Seagen Inc.
Q2 2012 Earnings Call Transcript

Published: 9 Aug 2012

[Operator:]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Seattle Genetics Second Quarter 2012 Financial Results Conference Call. [Operator Instructions] Following the presentation, the conference will be open for questions. [Operator Instructions] The conference is being recorded today, August 8, 2012. I would now like to turn the conference over to Peggy Pinkston, Senior Director of Corporate Communications. Please go ahead.

[Peggy Pinkston:]

Thanks, operator. I'd like to welcome all of you to Seattle Genetics Second Quarter 2012 Conference Call. With me today are Clay Siegall, President and Chief Executive Officer; Todd Simpson, Chief Financial Officer; Eric Dobmeier, Chief Operating Officer; and Chris Boerner, Senior Vice President, Commercial. Our intention is to conclude today's call by no later than 2

[Clay B. Siegall:]

Thanks, Peg, and good afternoon, everyone. It's been almost a year since FDA approval of ADCETRIS. I'm pleased with the important progress we have made and excited by the opportunities ahead. Total ADCETRIS net sales since approval have now surpassed $100 million. We continue to execute on our goal of bringing ADCETRIS to patients through both commercial efforts directed at use in our labeled indications of relapsed Hodgkin lymphoma and systemic anaplastic large cell lymphoma, or ALCL, and extensive clinical development activities in other CD30-positive malignancies and earlier lines of lymphoma therapy. We have reported objective responses with ADCETRIS in 6 unique lymphoma types, and I'm particularly excited by the potential for ADCETRIS in front-line therapy. We have reported interim data from our Phase I trials in both front-line Hodgkin lymphoma and front-line mature T-cell lymphomas. We look forward to reporting additional data from both of these trials later this year. Importantly, together with Millennium, we've recently secured a Special Protocol Assessment or SPA, or SPA from the FDA for our front-line Hodgkin lymphoma trials. This is a key step in the regulatory process for our front-line Hodgkin lymphoma strategy and positions us strongly as we execute on our vision of redefining therapy for newly diagnosed patients. We are also maximizing the opportunities provided by our industry-leading antibody-drug conjugate or ADC technology. It's an exciting time to be working in the ADC field. We are proud to be the only company with an ADC market in the United States, and we are determined to continue building upon our ADC leadership position by aggressively advancing new programs. Beyond ADCETRIS, we have 3 other ADCs in the clinic today and are planning 3 IND filings in the next 12 months. Importantly, we also continue to enhance our ADC technology through development of novel linkers, chemo types, antibody engineering techniques and conjugation methods. Our collaborators have 13 ADCs in clinical development that utilize our technology, and we expect a substantial amount of data to be reported on both our own and our collaborators' programs throughout the remainder of 2012, especially at the American Society of Hematology, or ASH, Meeting in December. Today, we will discuss our second quarter results and commercial initiatives, and then I will outline our clinical development strategy for ADCETRIS and update you on our other ADC programs and collaborator progress. ADCETRIS net product sales in the second quarter was $34.7 million, up slightly over the first quarter and moving total first half ADCETRIS net product sales to $69.2 million. We continue to project ADCETRIS net product sales of $140 million to $150 million in 2012. During the second quarter, we also recognized $1.2 million in royalty revenues for ADCETRIS. These revenues relate to sales of ADCETRIS by our collaborator, Millennium/Takeda, under its international Named Patient Program or NPP, which has been effective at providing ADCETRIS to patients in need around the globe prior to international approvals. There is widespread interest from both physicians and patients outside of the United States in utilizing ADCETRIS. Millennium and Takeda have also made important progress on the regulatory front with ADCETRIS, most notably the recent positive opinion from CHMP for the approval of ADCETRIS in the European Union. We are pleased that the CHMP recommendation aligns with the broad indication for ADCETRIS in the United States for relapsed or refractory Hodgkin lymphoma and relapsed or refractory systemic ALCL. We anticipate Millennium will receive an approval decision from the European Commission within the next 3 months, which will trigger $25 million in milestone payments to us. Millennium is also making progress towards ADCETRIS approvals in many other countries. In addition to the U.S., Seattle Genetics has commercial rights to ADCETRIS in Canada, and our new drug submission was accepted for review by Health Canada in May. We anticipate an approval decision by early 2013 and are working to secure reimbursement approval in a timely fashion. At this point, I'd like to turn the call over to Chris to provide an update on our ADCETRIS commercial activities and then to Todd to discuss our second quarter financial results.

[Christopher S. Boerner:]

Thanks, Clay. Good afternoon, everyone. Today, I'm going to provide an overview of our commercial performance for Q2, outline the key factors that we expect will affect the near-term growth for ADCETRIS and discuss briefly how our commercial efforts are directed towards key initiatives. In Q2, we continue to make solid progress in bringing ADCETRIS to patients in our labeled indications. Highlights for this quarter include, first, strong interest in ADCETRIS among community physicians. More than 150 new accounts utilized ADCETRIS during the quarter, with the majority of these being community accounts. In total, more than 900 accounts have ordered ADCETRIS since approval. Second, our market research indicates near-universal awareness of ADCETRIS data among targeted physicians. In Q2, 95% of surveyed physicians report having a positive impression of the product, and among physicians who have utilized ADCETRIS, 99% reported that the product met or exceeded their expectations. Enthusiasm and support among community physicians for utilizing ADCETRIS resulted in an approximately 10% increase in volume in that setting. We believe that broad awareness and excitement for ADCETRIS in the community setting establishes a solid foundation for incremental growth in the near term. It also positions ADCETRIS for long-term success as we continue our clinical development efforts to move the product earlier in the treatment algorithm. While we saw growth among community accounts in Q2, it was largely offset by a decline in volume in the academic setting. The decline in academic use resulted mainly from patient discontinuations at a handful of large volume academic centers. Based on our review, we believe most of these patients had either initiated ADCETRIS shortly after approval and completed their course of therapy or had discontinued to go on to an autologous stem cell transplant. Overall, we continue to see very strong enthusiasm for ADCETRIS in the academic setting. Looking forward, 2 major factors will impact near-term growth for ADCETRIS, mainly our ability to drive new patient starts on the product and duration of therapy. Let me provide some additional perspective on both of these topics, starting with a number of new patients initiating therapy. In the first 10 months following approval, we have seen relatively rapid and significant adoption of ADCETRIS. Our market research suggested there are opportunities for continued growth in market share in both relapse ALCL and HL and also indicate that ADCETRIS will be the drug of choice in both settings. Given the limited size of the market in our labeled indications, we do not expect a large volume of patients to initiate therapy in any given quarter. Because most of these patients are in the community setting, it is critical that we continue to build strong awareness of and support for the product among community-based physicians. Our sales and marketing teams continue to focus considerable promotional efforts on these accounts. In addition to new patient starts, duration of therapy remains an important driver of near-term growth. You will recall that in our clinical trials, patients could be treated for up to 16 cycles or approximately one year of therapy. Driving duration in the commercial setting is challenging, because there's no history of treating to disease progression in either HL or ALCL with traditional drugs, responses with ADCETRIS come quickly for many patients and, as noted last quarter, a significant fraction of patients are receiving ADCETRIS prior to an autologous stem cell transplant. All of these factors tend to push positions towards fewer cycles of therapy. We strongly believe that treating consistent with our pivotal studies is in the best interest of ADCETRIS patients. Accordingly, our sales team is leveraging our clinical data as well as advocacy from key opinion leaders to encourage physicians to continue patients on ADCETRIS until progression or an acceptable toxicity up to 16 cycles. We will update you on our progress in driving both new patient starts and duration of therapy in future calls. In summary, since approval, we have made significant progress in making ADCETRIS the standard of care for patients in our labeled indications. We are encouraged by the broad awareness of and enthusiasm for the product. Most importantly, feedback from our customers continues to emphasize the positive impact that ADCETRIS is having on patients and their families. Our commercial efforts remain focused on identifying every available on-label patient with a candidate for this product and ensuring that patients are treated appropriately. With that, I'll turn it over to Todd.

[Todd E. Simpson:]

Great. Thanks, Chris, and thanks everyone for joining on the call this afternoon. We continued to build momentum through the second quarter with year-to-date revenues increasing from both ADCETRIS sales and from our collaborations. We also reported for the first time ADCETRIS royalty revenues during the second quarter. Our cash position increased by more than $21 million during the quarter, reflecting cash payments received from ADCETRIS sales. This keeps us in a strong financial position and allows us to continue to invest aggressively in expanding ADCETRIS into earlier lines of therapy and other CD30-positive malignancies in addition to advancing our other ADC programs. Today, I'll highlight our second quarter financial results and provide some additional commentary around our numbers. For the first half of 2012, total revenues increased to $97.1 million, which included $69.2 million in ADCETRIS net product sales. Total revenues for the second quarter of 2012 increased to $48.8 million, which included ADCETRIS net product sales of $34.7 million. Second quarter revenues also included $1.2 million in royalty revenues. As Clay mentioned, these revenues related to royalties paid to us from Millennium based on sales under its Named Patient Program. We recognized royalty revenues when reported to us by Millennium, which is one quarter in arrears; so, in other words, second quarter royalties related to NPP sales in the first quarter of 2012. Gross-to-net adjustments remain relatively flat quarter-over-quarter and are running at approximately 11% to 12% as government discount programs are now fully in place. Fluctuations in discounts moving forward will be primarily based on site utilization of the drug and the eligibility for government discounts. In the second quarter of 2012, our cost of sales continue to be approximately 9% of net sales. As previously explained, this reflects the benefit of using product manufactured prior to FDA approval, the cost of which was previously charged to R&D expense. This benefit will diminish as that product is utilized, and we expect that over time, ADCETRIS cost of sales as a percentage of net sales will increase into the teens. R&D expenses were $42.8 million and $81.2 million in the second quarter and year-to-date in 2012 compared to $49.6 million and $82.1 million in the second quarter and year-to-date in 2011. In 2012, there has been increased spending for ADCETRIS clinical development activities as well as increased investment in our other ADC programs. Research and development expenses in 2011 included ADCETRIS manufacturing costs. Following FDA approval, these costs are being capitalized as inventory. Selling, general and administrative expenses increased for both the quarter and year-to-date in 2012 as expected, reflecting ADCETRIS commercialization cost. Noncash share-based compensation expense for the first half of 2012 was $11.6 million compared to $8.5 million in the first half of 2011. We ended the second quarter in a strong financial position, with approximately $330 million in cash and investments and increased from approximately $309 million at the end of the first quarter. We are very pleased with the continued strong launch of ADCETRIS and the exciting opportunities in front of us. Our financial resources allow us to continue to aggressively invest in advancing our programs and technologies. And with that, I'll turn the call back over to Clay.

[Clay B. Siegall:]

Thanks, Todd. I'd like to update you now on the significant clinical development efforts that are underway as we work towards our goal of establishing ADCETRIS as the foundation of therapy for patients with CD30-positive cancers. Each year in the United States, we estimate that 15,000 to 20,000 people are diagnosed with CD30-positive lymphoma. We have also discovered CD30 expression in subsets of patients with many other types of cancer. Our clinical development strategy is to generate data that will support stepwise growth of ADCETRIS through maintenance, extended duration of treatment, retreatment, other CD30-positive malignancies and by adding ADCETRIS to front-line lymphoma regimens. We have a comprehensive development program underway falling into 4 main therapeutic areas

[Operator:]

[Operator Instructions] And our first question is from the line of Thomas Wei from Jefferies & Company.

[Thomas Wei:]

Just a couple of questions on the commercial front on what you had talked about with the duration and new patient starts. Can you just help us understand, on a quarter-over-quarter basis, the duration commentary? Are you getting any more details on what the average duration is and maybe how it changed or did not change relative to the first quarter? And then also, the number of new patients, is it fair to say that that stepped down a little bit relative to 1Q? And how would you think about that on a go-forward basis? This -- are we at a kind of more normal rate of new patient starts?

[Clay B. Siegall:]

Thomas, it's still too early for us to provide detailed data on duration, and I guess we have more comments. Chris, would you like to add a little bit more detail for some of Thomas' questions?

[Christopher S. Boerner:]

Sure. Thomas, on the duration front, I agree with Clay. It's a little bit too early to provide much detail in terms of specifics on duration. You have to think about duration, as we talked about on the call last time, in 2 segments with this market

[Clay B. Siegall:]

Yes. The other thing is our data with AETHERA. We have which -- we don't have yet, but we're, this quarter, going to be done with enrollment. And that starts the clock ticking, because it's an event-driven study. And so we're excited to be done -- almost done with enrollment with AETHERA, and that gives us the opportunity to treat post transplant and based on the data. And we're excited to go towards completion of the trial, get our events and see where that takes us. Our goal is obviously to get the best benefit for patients. But after a transplant, there's mainly a watch and see with the docs, and the docs are really looking for a reason to use ADCETRIS there. So what could happen pending our data is that patients going to transplant right now may get shorter duration than the patients that don't. But pending AETHERA, they may actually get treatment ahead of time and then afterwards and become longer duration, and that's one of the reasons we're excited about AETHERA and to see how much we could help patients.

[Operator:]

Our next question is from the line of Rachel McMinn from Bank of America Merrill Lynch.

[Rachel L. McMinn:]

I guess a couple of questions following on Thomas' question. But I'm not sure I understand the guidance of why you're keeping it at $140 million to $150 million if we kind of think that it'll take some time. AETHERA's not reading out any time soon. So why -- I guess the question is why would you expect sales to really grow from the current rate? And then just beyond that, can you talk about the proportion of patients who you're using the 16 cycles? I guess you won't really know that now, but give a sense of like who's -- what proportion of patients are being treated to progression, whether peripheral neuropathy is a factor at all for a shorter duration.

[Clay B. Siegall:]

Sure, Rachel. Thanks for the questions. We have restated our annual guidance, and it is unchanged at the $140 million to $150 million that we stated at last conference call. We believe that the market opportunity for ADCETRIS in the labeled indications is meaningful. We believe there's room for growth in the market share. We believe there's room for growth in the duration of therapy. Our commercial team is working hard at all of those, and they're very focused on identifying each and every on-label patient that could benefit from ADCETRIS and then educating to use the appropriate duration of therapy to best benefit each patient. Clearly, as we look long term, which not -- wasn't necessarily your question, but we believe there is a very substantial opportunity to build ADCETRIS into the foundation of therapy for CD30 malignancies and a very large market that would go with that. Then the second part of your question included -- or was focused on the percentage of patients that are getting 16 cycles. And in our clinical trials, it is where I can really point to the data, we don't have enough data, and we're not prepared to present information on that right now with patients. We're just nearing 1 year on the market, so it's just too early to think about that. But in our clinical trials, where we do have long-term data, we had about I think it was 20% of patients that went through the 16 cycles. So I can't comment on what we're seeing right now and whether it's the same or less or more, but that's what we saw in the trials.

[Rachel L. McMinn:]

And then, I'm sorry, but just a follow-up though on the guidance comment there. So you're saying that you see room for growth on -- in both market share and duration increases this year beyond what you're seeing today?

[Clay B. Siegall:]

We think there's opportunities for growth in both. And keep in mind that the $140 million to $150 million, I mean it's -- that -- it really is -- we're not calling for a very large amount of growth. That's -- to get into that range is very small amount of growth.

[Rachel L. McMinn:]

Okay, and I'm sorry-- and then, the peripheral neuropathy question?

[Clay B. Siegall:]

Oh, we are not seeing peripheral neuropathy in any meaningful way inhibiting the ability to use this for a longer duration. I think that that was your question you were focused on. We've not seen that. Certainly, we've seen some peripheral neuropathy in some patients, and we've reported that for our trials, but it doesn't really inhibit us to any marketable amount. Chris, do you want to comment on that?

[Christopher S. Boerner:]

Yes, Rachel. I would agree with Clay in the assessment of peripheral neuropathy. It is something that we know was a reason to go off of a study in the clinical trial. When we launched ADCETRIS, we put a considerable effort around making sure that physicians were aware of peripheral neuropathy as an -- as a potentially adverse event and that they were appropriately monitoring patients and were necessary down dosing the drug to accommodate it. So I think we've gotten ahead of that particular issue.

[Operator:]

And our next question is from the line of Cory Kasimov from JPMorgan.

[Matthew Lowe:]

It's actually Matt Lowe in for Cory today. Just a couple of questions, one on the rate of new patient adds. You've referred -- can you comment on that versus the first quarter and maybe the changes, if there were any, over the course of 2Q?

[Clay B. Siegall:]

Sure. Chris, would you like to comment on that?

[Christopher S. Boerner:]

Yes. We're not providing specific guidance with respect to the number of new patients who initiated treatment just yet. That said, what I will tell you is that we continue to do a very good job in terms of a couple of things, first, continuing to drive awareness of ADCETRIS and enthusiasm for the product to a broader set of customers. We added a number of new accounts this quarter, as I mentioned previously. And importantly, the vast majority of those new accounts that came online in Q2 were community accounts, where we believe the majority of our patients and our label sit. So I think we're happy with respect to the breadth of use that we're seeing with ADCETRIS. Our sales teams continue to focus on driving broader awareness and utilization of the product, and that's going to be our focus going into Q3.

[Matthew Lowe:]

Okay. And any idea how long it may take until we get the early stage Phase III data, once those trials are up and running?

[Clay B. Siegall:]

Those are multi-years trials, so you'll have to be patient with us. Our goal is to redefine front-line therapy in Hodgkin lymphoma, in MTCL, and this is something that hasn't been done in 3.5 decades. So it does take a few years to enroll patients, and it takes a few years to monitor the patients to our endpoints, so you'll have to be patient there. But what we're trying to do here is really set a new precedent for really helping patients, making a difference in their lives, improving therapy and decreasing toxicity all at the same time.

[Operator:]

And our next question is from the line of Matt Roden from UBS.

[Matthew Roden:]

Clay, in your prepared remarks, I think I heard you say that every year, 15,000 to 20,000 CD30-positive patients are diagnosed, that there's that number of infinite patients. Can you walk us through what the breakdown is there by indication? And then I have a follow-up on the pipeline.

[Clay B. Siegall:]

Sure, Matt. Thanks for -- very much for the question. I'm going to turn it over to Eric Dobmeier to discuss that.

[Eric L. Dobmeier:]

So obviously, within that 15,000 to 20,000, you've got to include Hodgkin lymphoma and ALCL, which is roughly 8,000 to 9,000 incidents for Hodgkin's and around 2,000 incidents for ALCL. Those are all U.S. numbers. We're just talking about U.S. incidents here. And then in addition, you've got about 50% of CTCL cases, about 30% of PTCL cases and 20% of DLBCL cases that are included in those incidence numbers. There are also some more rare types of lymphoma that express CD30. And frankly, a lot of this isn't all that well characterized in the literature, and we're doing a lot of work, both preclinically and through screening in our clinical trials, to really better characterize where CD30 is expressed. And you'll see more data coming out from those types of studies later this year as well.

[Matthew Roden:]

Okay. And then I guess related to that, you showed some data at ASCO related to certain populations of solid tumor patients who were positive for CD30. How are you guys thinking about sort of carrying that forward and maybe investigating those patients in clinical trials and ultimately, getting them on label?

[Clay B. Siegall:]

Yes, a really good question. All we've shown so far is really the screening of 1,600 patient samples. The trial calls for up to 3,000 patient samples. And as part of that trial, there's the treatment arm. And we're hard at work on the treatment arm, treating many patients, and we will, with time, report data at appropriate conferences on the treatment of those patients. Since these are largely outside and like you say, a lot of solid tumors and things like that, it's not necessarily appropriate for an ASH type of conference, which focuses on hematologic malignancies, but we'll make sure that we diligently present it at the right conferences. But the goal is really to find the subsets of patients where we can make a difference in peoples lives and we could treat tumors with CD30-positive expression using ADCETRIS. And we know we're excited with our progress. We have a long way to go. We're really at early stages of looking at other types of tumors, but we will continue to update you and update the clinical community as well with what we're doing. And where we see opportunities, you bet, we're going to go toward larger studies and potential registrational studies to broaden ADCETRIS out into other disease types outside of lymphoma.

[Matthew Roden:]

Great. If I can just sneak one more in on the pipeline. When should we expect to see more visibility into the ASG-5ME program?

[Clay B. Siegall:]

At our soonest possible opportunity. I mean, we're -- we've been working very closely with our partners at the Agensys affiliate of Astellas, and it's being developed in a number of solid tumors. We continue to work very hard on that as well as with ASG-22ME. And I don't want to set a specific guidance for when you'll see the data, but those -- both of those programs are actively being prosecuted.

[Operator:]

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

[John S. Sonnier:]

I really appreciate, Clay, all the update on the pipeline, and that's the nature of my question. As you look across the next 6 to 9 months or in over a year, that's -- some of the data report's out, do you have enough there to start considering Compendia filings in that timeframe?

[Clay B. Siegall:]

It's an excellent question. Thank you for bringing it up. I think that there are opportunities to think about ways to work with KOLs and work with organizations like NCCN to see how we can get ADCETRIS into the decision of doctors and their patients and so that they can use it, so that they can really benefit patients to the maximum. And I don't want to make any specific regulatory or Compendia comments, because that's not really appropriate to do but to tell you that we're very aware, the system, how it works and how we're going to go about trying to make the best decisions for patients and doctors. And so the answer to your question is yes.

[Operator:]

And our next question is from the line of Howard Liang from Leerink Swann.

[Howard Liang:]

For the front-line study, where you have already received an SPA I think, is there going to be an old comer study?

[Clay B. Siegall:]

Howard, thanks very much for the question on the front-line Hodgkin lymphoma SPA. We will be providing specific comments and specific -- the specifics of the trial, I should say, when we get the trial underway. So we received the SPA recently. We just announced today, for the first time, that we just got the SPA. And it's -- when we start the trial is really the appropriate time to discuss the specifics of the population of patients, how many patients, what our periodicity of scans are, et cetera.

[Howard Liang:]

Okay. Great. On the AETHERA trial, are you comfortable that there can be a registration trial? It sounded like FDA had some questions at the time of the ODAC meeting.

[Clay B. Siegall:]

We're very comfortable that it will be a review decision, and we think that it will stand-- or sink or swim, I should say, on its own data and its own merit. The trial was conducted in, I think, an impeccable way. We have done an excellent job. The clinical team here has done an excellent job with accrual and conduct of the trial. We're doing everything in the style that we did to gain approval for our pivotal trials. And I think that the FDA -- if our data are really good, we would for sure go forward -- try to go forward in a regulatory way to the FDA. We think the trial is set up to do that, and we think it would be a review decision by the FDA.

[Operator:]

Our next question is from the line of Adnan Butt from RBC Capital Markets.

[Adnan S. Butt:]

I think Chris went over this a little bit. But if I heard him correctly, I think you said that volumes are up 10%, but sales are up less than that. So is that a gross-to-net factor? Is that inventory movement? What is that? That's the first question. And then secondly, on the Named Patient Program, can you give us the price? And secondly, is it something that should be lumpy? Or is that something that should continue going forward until they get formal approval line in Europe?

[Clay B. Siegall:]

Adnan, I'll start this, and Chris could join in. What Chris said was that we had an increase the sales in the community setting, and that was offset a little bit by a little less in the academic setting. And Chris gave a couple of -- from our research, some rationale for it. You may recall when we first got approval, there was a bolus of patients that started on trial, and those were almost all at academic centers that really had experience with the drug. And so what we saw this quarter was that those patients who had been on for some period of time really came off so that this is just the tail end of the bolus. I wouldn't read too much into anything at an academic center. I mean, ADCETRIS is very well liked in the academic centers, and the KOLs use it wisely -- widely on their patients and really enjoy using this, because it makes a great positive impact on patients. So I think this is a function of just the end of the bolus that we reported on our conference call a number of quarters ago that we saw right after the initial approval, this burst of patients coming on. So that really is what it is, and I'm actually very proud of our expansion in the community setting. I mean, there are thousands of community doctors and just a limited number of these major KOLs, and that's where I think, over time, you'll see more growth. Yes, the MD Andersons and Mayo Clinics and UCLA Medical Centers, they know ADCETRIS well. And we're -- we see a lot of -- and they continue using and like the drug, absolutely. Where we see real good growth opportunities in our current label is in the community setting. Obviously, we see growth opportunities in broader labels, but just in our current label, that's where we see more growth opportunity. And then on the NPP and the price, we are not -- it's not appropriate for us to discuss the price that Millennium is charging outside of the United States. That's really for them. And you ask whether it is going to be lumpy or not. Todd, do you want to comment on your thoughts?

[Todd E. Simpson:]

I think part of your question was will the program continue and for how long. And I think the plan, obviously, behind the Named Patient Program, which is similar to what we had with our expanded access program, was to enable patients to get drug prior to regulatory approvals. So I would imagine that as Millennium obtains regulatory approvals in the various markets, that the Named Patient Program would end in those markets.

[Adnan S. Butt:]

Okay. Can I get a pipeline question?

[Clay B. Siegall:]

Sure.

[Adnan S. Butt:]

Clay, maybe this is for you. In terms of treating solid tumors, is there a cutoff in terms of CD30 positivity? Can you tell us what kind of tumor types you are testing ADCETRIS in?

[Clay B. Siegall:]

We -- I'm not, at this point, going to talk about the specific tumor types that are in our treatment study for solid tumors. We -- there is -- we don't want to see one cell with CD30 on it. I don't think that's fair to the drug or fair to the trial. So there is a cutoff, but it's pretty low-level cutoff, so we really eliminate very few patients that are CD30 positive. As we get toward presenting more data in that trial, we'll be a little bit more specific on the expression levels and the types of tumors we're treating. Yes, and I can -- one thing I can point out is that in our CTCL trial -- now granted this was not solid tumor. This was a cutaneous T-cell lymphoma. We reported at ASCO recently, I believe it was, data in patients where we had some patients that had very low level CD30 expression and some patients that had middle and some that had high, and there was responses in CTCL in all of them. So we don't want to go too far and cut off patients that might actually respond to ADCETRIS until we really know that they don't, so we're still exploring that area. It's a good question.

[Operator:]

And our next question is from the line of Alan Carr from Needham & Company.

[Alan Carr:]

I wonder if you could comment on Europe-- what are your expectations for launching across that -- across the countries there after launch and timelines? And then...

[Clay B. Siegall:]

David, can you...

[Peggy Pinkston:]

Alan.

[Clay B. Siegall:]

David -- oh, Alan. I'm sorry. Alan, could you -- it's really hard to hear you.

[Alan Carr:]

Oh, sorry. Is that any better?

[Eric L. Dobmeier:]

Yes.

[Clay B. Siegall:]

A little bit, yes. Can you start over?

[Alan Carr:]

Sorry about that. I hope this is better. I was wondering if you could comment about timelines for launching across Europe after approval there. And then also, how many patients are on a named -- are treated on a named patient basis over there in Europe?

[Clay B. Siegall:]

Okay. The timelines for the EU launch are something that is really within Millennium/Takeda. What we can tell you is that we think in the second half of this year, the EU will rule on approval, and we're not at liberty at this point to discuss the specific number of patients in the NPP. Eric, do you want to make any comments?

[Eric L. Dobmeier:]

I could just say from the point of view of Millennium, we haven't disclosed specific timelines, but they're aggressively pursuing pricing approvals within Europe and also seeking approvals across the globe for the product. So it's an important product in their portfolio, and they're doing this aggressively to make it available to patients.

[Alan Carr:]

All right. And then a quick one around the U.S. And I'm sorry if I missed, but is the gross-to-net stable now? And then what's your strategy on price increases in the U.S.?

[Clay B. Siegall:]

Todd, you want to answer the gross-to-net question?

[Todd E. Simpson:]

Sure. So yes, you're right. Gross-to-net have stabilized now. We're running at about 11% to 12%. That followed the implementation of the last government discount program that happened in early January. With respect to future price increases, we're really not, at this time, going to comment on that. There was one that went effective July 1, but at this point, we're not prepared to talk about future increases.

[Operator:]

Our next question is from the line of David Miller with Biotech Stock Research.

[David D. Miller:]

I found it interesting that you actually were net cash positive for the quarter. Can you talk about whether you expect this trend to continue?

[Clay B. Siegall:]

Todd, do you want to take that?

[Todd E. Simpson:]

Yes, sure. So you're right. In the quarter, we increased cash by a little over $21 million. There was really one thing that really drove that. You might recall that out of the initial date on the initial launch, we provided extended payment terms. We didn't want to -- or create a situation where we were asking sites to pay us before the sites were getting paid by the various payers. So for most of and actually, all of last year, we provided extended dating on the receivables. That started to work its way out in kind of the February to March timeframe. So what we saw in Q2 was a combination of cash collections from Q1 and Q2 sales but also 2011 sales, which drove cash receipts unusually high in Q2.

[David D. Miller:]

Okay. And the part about whether we can expect this trend to continue as revenues go up. Or is this really just a onetime deal?

[Todd E. Simpson:]

Well, it's a -- the expiry of the extended launch dating is a onetime phenomenon, and the future is going to be dependent upon how the sales trajectory looks.

[David D. Miller:]

Okay. And then last question is there's a question about your $140 million to $150 million revenue guidance. Is this just U.S. ADCETRIS sales? And if not, what all does it encompass?

[Todd E. Simpson:]

No, that's just U.S. ADCETRIS sales.

[Clay B. Siegall:]

You may recall at the last quarter that we provided guidance for partnering revenue and ADCETRIS sales, and now, for the first time, we actually reported some royalty revenue. Todd, do you want to go back and just refresh the memory?

[Todd E. Simpson:]

Yes. Yes, so just to reset the clock here. So ADCETRIS product sales, $140 million to $150 million, and then we also provided guidance on collaboration revenues of $55 million to $65 million.

[Operator:]

Our next question is from the line of Mani Mohindru from ThinkEquity.

[Mani Mohindru:]

Most of my questions have been answered. But I just wanted to get a sense that now that you have a healthy proportion of physicians in the community setting, do you think that the number of cycles that patients get before they are put on transplant, like pre transplant, would potentially increase, because patients are now treated in the community setting versus some of the trends that you've seen in the past and in the academic setting, where the goal is to get them towards the transplant faster?

[Clay B. Siegall:]

I think that's a very insightful question. In the community setting, there's not as -- there's not these very well-known transplant centers, and there's not the KOL transplanters. And so that is something that I believe we talked about on the last call, and we said that our presumption is based on all our research that we've done and our interviewing of community docs versus the academic docs that that's exactly what would happen. I think that we're still observing and watching. I don't want to make any specific comments. I can ask Chris if you want to add any color to this, but I think that what you're stating is something that we're watching very closely.

[Christopher S. Boerner:]

Yes. All I will add is that in the pre-transplant setting, one factor that plays into a physician's decision as to how long they keep patients on therapy is the desire to get them into the transplant itself. And so that constraint on the back end is something that will likely keep duration in that pre-transplant setting relatively less in terms of duration compared to the post-transplant setting. In the post-transplant setting, I think there's less of an urgency to move on to something else, and so I think the opportunity is for longer duration are actually greater in the post-transplant setting. The underlying premise of your question, though, is, I think, correct; which is that we do expect longer duration of therapy generally in the community setting relative to the academic setting.

[Mani Mohindru:]

And if I may add one more question. Can you give me a sense of the kind of proportion of accounts that are still not signed up or had not prescribed ADCETRIS yet?

[Clay B. Siegall:]

When we look at our heMab account across the United States, I think that separate accounts, we're thinking that there could be up to 2,000 or so accounts. And it's hard to get an exact number there. What we reported today was at 900 accounts, separate unique accounts have ordered the drug. That's up from 750 last quarter, which was up from 500 the quarter before. So we added 250 accounts 2 quarters ago, 150 accounts this quarter. I think our gross rate on that is not going to be -- obviously, with time, it's going to have to go down, because it's not an unlimited number of accounts, but we are still adding new accounts, absolutely. Chris, would you like to add color?

[Christopher S. Boerner:]

Yes, I think so. So Clay, I think, hit it right on the head, which is we continue to add new accounts, and the target number of accounts is just over 2,000. Keep in mind though that the difference between the number of accounts who are utilizing the drug and the number that we're targeting, that not all of those accounts will have on-label patients at any given point in time. And so what our goal is to make sure that we keep awareness of the drug high, enthusiasm for the product high. Our representatives continue to call on these accounts. And where we're going to see incremental growth is going to be as new patients either progress on their prior therapies or relapse with their disease, and at that point, we'll get those patients to hopefully receive ADCETRIS. And I think we're encouraged by the fact that all of our research suggest that ADCETRIS will be the drug of choice for the patients who fit our label.

[Mani Mohindru:]

Okay. That's very helpful. And one quick last question. Can you give us some sense of pre-transplant versus post-transplant patients, a proportion of the mix of these 2 in this quarter versus the previous quarter?

[Clay B. Siegall:]

Yes. I mean, we are not providing that level of detail, but we appreciate the question.

[Mani Mohindru:]

Can you at least give a sense like whether they have more pre-transplant or less pre-transplant patients in this quarter versus previous? Maybe...

[Clay B. Siegall:]

Yes. We're not providing that level of detail.

[Operator:]

And our next question is from the line of Ling Wang from Summer Street Research Partners.

[Ling Wang:]

I have 2 questions. First one, with regard to your education for -- of the physician to increase the treatment duration, can you help us to better understand why is it to the best of the interest of the patient to have a longer treatment duration if physicians think transplantation could potentially be curable while staying on ADCETRIS could risk of progression based on the current data? And secondly, housekeeping. For the cost of royalty revenue you got from partner, Millennium, this -- can you explain the nature of the cost and whether we should expect the percentage to continue to be approximately 40% going forward?

[Clay B. Siegall:]

Okay. As far as the first one, the education to duration is basically to the data that we have, where we -- in our pivotal trials, which the duration is between -- depending on the pivotal trial, between 7 and 10 cycles. That's where our data is. That's where we know the results. So it's very important that if a physician has historical data using cytotoxic drugs and they want to give 4 cycles or 5 cycles, that our data is not that. So if they really want to help their patient and get the best response that they can that we saw in our pivotal trials, they need to use the drug as we saw it or as we used it and as it was used. And so what we're doing is trying to educate doctors as to what our data was, what our number of cycles were in our pivotal trials and educate toward that. We're not just trying to add work for no reason. And absolutely, we embrace-- and it's important to get patients toward transplant, and that could be very valuable as well. So we have no issue at all over that, and we think it's part of the whole paradigm. As far as cost of the royalty revenue, Todd, would you like to take this?

[Todd E. Simpson:]

Sure. So there's sort of 2 parts to the answer. You have to look at royalty revenues and then the cost of those revenues. In our financial statements, you'll notice there's now 2 new line items. The cost of royalty revenue is the single-digit royalty stack that's owed on ADCETRIS sales in Millennium's territory. So that number will sort of stay at a constant percentage, although I will say those licenses expire at various points in time in their various step-downs. On the royalty revenue, these are the royalties that are in down from Millennium, and what we've talked about on prior calls is that range of royalty starts in the mid-teens and increases to the mid-20s as a percentage of sales based on sales volume. So the cost of royalty revenue line will stay relatively fixed, but the revenue royalties will actually increase as sales volumes increase.

[Ling Wang:]

I'm sorry, so the cost of the royalty, it's a percentage of the royalty revenue. So that stay constant at approximately 40% as in...

[Todd E. Simpson:]

No. No, it's a percentage of Millennium sales. Yes, the single-digit royalty on Millennium sales.

[Operator:]

Thank you, and we have no further questions at this time.

[Peggy Pinkston:]

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

[Operator:]

Ladies and gentlemen, this concludes the Seattle Genetics Second Quarter 2012 Financial Results Conference Call. If you'd like to listen to a replay of today's conference, please dial 1 [phone] or [phone] with the access code of 4555600. We do like to thank you for your participation. You may now disconnect.