Seagen Inc.
Q3 2014 Earnings Call Transcript

Published: 2 Nov 2014

[Operator:]

Good day, everyone, and welcome to the Seattle Genetics’ Third Quarter Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Peggy Pinkston, Senior Director of Corporate Communications. 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’ third quarter 2014 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 & Development; and Chris Boerner, Executive Vice President, Commercial. Following our prepared remarks today, we will open the line for questions. If we are unable to get to all of your questions, we will be available after the conclusion of the call. Today's conference call will include forward-looking statements 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. At this point, I'll turn the call over to Clay.

[Clay B. Siegall:]

Thanks, Peg, and good afternoon, everyone. Thank you for joining us today. The third quarter was marked by several important accomplishments. We generated record ADCETRIS sales, reported positive data from our Phase III AETHERA clinical trials and achieved multiple milestones across our proprietary pipeline and collaborator programs. We are focused on a number of key initiatives over the remainder of 2014. These include data presentations for ADCETRIS and our pipeline programs at ASH, regulatory activities for the AETHERA, ECHELON-1 and ECHELON-2 trials and new clinical trial initiatives, initiations with multiple agents in our pipeline. I’ll start today by providing more details on highlights from the third quarter. ADCETRIS net sales in the U.S. and Canada in the third quarter were $48.2 million and were $131.7 million for the year-to-date. This represents a 32% increase compared to the third quarter of 2013 and a 24% increase compared to the first nine months of 2013. Based on our year-to-date results, we are increasing our guidance for 2014 of ADCETRIS net sales in the U.S. and Canada to a range of $172 million to $177 million, an increase over our prior guidance of $160 million to $170 million. Our global ADCETRIS partner, Takeda, continues to make progress in securing additional approvals for ADCETRIS in its territory. ADCETRIS is now approved in 47 countries worldwide, which includes 11 new approvals in the last 12 months. In September, we reported positive top line data from our Phase III AETHERA clinical trial evaluating the use of ADCETRIS as consolidation for Hodgkin lymphoma patients at risk of relapse post autologous transplant. The outcome of this trial exceeded our expectations. We are pleased that the full dataset from AETHERA will be featured in an oral presentation at the American Society of Hematology or ASH annual meeting in early December. In addition, our regulatory team will meet with the FDA to discuss our plans to submit a supplemental BLA in the first half of 2015. Another highlight from the third quarter was expansion of our product pipeline. We initiated a Phase I clinical trial with SGN-CD70A and ADC targeting CD70. We now have six clinical stage ADCs in development for a range of hematologic malignancies and solid tumors. From a business development perspective, during the third quarter, we entered into a new ADC collaboration with Genmab. This deal provides Genmab with access to our ADC technology for a target called AXL, which is expressed on solid tumors. The financial terms reflect the continued confidence in our industry-leading technology. We received an upfront payment of $11 million as well as rights to milestones and mid-to-high single digit royalties. Notably, following Genmab’s completion of its first Phase II clinical trial of an AXL targeting ADC, we have an option to increase our royalties to double digits in exchange for a reduction of the milestone payments owed by Genmab. This is an important opportunity to increase our potential equity in this program based on clinical data. Additional ADC collaborator activities during the third quarter included GlaxoSmithKline initiated a Phase I clinical trial of an ADC for multiple myeloma, Takeda initiated a Phase II clinical trial of an ADC for advanced gastrointestinal malignancies, and Bayer initiated a Phase I clinical trial of an ADC for solid tumors. We received milestone payments as a result of this collaborator progress. In total, our ADC collaborations have generated more than $300 million to-date and importantly these deals extend the reach of our technologies to address unmet needs in cancer. Looking ahead, we have a busy remainder of 2014. We are preparing for a strong presence at ASH, a record 18 abstracts on our programs were accepted for presentation at the meeting including eight oral presentations. In addition to the AETHERA presentation, several other ADCETRIS corporate and investigative sponsored trials will be featured including oral presentations from our trial of ADCETRIS plus bendamustine in salvage Hodgkin lymphoma, our trial of ADCETRIS plus dacarbazine in frontline older patients with Hodgkin lymphoma and long-term follow up from our Phase I trial in frontline Hodgkin lymphoma. With our pipeline programs, there will be an oral presentation of our SGN-CD33A Phase I trial in AML and we’ll report data in two post recessions from our SGN-CD19A Phase I clinical trials in non-Hodgkin lymphoma and ALL. Also, before the end of the year, we anticipate submitting an IND for a proprietary agent called SEA-CD40, which will be tested in solid tumors. This novel non-fucosylated antibody is designed to activate CD40 on the patient’s immune cells to fight cancer. It builds on our SEA or sugar-engineered antibody technology and our extensive experience targeting CD40. We anticipate initiating a Phase I trial of SEA-CD40 in 2015. This is the first of two non-ADC product candidates currently in our pipeline that have been developed using technology discovered by our scientists. I’m excited by the continued culture of scientific creativity and innovation represented in our programs. Building and advancing a robust pipeline is a key part of our strategy for generating value in Seattle Genetics and our R&D is delivering well on our goals. At this point, I’ll turn the call over to Chris Boerner who will talk about our ADCETRIS commercial efforts. Then Todd Simpson will discuss our third quarter financial results. Next, Jonathan Drachman will cover ADCETRIS clinical development highlights and updates from our own product pipeline and ADC technology. Then, we’ll open the line for questions. Chris?

[Christopher S. Boerner:]

Thanks, Clay. As Clay mentioned, net revenue for the quarter was $48.2 million, an 8% increase over Q2. The growth we’ve seen this quarter reflects continued strong utilization of ADCETRIS in our core indications of relapse Hodgkin lymphoma and systemic anaplastic large cell lymphoma. ADCETRIS is the standard of care for patients in both of these settings. We also continue to see increased utilization across earlier lines of therapy in both HL and systemic ALCL. Particularly, we are seeing increased use in pre-transplant salvage HL. While ADCETRIS is not currently indicated for this population, nor do we promote outside of our labeled indications, the majority of patients in this setting receive ADCETRIS to enable a transplant. Similarly, we continue to see physician interest in utilizing ADCETRIS in other CD30 expressing diseases such as peripheral T-cell lymphoma, cutaneous T-cell lymphoma and diffuse large B-cell lymphoma. The dynamics I just mentioned will likely continue to be the primary drivers of sales for the remainder of 2014. It’s important to note, however, that we do anticipate fluctuation in sales quarter-to-quarter in the near term reflecting greater utilization outside of areas in which we can promote, end of year holidays which impact the number of effective selling days and general fluctuations in buying patterns. Nevertheless, we are encouraged by the strong commercial performance of ADCETRIS in the third quarter as well as by the significant support for ADCETRIS that we continue to see across all of our commercial customers. Looking ahead, we are excited by the positive results from our Phase III AETHERA study and we have begun commercial preparations for a potential label expansion in this patient population. With that, I will now turn the call over to Todd.

[Todd E. Simpson:]

Thanks, Chris, and thanks to everyone for joining us on the call this afternoon. Our financial results in the third quarter of 2014 were strong and we ended the quarter with nearly $340 million in cash and investments. Our cash position reflects the positive impact of several factors including increasing ADCETRIS sales and royalty revenues as well as continued collaboration activities. Total revenues were $75.9 million for the third quarter of 2014, which included ADCETRIS net sales of $48.2 million. For the year-to-date, total revenues were $212.4 million including ADCETRIS net sales of $131.7 million. As Clay mentioned, based on strong sales to-date, we are increasing ADCETRIS net sales guidance to now to be in the range of $172 million to $177 million for the full year. Revenues in 2014 also included royalties of $8.1 million in the third quarter and $28.2 million for the year-to-date, primarily reflecting royalties on ADCETRIS sales by Takeda in its territory. Year-to-date royalties include a $5 million sales milestone in the first quarter triggered by Takeda surpassing $100 million in annual ADCETRIS sales in 2013. Collaboration revenues were $19.5 million and $52.6 million for the third quarter and year-to-date in 2014. As expected, these revenues have decreased in 2014 due to a couple of factors. First, collaboration revenues in the third quarter of last year included the $12 million upfront payment under the new Bayer collaboration. Secondly, ADCETRIS development co-funding has decreased in 2014. This reflects the sale of drug product to Takeda last year to support them in establishing their own product supply as well as their expanding role in global clinical development activities this year. Beyond our ADCETRIS collaborations, our ADC partners continued to make substantial progress, generating payments totaling $19 million in the third quarter. The year-end portion of this amount is reflected in revenues for the third quarter and contributed to quarter-to-quarter growth. Based on progress being made, we are increasing collaboration revenue guidance for the full year to now be in the range of $64 million to $68 million. R&D expenses were $58.5 million and $166.7 million for the quarter and year-to-date in 2014. These expenses were significantly lower for the quarter and slightly lower for the year-to-date, but let me provide some perspective. Last year and in particular during the third quarter, we recorded substantial R&D charges related to the cost of ADCETRIS product sold to Takeda to support its important clinical and commercial needs. Takeda has now taken on much of its own product supplier responsibilities and the amount of product needed for us has decreased significantly. This led to lower R&D expenses this year as well as lower collaboration revenues, as I mentioned. All of this aside, during 2014 we increased our investment in clinical trials for ADCETRIS and in our expanding pipeline of clinical programs. SG&A expenses were up modestly year-over-year and non-cash share-based compensation costs for the first nine months of 2014 was $29 million compared to $21.6 million for the first nine months of 2013. We remain well positioned to continue investing in our priorities of expanding the ADCETRIS franchise, advancing our product pipeline and maintaining our leadership position in the field of ADCs. With that, I’ll now turn the call over to Jonathan.

[Jonathan Drachman:]

Thanks, Todd. Our strong clinical and preclinical pipeline reflects our innovation and dedication to providing important new therapeutic options to physicians and patients battling cancer. There are many exciting upcoming events in the near future that I’d like to outline. Let’s start with ADCETRIS. In September, we announced positive top line data for the AETHERA trial and we look forward to presenting the full dataset at the upcoming ASH annual meeting. The outcome of the AETHERA trial is an important success for Hodgkin lymphoma patients at risk of relapse following an autologous transplant. Patients who have failed frontline curative regimens have an average age in their 30s and face a difficult road to achieve long-term remissions. Autologous stem cell transplantation is the current standard of care but afterwards physicians and patients can only wait and watch as more than half of patients will relapse. The AETHERA results changed this equation demonstrating a PFS benefit with the hazard ratio of 0.57 and a P value of 0.001. The safety profile of ADCETRIS was consistent with existing prescribing information. We will be meeting with the FDA to discuss submission of a supplemental BLA for a new indication in the first half of 2015. As reported, we have not observed a statistically significant difference in overall survival, which is a secondary endpoint. Of note, the number of deaths on the AETHERA trial thus far is low. Importantly, most patients on the placebo arm of AETHERA received ADCETRIS if they progressed, which may have a confounding impact on the interim OS results. It will likely take years for overall survival to fully mature. This is consistent with data from our pivotal Hodgkin lymphoma study, which demonstrated median overall survival of more than 40 months in an even more advanced patient population. Regarding ECHELON-1 and ECHELON-2 Phase III trials intended to redefine frontline therapy for Hodgkin Lymphoma and mature T-cell lymphoma, respectively, investigator enthusiasm and enrollment remains strong. We disclosed earlier this year that we are exploring modifications in the statistical aspects of these trials and we can now report that discussions are underway with regulatory agencies in both the United States and Europe. The potential modifications are in response to data that continue to emerge suggesting that progression events in both trials are likely to happen at a slower rate than originally forecast when we designed these trials. These data include two-year follow up from the frontline mature T-cell lymphoma trial that were presented at ESMO, the AETHERA results and data from our Phase I trial of ADCETRIS plus AVD in frontline Hodgkin lymphoma that will be presented at ASH. We have confidence in ADCETRIS base regimens that are being tested for frontline patients and believe these strategies have the potential to provide meaningful improvements and outcomes for patients. We also look forward to exploring a combination of ADCETRIS with immuno-oncology agents, an exciting area of oncology therapeutic development. This could be an important opportunity for patients in the future. Physicians are eager to explore novel combinations with ADCETRIS. For example, there’s a cooperative group trial combining ADCETRIS with the immuno-oncology checkpoint inhibitor, pilimumab or Yervoy. We expect additional ISTs and we are also planning for future corporate trials. We look forward to keeping you updated. Beyond ADCETRIS, we’re developing six clinical stage ADCs and anticipate advancing a seventh program into the clinic in early 2015. At ASH, interim Phase I data from SGN-CD33A will be featured in an oral presentation. SGN-CD33A is an ADC targeting CD33 for the treatment of acute myeloid leukemia. This is the first clinical trial of an ADC that utilizes our proprietary highly potent cell killing agent, a PBD dimer and our site-specific conjugation technology. We plan to enroll multiple expansion cohorts in the ongoing Phase I trial as well as to explore combinations with hypomethylating agents. We also plan to initiate a Phase Ib trial to evaluate frontline regimens consisting of SGN-CD33A combined with standard drugs used for AML patients who are able to tolerate intensive chemotherapy. AML is a terrible disease with few compelling treatment options. We’re excited about CD33 as a target expressed by almost all AML cells and the potential for SGN-CD33A to provide an important new therapeutic option. Also at ASH, we will report additional data from our two Phase I trials of SGN-CD19A; one in non-Hodgkin lymphoma and one in acute lymphocytic leukemia. As a reminder, we previously reported interim data from both trials suggesting that SGN-CD19A has encouraging single agent activity with a manageable safety profile, which is notable for the absence of significant neuropathy or myelosuppression. In 2015, we plan to initiate a randomized Phase II combination trial of SGN-CD19A in relapsed DLBCL. We’re also evaluating multiple ADCs for solid tumors. SGN-LIV1A is an ADC targeted to LIV-1, which is expressed on more than 90% of breast cancers. Our ongoing Phase I trial is in several subtypes of metastatic breast cancer including triple negative disease. We anticipate data from this ADC in 2015. Also being studied in solid tumors are ASG-22ME and ASG-15ME under our collaboration with Agensys and Astellas. During the third quarter, we advanced another proprietary ADC into clinic, SGN-CD70A. This ADC targeting CD70 utilizes the same PBD-based ADC technology as SGN-CD33A. We’re excited about this program based on our preclinical data and our enthusiasm for CD70 as a target. The Phase I trial is designed to evaluate the pharmacokinetics, tolerability and activity of SGN-CD70A in both CD70 positive non-Hodgkin lymphoma and renal cell carcinoma. Finally, I want to touch on our newest proprietary IND candidate that we expect to advance into clinic in 2015, SEA-CD40. This is not an antibody drug conjugate but rather it utilizes our novel SEA technology to produce a non-fucosylated engineered antibody targeting CD40. We’ve been working on CD40 as an attractive target for cancer therapy for many years. Our preclinical studies show that SEA-CD40 is a potent stimulator of immune cells that may be able to harness the power of a patient’s own immune system to fight their cancer. We plan to evaluate SEA-CD40 in a Phase I trial for multiple solid tumors. It’s an exciting addition to our pipeline and provides an immuno-oncology therapeutic approach that is complementary to our ADC technology. At this point, I’ll turn the call back over to Clay.

[Clay B. Siegall:]

Thanks, Jonathan. Before we open the call to questions, I’d like to summarize our key upcoming milestones; reporting data from multiple ADCETRIS clinical trials at ASH, notably an oral presentation from our Phase III AETHERA trails, reporting data at ASH from our Phase I clinical trial of SGN-CD33A in AML and Phase I trials of SGN-CD19A in non-Hodgkin lymphoma and ALL. And submitting an IND for our seventh clinical stage program SEA-CD40 in the fourth quarter. We look forward to keeping you updated on our progress. At this point, we will open the line for Q&A. Operator, please open the call for questions.

[Operator:]

Thank you. (Operator Instructions). We will take our first question today from Adnan Butt with RBC Capital Markets. Please go ahead.

[Adnan Butt:]

Hi, thanks, and congrats on the progress. Let me ask two questions. First, a high-level question, and this is about developments in immuno-oncology. How do they fit conceptually with ADCs? How do they impact development of ADCs if at all? And the second question I have is on SGN-CD33A. You’ve announced the start of a combination study in earlier stage AML, I guess. How should we think about safety and efficacy from the patients you’ve already evaluated before going into that combination? Thanks.

[Clay B. Siegall:]

Thanks, Adnan. So, first of all, let’s about immuno-oncology and the development fit with us. I think when we heard about some of the immuno-oncology products out there, we haven’t seen all the data but there’s an excitement to it and we think that that’s really good for patients. But keep in mind when you think about immuno-oncology and you think about what we do, we’re working on continuing to establish ADCETRIS as the foundation of care for CD30 expressing lymphomas. And our main goal with ADCETRIS in Hodgkin lymphoma, for instance, is to redefine frontline therapy. And Jonathan, maybe you want to make little comments on immuno-oncology and the development fit.

[Jonathan Drachman:]

Sure. So as Clay said, we’re glad to see they’d be additional options for patients and we’re excited about the opportunities of novel combinations. For example, in our ECHELON-1 Phase III trial, what we’re trying to do is to create a regimen for Hodgkin lymphoma patients that is more effective and less toxic than the current standard of care. So we’re adding in the most active drug that has ever been developed for CD30 expressing lymphoma’s ADCETRIS and removing bleomycin, which can cause pulmonary toxicity. If other options are available like immuno-oncology agents that could be combined with ADCs and be able to further remove some of the nonspecific chemotherapy agents and result in even better regimens, that seems like a wonderful goal for the future. I want to then turn to the question on CD33A. You asked about the combination studies and how to think about that, and I just want to start off by saying that we are enthusiastic about SGN-CD33A as a single agent and we’re continuing to work to define the tolerability and regimen for a single agent. We’re also interested in figuring out how this can be advanced into other lines of therapy and other types of patients because AML is a bit complicated. There is the younger patients who are treated very intensively. There’s the older patients who are treated more palliatively. They both have frontline options, they both have relapse options and we’re really looking at all the opportunities where SGN-CD33A might be able to make a difference.

[Operator:]

Is there anything else, Adnan?

[Adnan Butt:]

Thank you.

[Operator:]

Thank you, sir. We’ll now go to Matt Roden with UBS.

[Matthew Roden:]

Great. Thanks for taking the questions and congrats on the progress here. So first on the commercial side, it sounds if I understood you, Chris, that the underlying core business is more or less Steady Eddie, and then the growth is coming from the additional settings like the pre-transplant salvage, MTCL and CTCL and the compendia settings. Is that accurate?

[Clay B. Siegall:]

I’ll touch on this and I’ll turn it over to Chris, Matt. I mean Steady Eddie is one way you can call it. I mean we’re really happy with our third quarter results. From a big picture, our guidance indicates a 20% approximately increase in ADCETRIS sales from 2013 to 2014. And so the commercial team at Seattle Genetics is doing a great job with ADCETRIS. We’ve had a lot of sequential growth in second quarter and third quarter. And Chris, you could comment a little bit more of the other factors that we’re looking at.

[Christopher S. Boerner:]

Yes, Matt. I think in general the factors you identified are the right ones. We continue to see very robust utilization of ADCETRIS on label. We continue to do everything we can to continue to drive incremental growth in that population through continuing to identify every potential on-label patient who could benefit from the drug as well as, as we’ve talked in previous calls about continuing to drive duration of therapy and use consistent with our PI. Beyond on-label utilization, we also continue to see the trend that physicians are looking to utilize ADCETRIS in earlier lines of therapy really in both HL and ALCL. But particularly we’ve noted increased utilization over time in that second line transplant eligible salvage population. And I guess the third factor I’d highlight is that – and this is again something that’s been trending positively for multiple quarters is the increased interest in customers in utilizing in other CD30 positive malignancies.

[Matthew Roden:]

Okay. So just within this particular quarter, were there any sort of nonrecurring aspects in the number like buying patterns, inventory? Just asking because even the top end of guidance implies a sequentially down sales. So I’m just trying to understand if you actually have visibility into a slowing trend or if this is just more like a conservative stance to allow for fewer selling days, that sort of thing?

[Clay B. Siegall:]

Matt, I appreciate the question. We’re really looking here at the big picture for growing ADCETRIS into a very important big product. When you think about it, this is a superb drug. Docs really like it. We’re focused on trials and data to build a strong global brand. For the year 2014 globally, this product is going to be starting to approach 400 million. So it’s not so much of the one quarter to the next that we are exactly focused on, we’re focused on the big picture. Chris, would you like to comment a little bit about what Matt said?

[Christopher S. Boerner:]

Yes, I wouldn’t draw any conclusions around fourth quarter from anything that we’ve said. At this point, we’re still early into the fourth quarter. What I would say is that as Clay mentioned, we’ve seen very good growth year-over-year. There was no stocking per se in Q3 that would impact us. We are, however, cognizant of the reality that with any drug, you’re likely to see quarter-over-quarter fluctuations. That’s particularly true as you get into later in the year where holidays, the number of effective selling days and just general fluctuations that one can see in a market this size of buying patterns can come into play. All of that – those fluctuations potentially notwithstanding, we have seen very nice growth throughout the year. We continue to stay focused on ensuring that every eligible patient who can benefit from this drug has the opportunity to do so and we’ve been pleased with the performance that we’ve seen thus far.

[Matthew Roden:]

Okay. And just one quick one on – for Jonathan. I think I might have detected something shifting in your commentary as it relates to the potential protocol changes in the frontline. I think you might have specifically said changes to the statistical plan as opposed to a potential change of the endpoint. Did I hear that correctly? And should we assume that you would be sticking to the standard analysis that’s done in the frontline of (indiscernible) and PFS that gets not only the early relapsers but also the late relapsers?

[Jonathan Drachman:]

I don’t think you should read anything into that. We’re engaged in discussions and doing the right thing for the trials to make sure that we get robust data from these important trials.

[Clay B. Siegall:]

Yes. Certainly, Matt, we did not intend to communicate any specifics of how we’re making the changes to the ECHELON trials. We are working with regulators and as we’ve shown ADCETRIS as really active in many settings and combinations and we’ve shown durability, the AETHERA outcome even more reinforces the need to take a close look in E-1 and E-2. And we just don’t feel that it is right to comment on anything specific until our meetings with regulators in U.S. and Europe are complete. Those meetings are currently ongoing. But the goal is clearly to do the best thing for patients, for the doctors and for the companies. In the meantime, we’re continuing to enroll our frontline trials and we remain enthusiastic about being able to redefine frontline therapy in both Hodgkin lymphoma as well as mature T-cell lymphoma.

[Jonathan Drachman:]

Just to emphasize what I said before, the things that are driving us to make these changes are really data not coming from the Phase III trials but from other trials that continue to show us how impressive ADCETRIS can perform. And for example if you look at the Phase I data that were updated at ESMO, in our experience of 26 patients we still have not hit a median PFS with now more than two years of follow up. And that’s the kind of thing that we want to make sure that we’re making the right changes so that we will be able to do the trial correctly.

[Matthew Roden:]

Okay. And just lastly and related to that, if you’ve gone to the regulators with a proposal, does that mean that you’ve achieved consensus with your partner and with the medical experts?

[Clay B. Siegall:]

We’re not going to give you some specifics of what we’ve done with our partners and medical experts. I think we’ll let you decide what you think that means. I just don’t think it’s fair for us to talk about specifics of our discussion with Takeda and KOLs.

[Matthew Roden:]

Okay, congrats on the progress. Thanks for taking my question.

[Clay B. Siegall:]

Thank you.

[Operator:]

We will now go to Jason Kantor with Credit Suisse.

[Jason Kantor:]

Great, thanks and congrats on a great quarter and the progress of the pipeline. Super excited to see this SEA technology in the clinic. Could you just tell me a couple things about that? Is that the same CD40 antibody that you took forward before? And it sounds like is the goal here to target CD40 on immune cells in a kind of PD-1 PDL one type of way for solid tumors or is this a way to go after the CD40 expressing sales to treat lymphoma and leukemia, which is I think the original way that it was developed?

[Clay B. Siegall:]

Jason, I’ll start out and then I’ll turn it over to Jonathan for additional comments but please note that what we’re doing overall here is we’re making targeted drugs for cancer patients. I’m glad you picked up on SEA-40. We think it’s representative of the innovative work that’s going on here. And it’s an empowered antibody and we believe this could have a lot of potential in solid tumors. Now Jonathan can describe a little bit further, the mechanism of action and how we’re thinking of this as an immuno-oncology approach and other points. Jonathan?

[Jonathan Drachman:]

Sure. So Jason, this is we believe going to be an immuno-oncology drug, so what we are doing is targeting to CD40 on the immune cells to activate them. It’s different than PD-1 inhibitors, for example, which are like taking the breaks off of T-cells. This is more like activating antigen presenting cells which can then work in concert with other parts of the immune system to have a more robust response. So, we think it could be very complementary and exciting in the whole immuno-oncology field. The SEA technology results in defucosylated antibodies, which in most cases would result in enhanced ADCC. In this case, because of the properties of the antibody, it results in further agonistic stimulatory functions. So it’s unique to this particular antibody that it has this effect. And the other thing is we will be presenting preclinical data next year on the program.

[Jason Kantor:]

Thanks. And I if could ask one follow-up question on the sales and I don’t want to harp too much on the near term, but you guys did state that you anticipate fluctuation in sales in the near term. And so I want to understand, is there any aspect of this quarter’s sales “fluctuation” or are you just referring to some of the things that might happen around holidays and the like going forward, or is there something that fluctuated this quarter?

[Clay B. Siegall:]

No. It’s really just the fluctuations that you have at the end of the year. With the holidays and fewer selling days, some end of the year buying patterns that people have, it’s not any greater thing that we’re saying here.

[Todd E. Simpson:]

Certainly, Jason, nothing in Q3.

[Jason Kantor:]

Perfect. That’s what I wanted to hear. Thanks.

[Operator:]

We’ll go to Cory Kasimov with JPMorgan.

[Cory Kasimov:]

Hi. Good afternoon, guys. Thanks for taking the questions; nice quarter. You mentioned that there is an IST to evaluate ADCETRIS plus Yervoy. I’m curious with the PD-1 data that is coming at ASH this year, are you aware of any plans either via IST or corporate sponsor to test ADCETRIS with PD-1s?

[Clay B. Siegall:]

Cory, thank you for the question. It’s an important question. Here’s what I can tell you. There’s an ECOG trial that does combine ADCETRIS with ipilimumab or Yervoy. Now what we also expect that there will be other ISTs with immuno-oncology agents and potentially some corporate trials with immuno-oncology agents. And for any more details in that I think I would just recommend to stay tuned, and we’re very interested in immuno-oncology programs from what’s outside of Seattle Genetics as well as our first immuno-oncology program SEA-40.

[Cory Kasimov:]

Okay, all right, makes sense. And then with regards to the CD33A program at ASH, are you able to say roughly how many patients we might be able to see data on when you report it out there?

[Clay B. Siegall:]

Once again, this is something we like to reserve for ASH, the specific numbers of it, but I can tell you it’s not just like one or two cohorts. This is a substantive number of patients that will be a fair representation of dose escalation study where we could have expansion cohorts and a lot of information there. So we’re excited to get this ball rolling and present for the first time SGN-CD33A that’s going to show a couple of different – I mean it’s going to demonstrate a couple of different things. One is our newest data with a drug conjugate. Number two, our first dataset with a PBD, pyrrolobenzodiazepine drug conjugate which is a highly potent drug conjugate that has a different linker, a different mechanism of action and blocks DNA replication itself rather than affecting tubulin. So it’s a real exciting time for us to be showing our newest innovative ADC technology and not just hand waving about what we could do based on preclinical studies. We actually did the preclinical studies, made the drug, put it in clinic and they’re now presenting data for the first time. So we’re real excited about that.

[Cory Kasimov:]

Okay. And then lastly, just curious if you have any updated thoughts on the potential next steps for DLBCL?

[Clay B. Siegall:]

Yes, we actually do have some thoughts on DLBCL. Jonathan, do you want to talk – are you referring to CD19 or you referring to ADCETRIS? What are you referring to?

[Cory Kasimov:]

Well, kind of both but I was more thinking ADCETRIS but feel free to comment on CD19 as well.

[Clay B. Siegall:]

Well, we definitely have thought a lot about DLBCL and Jonathan, you want to comment on ADCETRIS with DLBCL as to where we are?

[Jonathan Drachman:]

Sure. As you recall, we’ve presented data on the CD30 expressing patients showing very nice response rate of over 40% with CR rate of about 16%. We’re going to have a lot of data that we present at ASH looking at frontline combinations with ADCETRIS, looking at more of the relapse refractory patients such as the ones who are undetectable with traditional immunohistochemistry. And using all those data, we are formulating our strategy, which we’ll be able to talk about then. So you’ll need to wait just a little bit longer, but we’ll be clarifying that in the near future.

[Cory Kasimov:]

Okay. Thanks for taking the questions, guys.

[Operator:]

Next up is Navdeep Singh of Goldman Sachs. Please go ahead.

[Navdeep Singh:]

Hi. Good afternoon, guys. Thanks for taking my questions and congrats on the progress. Many questions on the potential of ADCETRIS in combination with PD-1 antibody. Are there any reasons why ADCETRIS wouldn’t be synergistic with the PD-1 antibody?

[Clay B. Siegall:]

We don’t have specific reasons why we wouldn’t want to explore the use of ADCETRIS with PD-1 PDL-1 or other checkpoint inhibitors. So there’s no evidence against that. I think it’s something that a lot of doctors are very interested in exploring ADCETRIS with these immuno-oncology agents and we expect that there’s going to be ISTs and are considering certain corporate trials, but we just don’t have anything specific to say today. We like to do things before we say them. So I would ask you to stay tuned and keeping watching Seattle Genetics.

[Navdeep Singh:]

Okay. Clay, just a follow up to that. I think you mentioned there’s an ECOG trial evaluating (indiscernible) or [ipi] (ph) plus ADCETRIS. Any sense of when we could see data from that? Have you talked to ECOG about it?

[Clay B. Siegall:]

We’ve been in contact with the principal investigator about the trial of Yervoy plus ADCETRIS. I don’t have any specifics since it’s not a corporate trial for Seattle Genetics when that will come out. But I know it’s accruing and doing well, and we’re pleased with it.

[Navdeep Singh:]

And my final question is on big pharma. Have either like Bristol or Merc contacted you to show some interest in combining their respective PD-1 antibodies with ADCETRIS?

[Clay B. Siegall:]

That’s a question that’s one not something I could answer on this type of call, but I could tell you there is a lot of interest amongst a lot of different organizations and doctors to combine checkpoint inhibitors with ADCETRIS. So it is a subject of active interest.

[Navdeep Singh:]

Okay. I appreciate it. Thank you.

[Operator:]

And Thomas Wei with Jefferies is next.

[Thomas Wei:]

I had a couple of questions on AETHERA. Are you able to go back and institute PFS-2 as an endpoint in that trial? Can you collect what happens on the next therapy that patients receive after they progress or does that not make much sense because you might as well just look at the overall survival data?

[Clay B. Siegall:]

Thomas, what you’re asking is actually an amazingly intuitive smart question, so congratulations. We’re going to present AETHERA data – first of all, we’re going to present AETHERA data at ASH in an oral presentation. We’re going to include PFS, OS, safety and subgroup analysis. And what’s you’re getting to is really almost a subgroup analysis and the post-talk analysis and what we could do, how we could take this data, are we following our patients and comparing things. And I would let you know that you can assume we are following every parameter that we can, because it’s a big dataset, it’s an exciting dataset. I know everyone what’s to know the data right now, but we were only – it was the right thing to do to provide the top line data and providing the rest of the specifics from the – the principal investigators needs to provide the rest of the specifics at ASH. So you’re question is really, really good. Let’s have that discussion after ASH.

[Thomas Wei:]

That’s helpful. And do you know if and what proportion of patients in the ADCETRIS arm of that trial might have gone on to receive ADCETRIS again?

[Clay B. Siegall:]

Once again I’m going to congratulate you on the best two questions I’ve heard today, and I would encourage you to wait for ASH because that is something we will be including in our presentation. It’s a more important question than perhaps you even realize it is. Keep in mind that in this trial, we offered patients on the placebo arm and it was the right thing to do quite frankly in 2009 or whatever we started this to offer patients on the placebo arm and only that arm if they progressed to get ADCETRIS. And the majority of them did. And so that’s something – and we’ll show some more details about this. It was certainly not what was done on the ADCETRIS arm. There was no reoffering, so that’s something that didn’t happen. But we could talk about it because from the time we started the trial and it progressed a few years, there were some countries that approval happened a few years later and other countries didn’t. It took a lot longer. And so the trial was a very international trial, so it becomes a little complicated. But I think we understand a lot here and after ASH – and maybe ASH will answer your questions and if not, after ASH we can have a more open discussion about this.

[Thomas Wei:]

And then just my last question was we’re all trying to figure out if AETHERA is going to lead to an overall survival benefit in the end and this crossover thing is complicating the analysis of the initial overall survival data. But from the relapse refractory setting, do you have any information or what data do we have that shows that longer treatment with ADCETRIS is better than, say, those patients who were treated to best response plus two cycles or whatever the paradigm was? If physicians could choose, right, but do you have outcomes on PFS or on overall survival that you could help us contextualize those two different treatment paradigms?

[Clay B. Siegall:]

First of all, as we said in our prepared remarks, OS is going to take years to mature. This was expected. This is not unexpected. And so that’s the first and foremost thing. Second of all, Jonathan, do you want to talk a little bit about any of our data with long-term treatment?

[Jonathan Drachman:]

Yes. So, Thomas, we never did a study like that where we compared that – the studies that were done, the pivotal study and other studies were done with either 16 doses a year of therapy or to progression, and so we don’t have that data. And the important thing is that to get the results that we got from our pivotal studies, you have to treat the patients the way the studies were run. And the results are quite remarkable. I mean there are still some patients on the pivotal studies particularly in the Hodgkin lymphoma, there’s a number of patients who still haven’t relapsed and also on the ACLC trial. So very good not only OS data but PFS data. The other question that you asked about OS, I think Clay was right on. This is really early. I don’t know if – we presented some un-blinded cumulative data last year or maybe it was earlier this year at the ASBMT meeting showing that we only had a small number of deaths. So I think it was in the 40s. And so that gives you an idea about really how early this is on the whole trial.

[Thomas Wei:]

Okay. Thank you.

[Operator:]

And Howard Liang with Leerink Partners is next. Please go ahead.

[Howard Liang:]

Thanks very much. On the CD40, I think it is a [co-symmetry] (ph) agonist. How might it be differentiated clinically from other CD30 agonists such as the former Pfizer antibody? I was also curious how might de-fucosylation lead to increased co-symmetry activity? Is that due to enhanced cross thinking?

[Jonathan Drachman:]

Yes. So you’re talking about CD40 and yes, de-fucosylation – so this is very different from Pfizer’s molecular, any of the other CD40s that have been developed because it’s a conditionally agonistic antibody that requires cross linking and the de-fucosylation leads to cross linking presumably by the NK cells through binding to CD16. And so it is different than other CD40 antibodies that have been developed.

[Howard Liang:]

Okay. And I think Clay said you have another naked antibody. Is that also in the area of immuno-oncology?

[Clay B. Siegall:]

Yes. To clarify, we said we had another non-ADC. We did not say it was a naked antibody. And so it’s a very innovative exciting product, but let’s just say don’t assume it has to be an antibody.

[Howard Liang:]

Okay. And on the SGN-CD19A, can you talk about how you feel about being able to manage ocular toxicity and what is the DLBCL study that you’re starting next year?

[Jonathan Drachman:]

So we will talk about the updated data in just a few weeks at ASH and there we’ll address things. We do think that the ocular toxicity is manageable and that’s why we’re interested in moving it forward. And we’re not prepared at this moment to talk about exactly what the randomized Phase II trial would be, but I think you can imagine that it would be a combination with a standard second line, third line regimen – a relapse regimen in patients with DLBCL, and really taking advantage of the fact that yes, the ocular toxicity is manageable but also that the other things, the neuropathy and the neutropenia may not limit the ability to combine this with other standard agents.

[Howard Liang:]

Okay. Thank you. And last question is, have you made a decision to file for a label extension based on AETHERA or is that still pending ongoing regulatory discussion?

[Jonathan Drachman:]

We’re connected with regulators on AETHERA and speaking with them with the intent, our goal would be to submit a supplemental BLA. But it hasn’t been submitted yet and the data is recent and we are certainly in communication with regulators.

[Howard Liang:]

Thanks very much.

[Operator:]

We’ll now go to Mara Goldstein with Cantor Fitzgerald.

[Mara Goldstein:]

Thanks for taking the question. I have one on the Genmab collaboration. The opportunity to exchange the milestone payments in exchange for a different royalty rate. I know you’ll be able to do that after Phase II, but is there any way at least sort of just qualitatively you can give us idea of that greater than $200 million worth of potential milestones at what point – at what you might be giving up there in exchange for the higher royalty rate?

[Clay B. Siegall:]

I’m going to turn this over to Eric Dobmeier who the business group heads at Seattle Genetics reports into.

[Mara Goldstein:]

Okay, thank you.

[Eric L. Dobmeier:]

Hi, Mara. So the way the deal is structured, as you said, is that at the end of Phase II, we can look at the data and decide whether to exchange some future milestones for bumping the royalty rates from the mid to high single digits, which is what’s pretty standard in our ADC deals up to double digits. And we haven’t disclosed the magnitude into the bump in the royalty or the amount of the milestones that would be exchanged for that, but in general terms we believe this is a great structure for us to be able to participate in the upside if the data from the ADC looks promising when going into Phase III.

[Mara Goldstein:]

Okay. And that’s globally, so that would be in exchange for a global change in royalty?

[Eric L. Dobmeier:]

Yes, global royalties.

[Mara Goldstein:]

Okay. Thank you.

[Operator:]

Next is Steve Byrne with Bank of America.

[Steve Byrne:]

Given the discussion on this call about the considerations of combining ADCETRIS with checkpoint inhibitors, I was hoping you could just comment on that more broadly. I mean is it logical to you that an up regulation of checkpoint inhibitors could impact the efficacy of an ADC? And maybe taking it a step further than that, other than tumor antigen expression levels what would you say is limiting ADC penetration and residence time in the tumor environment?

[Clay B. Siegall:]

So let’s start on the last part of that, what’s limiting ADC residence in the tumor environment. ADCs work by finding its target on the surface and then internalizing in size itself. And then the business end of the ADC gets inside the cell, gets out through lysosome, can find its target and can either affect microtubules or DNA or something. And so what the difference is in some patients you have better results than in other patients like any drug. But the things that really affect it are the amount of the receptor on the surface, the rate of internalization which can differ from cell population and also how it traffics inside the cell. So there’s a lot of different ways, so it’s not just the same funnel in every cell. There are a lot of similarities granted but it’s not a 100% unique in each cell that has the same of everything. So there is complexity to it. Immuno-oncology agents work through a different mechanism. And so combining these two mechanisms which both can be effective is really what you’re doing. It doesn’t necessarily have to synergize but there could be very exciting activity here. Jonathan, you want to add to that.

[Jonathan Drachman:]

Yes. I think you’ve asked a complex question that doesn’t have a clear answer right now but I think there are few points to touch on. One is that the checkpoint inhibitors are going to modify the microenvironment of the tumor which could make a tumor more available to a large molecule and it could potentially result in more penetrants. The other thing to keep in mind is that patients with cancer are quite immunosuppressed from their cancer and from the therapies they’ve had from that. And with the tremendous efficacy of ADCETRIS, it’s likely that you would see an improvement in a patient’s immune system and therefore they might even have a better response to something like a checkpoint inhibitor, which doesn’t stimulate the immune system, it takes the brakes off it. So there could be some synergy there, so they both could help each other. We’re excited about seeing how that would play out in people.

[Steve Byrne:]

In your earlier remarks, Jonathan, you talked about some of the data that you’ve been looking at that leads you to think in the ECHELON studies the rate of progression could be slower than you previously thought. Is that thinking primarily in the ADCETRIS arm or in the standard of care arms?

[Jonathan Drachman:]

We’re primarily looking at the impact of ADCETRIS and how well that has done in the clinical trials including the lead in trials to both of these Phase IIIs, there will be data presented on the A plus AVD trial at ASH and I don’t think that long-term follow up from that’s been presented before. But the A plus CHP data has been presented a number of times most recently at ESMO. And then, the AETHERA trial which exceeded our expectations. So it really comes from the profound activity we’ve seen where ADCETRIS has been combined or even a single agent.

[Steve Byrne:]

So would that suggest that – when you design the experiment or the studies, the assumed hazard ratio may actually prove out to be conservative or is it that you might see a slower rate of progression in both arms, which could lead to yet a shift in that underlying hazard ratio in the other direction?

[Jonathan Drachman:]

So you have to have assumptions about what the hazard ratio is. Remember, these trials were designed before we even had the results of our Phase II pivotal studies. So we made our best assumptions.

[Steve Byrne:]

Okay. And I just have one commercial. Chris, you made a comment earlier about making commercial preparations for a potential label expansion. Can you just talk a little bit about if you were to get the ADCETRIS label expanded for the post-transplant maintenance setting, how would you adjust your commercial team accordingly?

[Christopher S. Boerner:]

So I’ll give you some thoughts, big picture, and then we can talk a bit about any details around that when we have more insight into what any potential label might look like. What I will say is that as we think about the opportunity for AETHERA, there are about 1,000 to 1,500 transplants conducted annually in the U.S. Those are primarily autologous stem cell transplants. Physicians who have seen the top line data that we have shown are very excited about the opportunity to utilize ADCETRIS in this space. I wouldn’t envision major changes to the overall structure of the commercial team. There will always be nuances associated with how we specifically drive utilization if we’re able to get a label, but the details there will really depend upon the outcome of the FDA negotiation. So I guess I would just say stay tuned.

[Steve Byrne:]

Okay. Thank you.

[Operator:]

And that does conclude our question-and-answer session for today. I’d like to turn the call back to Peggy Pinkston for any additional or closing remarks.

[Peggy Pinkston:]

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

[Operator:]

Thank you very much. That concludes our conference for today's. I’d like to thank everyone for you participation and have a great day.