Seagen Inc.
Q2 2010 Earnings Call Transcript

Published: 27 Jul 2010

[Operator:]

Welcome to the Seattle Genetics second quarter 2010 financial results conference call. (Operator instructions) And now I'll hand the conference over to Director of Corporate Communications, Ms. Peggy Pinkston.

[Peggy Pinkston:]

I'd like to welcome all of you to the Seattle Genetics second quarter 2010 conference call. With me today are Clay Siegall, President and Chief Executive Officer; Todd Simpson, Chief Financial Officer; Eric Dobmeier, Chief Business Officer; Tom Reynolds, Chief Medical Officer; and Bruce Seeley, Executive Vice President, Commercial. This afternoon, Clay will provide an update on our programs, including recent highlights and upcoming activities, and Todd will discuss our second quarter and year-to-date 2010 financial results. After that, we'll open the call for your questions. Today's conference call will include forward-looking statements based on current expectations. Such statements are only predictions and actual results may vary materially from those projected. Please refer to the documents that we file from time to time with the SEC and which are available on our website for information concerning the factors that could affect the company. I'll now turn the call over to Clay.

[Clay Siegall:]

Thanks, Peg, and thank you all for joining us this afternoon. Our progress over the past two months has positioned Seattle Genetics for several important milestones over the remainder of 2010 and into 2011. We expect data from our two late-stage programs, brentuximab vedotin and lintuzumab, later this year. We're also making progress on several other clinical stage programs, including SGN-75 and ASG-5ME. And our antibody drug conjugate or ADC technology is continuing to generate value both financially and from the pipeline perspective. Today, I'll summarize our recent accomplishments and planned milestones. I'll start with an update on our lead product candidate, brentuximab vedotin, also known as SGN-35. This is an ADC targeting CD30, the defining marker for Hodgkin lymphoma and a target also highly expressed on several T-cell lymphomas, including anaplastic large cell lymphoma or ALCL. We expect to report top-line data from our pivotal trial in relapsed and refractory Hodgkin lymphoma in the late September to October timeframe. This trial is designed to provide the basis for an NDA in United States under the accelerated approval regulations and in MAA in Europe, both in the first half of 2011. This single-agent pivotal trial in 100 patients is being conducted under a Special Protocol Assessment with the FDA. Key endpoints include objective response rate assessed by independent review, complete response rate, duration of response and safety. We also expect to report interim top-line data from our phase II systemic ALCL trial in the late September to October timeframe. There is a substantial need for new therapies for ALCL, an aggressive type of T-cell non-Hodgkin lymphoma. During the second quarter, we achieved our target enrollment of 55 patients to this study. The ALCL trial has a design similar to our pivotal Hodgkin lymphoma trial, with the primary endpoint of objective response rate assessed by independent review. We believe that ALCL may provide an additional registration pathway for brentuximab vedotin. At the American Society of Clinical Oncology meeting in June, we presented preliminary data from our experience in the retreatment of patients who relapsed after previously responding to brentuximab vedotin. We reported that tumor reduction was observed in 10 out of 11 retreatment experiences, seven of which were objective responses. Brentuximab vedotin was well tolerated in the retreatment setting. Treatment-related adverse events were all Grade 1 or 2 with peripheral neuropathy, alopecia, joint pain and injection site irritation the most commonly reported. We are continuing to evaluate the retreatment of patients with brentuximab vedotin through our ongoing phase II clinical trial. Data from that trial will identify if retreatment could be an additional option for managing relapsed Hodgkin lymphoma and other CD30-positive malignancies. The other two ongoing clinical trials with brentuximab vedotin include

[Todd Simpson:]

Thanks, Clay, and thanks everyone for joining us on the call this afternoon. We continue to be in a strong financial position as we enter the second half of 2010. This positions us to report top-line data from our two late-stage programs and to prepare for the planned NDA submission for brentuximab vedotin in the first half of next year. Our revenues in 2010 were $36.9 million for the second quarter and $83.3 million for the year-to-date, increases from $9.4 million in the second quarter of 2009 and $18.6 million for the first half of 2009. The increases in 2010 revenues reflect approximately $40 million recorded in the first quarter and $30 million recorded in the second quarter under the dacetuzumab collaboration with Genentech that ended in June. Revenues in the second half of the year are expected to decrease, and will be driven by our ongoing ADC collaborations, as well as by our brentuximab vedotin collaboration with Millennium. Operating expenses in 2010 were $45.8 million for the second quarter and $81.3 million for the year-to-date. This compares to $32.7 million and $70.1 million in 2009. The increases in 2010 expenses were expected, and driven by brentuximab vedotin clinical development and manufacturing activities. These increases were partially offset though by lower cost for the dacetuzumab and lintuzumab programs. Brentuximab vedotin related activities will continue to drive our financial results, and are expected to increase later in the year as we continue with our manufacturing validation runs and position for our pre-approval inspection campaigns in 2011. And just as a reminder, 50% of joint development costs for brentuximab vedotin are funded by Millennium. Development activities performed by us are charged to R&D expense as incurred. Development funding, along with the upfront payment and other payments are amortized into revenue over the development period of the collaboration. And lastly, non-cash share based compensation expense for the year-to-date in 2010 was $6.4 million compared to $5.4 million in 2009. We ended the second quarter in a strong financial position with approximately $325 million in cash and investments, a net increase of more than $37 million for the year so far. This increase reflects $60 million upfront payment received in the first quarter, as well as reimbursement payments from Millennium under the brentuximab vedotin collaboration. This increase also includes amounts received under our ADC collaborations, including a $12 million upfront payment from GlaxoSmithKline and $9.5 million collaboration extension payment received from Genentech-Roche. Across all of our deals, we have received more than $100 million in cash payments to-date in 2010. And as a result, we expect an operating cash burden this year of less than $20 million. We continue to project that we will end the year with more than $265 million in cash and investments. This positions us well to advance our programs, and we look forward to keeping you updated on our progress over the remainder of the year. Clay?

[Clay Siegall:]

Thanks, Todd. Before we open for questions, I'll quickly recap our key upcoming activities. For brentuximab vedotin, we expect to report top-line data from our pivotal Hodgkin Lymphoma trial and interim top-line data from our phase II ALCL trial in the late September to October timeframe and position the program for an NDA submission in the first half of 2011. For lintuzumab, we anticipate reporting top-line data from the phase IIb study in the late August to October timeframe. For SGN-75, we are advancing the ongoing phase I trial for CD70-positive non-Hodgkin lymphoma and renal cell carcinoma and for ASG-5ME. We and Agensys are advancing the recently initiated phase I clinical trial for pancreatic cancer, and also plan to initiate a phase I trial for prostate cancer during 2010. Operator, we'd like to open the call for questions.

[Operator:]

(Operator Instructions) And our first question comes from the line of Cory Kasimov with JPMorgan.

[Cory Kasimov:]

I have a few questions for you, one on SGN-33 and then two on SGN-35. So first on SGN-33 or lintuzumab, the potential timing of results here, it seems to have been pushed back a number of times now. And I'm trying to figure out how much can be read into this. So given that the study enrolled about, I think for 210 patients and you're waiting on 186 events to trigger the analysis, how much might a small handful of patients living meaningfully longer than expected impact this timing overall? And then I'll follow up with the SGN-35 question.

[Clay Siegall:]

Thank you for the question. It's an event-driven study; it's blinded, it's controlled. It's really not possible at this point to determine trends like you're asking, either in placebo or treatment arm. And we believe the trial is well-designed. Clearly lintuzumab is well tolerated, and as demonstrated, anti-leukemic activity in phase I trials. I don't know how much more granular we can get than that.

[Cory Kasimov:]

Okay, fair enough. And then on SGN-35, first question, I was considering the international symposium on Hodgkin lymphoma is taking place in October. When would you need top-line data by to present at that meeting, or at this point do you just plan on waiting for ASH?

[Clay Siegall:]

I compliment you on your interesting questions. We don't normally commit to specific conferences. We are very aware of the International Hodgkin Lymphoma Conference. It's only held once every three years, and we're thrilled that it's held this year. So we can certainly attend and be part of it, but as far as committing to specific dates; one, we're going to release data. It's hard to say. What we've said here is late September to October timeframe for data on brentuximab vedotin, and the conference I believe is being held in late October. So it's possible, but that's not something we want to commit to right now.

[Cory Kasimov:]

And then lastly, regarding your phase I dose escalation study evaluating SGN-35 in combo with ABVD, are you able to comment on the starting dose, and how many cohorts you've gone through at this point?

[Clay Siegall:]

We are really not giving exact information on phase I studies. We normally don't do that. But perhaps Tom Reynolds, Chief Medical Officer would want to comment a little bit on that trial and the design.

[Tom Reynolds:]

Yes, so it is a dose escalation study in combination with ABVD. The primary focus of the study is to determine the safety of that combination. We have a number of dose escalation cohorts. We have modeled this off of the good pharmacokinetics we've determined from both the Q3 week and the weekly dosing. As you know, ABVD every other week dosing schedule. And so, the dosing for brentuximab vedotin is also every other week. So we've modeled that. We are in active dose escalation. We feel the trial is going very well, and there's been a keen amount of interest from sites. And as soon as cohorts for escalation have opened, they have filled pretty quickly. So we're hopeful that we'll get through the dose escalation, pick a good dose and then move into the expansion phase of the study to get a better idea of the safety profile of that combination.

[Operator:]

And our next question comes from the line of Mark Monane with Needham & Company.

[Mark Monane:]

The 50-50 collaboration you have with Takeda, could you comment on how the monies are actually recognized? I had a question about, in the 50-50 deal, I would assume that what's yours is yours and what's Takeda is Takeda, but it seems there might be some reimbursement issues coming in that are recognized through revenue. Could you go over that for us Todd?

[Todd Simpson:]

Sure. So the mechanism for the collaboration is that there is a global joint development plan. We and Millennium agree on what development activities will be covered by the plan, as well as who will conduct the activities. And that will include both clinical trials as well as maybe factoring activities. For all of the activities that we perform, we will receive 50% reimbursement funding for those activities and cost. Likewise, any activities that Millennium performs under the plan, we co-fund, 50%. The initial joint development plan is heavily weighted towards activities that Seattle Genetics performs. So right now, the lion's share of the reimbursements are coming to the west, not the east. And when we initiated this collaboration, we had talked about expected funding to Seattle Genetics over the initial three years of the deal being approximately $75 million. So that $75 million is coming our way. I would point out though that this includes the development activities, not the commercial activities, were both responsible for solely funding all of the commercial activities that each company incurs in their respective territories. So it's only the development costs that are co-funded, not the commercial. And then the second part of your question had to do with how those payments are recognized as revenue. And the GAAP accounting for that is that the all cash payments received on the collaboration that includes milestone payments, the $60 million upfront payment as well as the reimbursement payments are deferred on our balance sheet and recognized into revenue over the development term of the collaboration, which initially is eight years.

[Clay Siegall:]

I would like to point out one thing, just from nomenclature. The deal that we have with Millennium Takeda on SGN-35 is not a 50-50 deal. We own the territories of U.S. and Canada, and we get milestones and royalties outside of those territories. So it's a co-funded development deal, if that's what you meant which probably it is. But I just want to be clear with that.

[Mark Monane:]

Yes. That was helpful. I was looking at the 50-50 for the reimbursement revenues for the joint development cost. But that's helpful, thinking about the revenue. So thank you. And then I have a follow-up question please on SGN-35, and that is, is there a potential, given the fact that ALCL data will be very proximal to the HL data, is it possible that you could submit for not one but two indications at the same time in the first half '11 time period?

[Clay Siegall:]

Mark, thank you very much for the question. We are really excited with both our datasets, Hodgkin lymphoma and ALCL. And maybe Tom Reynolds can give a little more color on the possible opportunities with ALCL.

[Tom Reynolds:]

Yes, Mark, we are excited based on what we've seen in phase I where as you recall, six out of the seven patients achieved CRs. And then we are looking forward to the data in the late September/October timeframe. We are really considering what our options are for a registration pathway. This study is designed very similarly to the Hodgkin lymphoma study in terms of endpoints and definition of patients. So it is possible that this could be something FDA would be able to work with us on. We do think it is a potential additional registration pathway, and we haven't clarified the timing obviously. We would need some discussions with the agency on that, but we are awaiting our data to really understand that a little bit better. But we are optimistic that this could provide an additional registration pathway.

[Mark Monane:]

Thanks for the added information and we look forward to the upcoming events.

[Operator:]

And our next question comes from the line of Jeff Elliott with UBS Securities.

[Jeff Elliott:]

Tom, I guess talking about the earlier one, Cory asked about sort of what's read into the delay, I guess what I'm turning my head around is the data that you modeled the trial on, you said two others are on trial, when you look at that 5.5 or six months of median survival, what's the distribution around that from that historical data? I mean is there a reason to think there'll be a long tail on one side, which could potentially skew the placebo and the drug arm?

[Tom Reynolds:]

Jeff, you're aware we did model this off of the Alan Burnett's data using low-dose cytarabine as a single agent and modeled it after his experience. And as you look at those data, what you'll see is that half of the patients succumb to their disease within about the first five to six months kind of that timeframe. But then the tail extends out and there is a very small handful of patients that live up to two years. We're now about 30 months post-inception of the study when we first started enrollment. So the first patients enrolled would be if they were alive two-and-a-half years out, and the most recent patient was enrolled somewhere about 17 or 18 months ago. So we're pretty far out on the curve for those that are still alive and it does have a long tail. It's hard to know with event-driven studies that have the majority of the patients having events before you close the study of exactly what the shape of the tail is. And with a few patients at the very back end, we could see some heterogeneity there. We're not reading anything into the moving out of this in terms of being able to call this pro-efficacy for our agent. We just don't know and we expect to see it when we announce the data in the next few months.

[Jeff Elliott:]

Were the patients enrolling into that trial more back-end loaded in terms of timing?

[Tom Reynolds:]

We have not commented on exactly how enrollment went. As with most studies, we're getting sites up at the beginning. And so enrollment usually starts off and then wraps up. We were very pleased with the enthusiasm about our sites. And we've taken that into consideration, the actual enrollment rate when we've done the modeling. So we've used the actual enrollment to do the modeling, and we think that's been helpful.

[Jeff Elliott:]

And then if the trial is positive, how long will it take you guys to file, assuming it is something you think you could file on?

[Clay Siegall:]

Well, we've not provided guidance on when we would submit. The timing of any submission for a regulatory approval is pending our data at this point. We have a number of discussions about that. Internally, we're looking at the different options provided that our data would support such a submission, but we're not in a position right now to make any comments on it. I would like to make a comment on something else that we've been very clear that the brentuximab vedotin submission will come first regardless of which dataset comes first. And that we've said many times.

[Jeff Elliott:]

In terms of the 35 and potentially your phase I for front-line ALCL, what's the expected timing on that? Would you want to see the ABVD and HL first or is that something you're going forward with?

[Clay Siegall:]

We are looking forward to reporting our data for our top-line ALCL trial later this year. And certainly we're interested in the opportunity for front-line in ALCL much like we're interested and actually working in a trial in front-line for Hodgkin lymphoma. We've not yet provided any guidance of when that could start, but that's something we're looking at very closely.

[Operator:]

Our next question comes from the line of John Sonnier with William Blair.

[John Sonnier:]

Clay, I think potentially by your Q3 earnings call you'll have a lot of informative data points. And you and Eric have been pretty helpful in talking about the opportunity for b vedotin. But talk a little bit about the AML market, where you potentially see lintuzumab sitting in and what size market opportunity do you believe that is?

[Clay Siegall:]

We haven't really given a lot of information on the AML market to date. There is about 13,000 patients diagnosed with AML annually in U.S. and about the same amount in Europe. Two-thirds of the patients are over 60 years old, and that's really the population that we are looking at with our phase IIb trial. There is clearly an unmet medical need. There is no new drugs that have been approved in this setting. There is really nothing better than everyone receiving standard of care and many people believe that is standard of care. The overall survival is certainly less than six months. There is no report of it over that we've seen. And so we feel there is a great opportunity here. We haven't given any specific guidance.

[Eric Dobmeier:]

Yes, I think that's right. We haven't given specific guidance on it, but it's an incidence population of patients. So it's a little bit easier than brentuximab vedotin in the sense that these are patients who could receive work when you are looking at front-line population potentially of elderly patients. So if you take the population of 13,000 and look at two-thirds of that, you can pretty easily do the math to figure out how many patients could potentially be in this market.

[Bruce Seeley:]

The only thing I would add is that the trial design is also very helpful from principle perspective given that it does compare against what the standard of care is. So we are looking to you seeing the data.

[Operator:]

And our next question comes from the line of David Miller with Biotech Stock Research. David Miller - Biotech Stock Research Thanks. All of my questions have been answered.

[Operator:]

(Operator Instructions) And our next question comes from the line of Bret Holley with Oppenheimer & Company.

[Matt Lowe:]

It's actually Matt Lowe in for Bret today. Are you tracking the use of subsequent therapies in the phase IIb trial of lintuzumab, meaning once patients have come off study, is that something you're tracking?

[Tom Reynolds:]

What we're doing is these are all patients that are not candidates for high-dose induction therapy. We are tracking when patients go off of treatment what the physicians and patients intend to do next, but we are not capturing every subsequent therapy until the patient dies. So we are going to have some of those data, but not all of the data that you suggest.

[Operator:]

And our next question comes from the line of Ling Wang with Brean Murray & Company.

[Ling Wang:]

I was wondering whether you can comment on the relative timing for lintuzumab or SGN-35. I mean as you gave guidance one for the September to October and one for late August to October, I was wondering whether we can read into that, the lintuzumab data might still come earlier than SGN-35.

[Clay Siegall:]

I think that what we're guiding is that there is an overlap in the guidance, and we like to be careful with our guidance and make sure that we're covering all possibilities. So keep in mind that brentuximab vedotin is a timed study. So it's certainly easier for us to provide guidance; whereas lintuzumab is an event-driven study. So it's not been as exact, and they're never going to be as exact if they're event driven. So this overlapping guidance. I don't think you should read too much into anything there for the timing.

[Operator:]

Our next question is a follow-up question from the line of Mark Monane with Needham & Company.

[Mark Monane:]

We're about 100 yards from the hole, then we've got a 9-iron and maybe a pitching wedge. ImmunoGen and Roche chose I think the BLA application for their conjugated antibody. But like you said in the beginning that you are looking for an NDA application, could you talk about the different regulatory strategies and how that might affect the process going forward?

[Clay Siegall:]

Sure. First of all, we're very aware of that TDM1 BLA submission. And we certainly have been and continue to work and plan on working more with the FDA on the appropriate submission pathway for brentuximab vedotin. In either case, whether a BLA or an NDA, our guidance is that we don't expect it to affect timing of the submission, nor do we expect that it would affect the substance of the submission. And so really it's work that we'll be doing with the FDA to figure out the most appropriate pathway forward. But thank you for the question, and I think maybe, what are we, at 8-iron away?

[Operator:]

I'm showing no further questions in the queue. I'll hand it over back to Ms. Pinkston for the remarks.

[Peggy Pinkston:]

Thanks, everybody, for joining us this afternoon. Have a good evening.

[Operator:]

And ladies and gentlemen, that does conclude the Seattle Genetics second quarter 2010 financial results conference call. If you'd like to listen to a replay of today's conference, you may dial 303-590-3030 or 1-800-406-7325 and enter the access code of 4330461. Thank you for your participation and you may now disconnect.