we're not just taking out bleomycin and putting anything in. We're putting what arguably is the best single-agent for Hodgkin lymphoma on the planet in there instead of a very toxic drug.

[Tazeen Ahmad:]

Okay. And then the last question on bleomycin is just based on your conversations with physicians, how well understood do you think or well appreciated is the toxicity associated with bleomycin when (42

[Clay B. Siegall:]

That is a great question. And I thought about this a lot because you look at publications out there and publications haven't focused a lot on this. There's no like clear exact precise paper that I can point to that has everything there on bleomycin and toxicity and the amount. When you talk to docs, some docs say, well, it doesn't happen that much, other doctors say they see it much. There's reports of it in the 15% range, 20%, 25%. I think that what our study is going to show because we're exactly looking for it. We are looking and measuring it and comparing the two arms and it's a big study, 1,334 patients. I think we're going to be very clearly demonstrating the pulmonary toxicity associated with bleomycin and I would not be surprised to see it being even stronger than people have previously thought. So we're excited to see that. I think that it will be – it will be real.

[Tazeen Ahmad:]

Okay. Great. Thank you.

[Operator:]

We'll move to our next question. It comes from Seamus Fernandez with Leerink Partners.

[Richard G. Goss:]

Hi. This is Rich Goss calling in for Seamus, thanks for taking my questions. A couple on the timeline for 33A. First, you have a rough estimate on when the CASCADE trial could read out and are there any interim looks scheduled? And secondly, assuming you see strong data from the Phase 1b study in combo with 7+3 later this year, would you expect to move directly into a registrational trial in that setting?

[Clay B. Siegall:]

So the first question was 33. What was the second question again, sorry?

[Richard G. Goss:]

Just assuming you see strong...

[Clay B. Siegall:]

7+3. Okay.

[Richard G. Goss:]

Yeah.

[Clay B. Siegall:]

Got it. Okay. So the first one is, the trial – the CASCADE trial, we're estimating a three-year to four-year timeframe and the specifics of the trial, interim looks and all sorts of other stuff that are not listed on clinicaltrials.gov are confidential. So you could file 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+3 data, we look forward to providing the data of 33A, plus the standard frontline in the younger, fit AML patients later this year. We think that it is possible for ASH. And I think that the obvious next step would be a randomized trial – and because this is a single-arm dose escalation – single-arm dose escalation trial in the Phase 1b setting. So the obvious dex-1 (45

[Richard G. Goss:]

Okay. Great. Thanks. And then just quickly turning to ADCETRIS. In your experience, how are physicians reacting to the warnings in Opdivo's label regarding the subsequent allogeneic transplant and how has this impacted the competitive dynamic with ADCETRIS? And also how is – has this affected at all the design or recruitment of your ADCETRIS/Opdivo combo trial?

[Clay B. Siegall:]

Thank you for the question. First of all, the label for nivolumab is pretty much what we expected based on all the data. It's – it basically tells physicians to use it after ADCETRIS. ADCETRIS has a very high response rate. It's a great drug. But there are people that slip through and we're thrilled that there is a drug to treat the patient that slips through in fourth line, if you will, because ADCETRIS additional approval with third line in the refractory – 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. I mean, they said here's what we're seeing. This is an issue going to allo. This is something you don't want to do and they were – they told us about it well before we heard about it elsewhere because we're so connected with physicians that treat Hodgkin lymphoma. And so I think that as far as what we're doing in our commercial sales of ADCETRIS, I think you intimidated a little bit of the question there. I mean you just saw that in the face of an approval of Opdivo, we just had a record quarter of sales of ADCETRIS. So 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, so I think that's really good. As far as our combination study, we have an ongoing robust combination study, we have not presented any data yet, so I don't want to give you any specifics on use of it, how we would use it. Certainly we're 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.

[Richard G. Goss:]

Okay. Great. Thank you.

[Operator:]

We'll move next to Jon Eckard with Barclays.

[Jonathan M. Eckard:]

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 is 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?

[Clay B. Siegall:]

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

[Jonathan M. Eckard:]

Okay. Great. And then 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's still some potential room for further AETHERA penetration. So I was just wondering how should we be thinking about duration just in the current approach settings, as time goes by, is there still potential for that to (49

[Clay B. Siegall:]

Certainly, we have more room to grow with AETHERA. The average number of cycles we're getting in the relapsed/refractory setting, as we've said on a number of times, is about six. The average number of cycles – so that's been pretty flat; that's been pretty stable now for a couple years. That hasn't changed; we've reported it a lot. And I think that that's what they're going to use in the relapsed/refractory setting. And a lot of it's really good. I mean, ADCETRIS works very well and a lot of patients still get a few cycles of ADCETRIS going to CR and get a transplant, I mean, that's a success. So while we're not selling a lot of ADCETRIS to those patients, that's exactly what ADCETRIS was intended to do. So having six cycles of being flat is what it is for the relapsed/refractory setting. Now for the AETHERA setting, it's clearly going to be more than six. And we just don't have yet a firm handle on exactly – it's kind of bouncing around a little bit and we are watching patients. And 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've been telling that it's a consolidation, so we just don't have enough information there. But so, I think that when you blend the average duration of – in the relapsed/refractory with an increasing marketplace to consolidation, the average number is going to be a little higher than six because we're going to have the consolidation to blend in with it.

[Jonathan M. Eckard:]

Very good. Thanks so much.

[Operator:]

We'll take the next question from Salveen Richter with Goldman Sachs.

[Salveen Richter:]

Thanks for taking my questions. So 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 could see data from the NHL study by year end too?

[Clay B. Siegall:]

I think that we are still very hopeful to present data on HL study by year end; that is something we really like to do. As you know, ASH abstracts aren't even – the deadline is not even today, it's 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. So, I would say it's our intention to present ADCETRIS plus Opdivo data this year. Any more than that, I don't know, I'm blind to it at this point. And as far as the NHL, as you know, we have two trials going on with Bristol-Myers Squibb, our partner in doing these clinical trials. And we are running the Hodgkin lymphoma trial and they are running the NHL trial. So, I wouldn't want to make a comment yet on when that was going to be presented, I'd rather dare make that comment.

[Salveen Richter:]

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

[Todd E. Simpson:]

I think you said it right, uptick in the second half of the year. Keep in mind we've got 33A, now the CASCADE trial is up and running and that's going to increase expenses. But in addition to that, we've 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.

[Salveen Richter:]

Thank you.

[Operator:]

We'll take the next question from Boris Peaker with Cowen.

[Boris Peaker:]

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

[Jonathan Drachman:]

Sure. Hi, this is Jonathan, Boris. So, it's pretty much PFS, in other words progression or death from any cause. The addition here is that the intention of frontline therapy is to have a PET-negative CR. So if you don't have, at the end of the treatment, the six cycles of treatment, if you don't have a PET-negative CR and you require additional therapy, even if you haven't progressed, even if you have, say, a PR or stable disease, that's an event. So, it's very similar to PFS and it's just that slight modification, that the goal is really PET-negative CR.

[Boris Peaker:]

Got you. My next question is just on the nivolumab in Hodgkin's lymphoma, you mentioned that the overall, the average duration of treatment for ADCETRIS hasn't changed and nivolumab has only been in the market for about six weeks or so I think so far but – in this indication. But I'm just curious in patients that end up going on to nivolumab after ADCETRIS, are you seeing a change in duration of treatment?

[Clay B. Siegall:]

At this point, it's 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 aren't responding or they responded and then relapse 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 yeah, Opdivo has only been on the market for three months to fourth months, but our sales of ADCETRIS are doing great. And Darren, you have a little more color...?

[Darren S. Cline:]

Yeah. And I think too, when you just look at – our data stacks up really well against nivolumab, particularly the complete response rate, I think that's number one. And 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. And if they do – did not respond to ADCETRIS, then there's a great option on the back half. But – so I think that's how physicians are viewing the sequencing of these two therapies.

[Boris Peaker:]

Great. My last question is just on the CASCADE study design. So you have 500 patients or targeting 500 patients across two arms, seems like a relatively large study and considering these are elderly patients that generally don't live very long. So I'm just curious, I mean what kind of a delta at least are you looking to show here in terms of between the two arms?

[Clay B. Siegall:]

We are – I think that the trial of 500 patients is actually appropriately sized. We're doing this at more than 100 sites; in fact I think it's probably more than 120 sites around the world. It's important also to get this done around the globe in a lot of different countries because our intention is to register this and submit and file in countries around the globe. So it is really important not to just do this in a few countries as we think this a very active drug and really could help patients. And I think that there is a big demand from docs for a drug like 33A. So I think that it's going to have a strong uptick of enrollment. So I think that that's not a problem here. As far as looking at the specifics of what we need, that's – there's no line in the sand that any regulators have really that you must do this. I think one of the things that's important is to know what the control arm does. And there's not a lot of representative trials for the control arm. We have one – there is one that used a very similar patient population to what we've used and that was a trial that was published using decitabine and showing a 7.7-month median survival. That's probably the best of any of the publications. There was a different publication that showed 10.4-month 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, so – and probably makes it longer. So it's hard to know exactly, but to see what's in the other arm, but we think we have a great shot at really helping patients. And it's readily usable, it's outpatient therapy, it's relatively non-toxic compared to types of therapies these patients were getting. So we're pretty excited about it.

[Boris Peaker:]

Great. Thank you very much for taking my questions.

[Operator:]

And we will take the next question from Yatin Suneja with SunTrust Bank.

[Yatin Suneja:]

Hi guys. Thank you for taking my question. A couple on ADCETRIS. I mean, 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?

[Clay B. Siegall:]

Yeah. 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 demand – it was demand, vial demand, normal vial demand; we look for that. We always look to see are we seeing anything different, but this is a pretty straightforward normal demand.

[Yatin Suneja:]

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 PD-1, PD-L1 including a Phase 3 trial with pembrolizumab. Do you think these trials might become competitive in the sense that these trials might take patients away from commercial ADCETRIS at some point?

[Clay B. Siegall:]

Well, you know, it's a good question. I think the one that you talk about the pembrolizumab, 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 it's really dynamite. I mean, it is great data; it just was published in Blood, I would encourage you to take a look at that. When you look at the PD-1 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 and about 70% or close to 75% overall response rate. The Opdivo, which is approved in a relapse setting had a CR rate of about 7%. So, our 34% CR rate is substantially higher than the single-digit CR rate that you'll see with the PD-1 inhibitor. And so 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 PD-1s, I think we are in very good shape and also in the relapsed/refractory market. And also, I think that what's really, really in our focus is E-1 for Hodgkin lymphoma patients. And our intention is to, after almost four decades of ABVD to, in the not too distant future, come out with data that could show an increased cure rate, getting rid of pulmonary toxicity. And then these third-line and fourth-line markets will actually be smaller at that point, that's 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. And then there should be less patients being treated at the very late stages. So that's what we look at.

[Yatin Suneja:]

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

[Operator:]

And we'll take the next question from Mara Goldstein with Cantor Fitzgerald.

[Mara Goldstein:]

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

[Clay B. Siegall:]

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

[Jonathan Drachman:]

Sure. So, 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. So, there's a lot of things that we'll be looking at in terms of the outcomes for these patients who need systemic therapy for their advanced disease. The response...

[Mara Goldstein:]

Right. But I guess given that...

[Jonathan Drachman:]

Yeah.

[Mara Goldstein:]

I apologize, given that the – I guess my question really relates to what is encompassed in the overall responses or do you see single individual points or is it some composite of – for patients who have systemic disease...

[Jonathan Drachman:]

Yeah.

[Mara Goldstein:]

As well as skin disease.

[Jonathan Drachman:]

So, it does follow the...

[Mara Goldstein:]

Or manifestation.

[Jonathan Drachman:]

It does follow the global response score which is the...

[Mara Goldstein:]

Okay.

[Jonathan Drachman:]

...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.

[Mara Goldstein:]

Okay. Thank you. And 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'm curious if you can talk about the complexion of the royalties and where they are coming from and perhaps where they are skewed to from a territory perspective?

[Todd E. Simpson:]

Yeah, this is Todd. I can give you a short answer. So 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's information that you would need to get from them directly.

[Mara Goldstein:]

Okay. Well, thank you very much.

[Operator:]

And we'll go to John Sonnier with William Blair next.

[John S. Sonnier:]

Thanks for taking the question. Clay, it seems like there could be a relatively narrow window. We have three major inflection points with E-1, E-2, and maybe (1

[Clay B. Siegall:]

John, it's a really, really good question. We have loads of meetings to talk about how – all the hows and whats and wheres we're going to do to expand what we could do to make sure we manufacture and QC-QA 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. And 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 and that's in the U.S. and Canada. Now, as far as CASCADE goes, that's a different thing. CASCADE, we own the globe on that. And for E-1 and E-2, we developed this drug; we kept the U.S. 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've helped them in answering questions and in the manufacturing and distribution of this. And we also learned a lot from Canada; with Health Canada, that's about more like a European approval process in each of the provinces and then you have approval and then you have reimbursement approval. So it's very similar – more similar to European than U.S. And so we had a lot of experience now and we're planning on launching CASCADE globally. Now, Darren and Todd have led an initiative that we've done over the last year to build up a international expansion. So, we now have SeaGen international that's based in Switzerland right outside of Zürich and we've hired a person to head that up who has got about 20 years-plus of industry experience with a buyer in Astellas, his name is Chris Thompson, he is now hiring people. So, we're building this site internationally where we're going to have people in regulatory, commercial, med affairs and other – clinical and other specialties. So we are planning and plotting a lot; this is not simple, I don't want to trivialize the answer. But we are on top of this and I think we're going to kick butt.

[John S. Sonnier:]

Thanks.

[Operator:]

And we have one final question in the queue and it comes from Tony Butler with Guggenheim Securities.

[Tony Butler:]

Yes. Thanks very much. Thank you for squeezing me in and it's really hard to follow the kick butt comment. But I wanted to go back to CASCADE very briefly and ask, I might think (1

[Clay B. Siegall:]

So 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 non-commercial product. And whatever is needed to get that enrollment moved along, which includes opening sites around the globe, which is what leads to the enrollment, we need to be doing. And so we are regularly talking about that and it is a major thing that we talk and put investment into in terms of time and money. And so, I can't give you a specific on that, because it is just not appropriate to, but we're pressing hard on it. And 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 so we treated a lot of people with this drug first before we decided what to do. And we think that from a combination of the safety and efficacy and user-friendly nature of it that this dose is an excellent dose. You could 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?

[Jonathan Drachman:]

Exactly. I think we chose a great dose. We have – when you're treating these frail, elderly patients and keep in mind, on our trial 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 it is, are you depleting the blasts and getting people into remission? And we had over 70% remission rate and many of those were MRD negative, which is something that's really never been reported before for unfit AML; so we're 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 the setting die because patients get toxic doses, they get infections, they end up doing really badly. We had a 2% 30-day mortality and 8% 60-day mortality, those are great numbers and we really think we have a great regimen here.

[Tony Butler:]

Jonathan, Clay, thank you very much.

[Operator:]

And we have no further questions at this time. I'd like to turn the call back over to our speakers for any additional remarks.

[Peggy Pinkston:]

Okay. Thank you, operator, and thanks everybody for joining us this afternoon. We certainly appreciate all the good questions and have a great evening.

[Operator:]

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