Seagen Inc.
Q3 2013 Earnings Call Transcript

Published: 6 Nov 2013

[Operator:]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Seattle Genetics Third Quarter 2013 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Tuesday, November 5, 2013. I would now like to turn the conference over to our host Peggy Pinkston. Please go ahead, ma'am.

[Peggy Pinkston:]

Thank you, operator and good afternoon everyone. I would like to welcome all of you to Seattle Genetics third quarter 2013 conference call. With me today, are Clay Siegall, President and Chief Executive Officer; Todd Simpson, Chief Financial Officer; Eric Dobmeier, Chief Operating Officer; Jonathan Drachman, Chief Medical Officer and Executive Vice President, Research and Development; and Chris Boerner, Senior Vice President, Commercial. Following our prepared remarks today, we will open the line for questions, if we're unable to get to all of your questions, we will be available after the conclusion of the call. Today's conference call will include forward-looking statements 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. With that, I'll turn the call over to Clay.

[Clay B. Siegall:]

Thanks Peg, and good afternoon, everyone. Thank you for joining us. We are pleased to updates you today on your recent activities and upcoming milestones. We are making strong progress with ADCETRIS while continue to grow our pipeline of clinical stage programs and advancing our antibody-drug conjugate technology. Over the past several months our accomplishments have included securing and updated ADCETRIS U.S. label to remove the 16th cycle limitation and duration of therapy. Building on our broad development program for ADCETRIS by initiating at Phase II trial in frontline diffuse large B-cell lymphoma, and expanding our ADC pipeline with the initiation of two new clinical programs SGN-CD33A and SGN-LIV1A. In addition, the American Society of Hematology or ASH as accepted multiple abstract for presentation at their meeting in December. These included ADCETRIS data from our Phase II trail in B-cell non-Hodgkin lymphoma, data from our Phase II in Hodgkin lymphoma patients aged 60 and above and extended survival and durability data from our pivotal Phase II trials in relapsed Hodgkin lymphoma and systemic ALCL. We will also report interim clinical data from our Phase I trial of SGN-CD19A in acute lymphoblastic leukemia. We ended the third quarter in a strong financial position with nearly $374 million in cash and investment up from $338 million at the end of Q2. This increased reflects cash inflows from ADCETRIS sales, royalty revenues and collaboration activities. ADCETRIS net sales in the third quarter were $36.5 million and were $106.1 million for the year-to-date. Collaboration revenues for the first three quarters of 2013 were $84 million; these results have led us to increase our revenue guidance for both ADCETRIS and collaborations, which Todd will describe later in the call. Our vision for Seattle Genetics remains focused on three key corporate priorities; first building ADCETRIS into a $1 billion plus drug in the U.S. which we believe we can achieve by maximizing the potential in its currently approved indications and by executing on our broad clinical development plans. ADCETRIS has now been approved in 36 countries and is making a meaning difference in the lives of patients with relapsed Hodgkin lymphoma and systemic ALCL. I look forward to the future when ADCETRIS can help more patients through approvals in early alines of therapy and other CD30-positive malignancies. Second, investing in a strong pipeline of product candidates that could ultimately become future commercial drugs and third enhancing our leadership position in the filed of ADCs by capitalizing on our proven technology as well as by continuing to develop innovative new approaches. We are demonstrating significant progress on all of these strategic priorities and I believe we have tremendous opportunities in front of us to impact the way cancer is treated. Today, Chris Boerner will talk about our ADCETRIS commercial efforts. Then Jonathan Drach, then we’ll cover specifics of the ADCETRIS clinical development program and our product pipeline. Jonathan is our newly appointed Chief Medical Officer and Executive Vice President of Research and Development. He has been with Seattle Genetics for nine years and has shown strong vision leadership and passion for helping patients. I’m confident that he will bring all of these strengths to the CMO position. After Jonathan, Todd Simpson will discuss our third quarter financial results and then we’ll open the line for questions. Chris.

[Chris Boerner:]

Thanks Clay. ADCETRIS product sales for the third quarter was $36.5 million, we saw an increase in sales for ADCETRIS during the quarter reflecting both the price increase and an increase in vials sold. In terms of the U.S. business ADCETRIS is well established as the standard of care in our labeled indication. Market research and feedback from customers conducted in Q3 suggest that utilization rate as well as satisfaction with ADCETRIS remain high in each of the approved settings. As we have said previously, duration of therapy is a key growth driver in our on-label business. Current duration in the commercial setting remains below what patients experience in our clinical trials. Our commercial efforts, particularly in the community setting, are focused on reinforcing the use of ADCETRIS consistent with our U.S. label. The recent label update removing the 16 cycle limitation simplifies the messaging around duration and has been received positively by physicians. While we do not promote outside of our labels indications, anecdotal evidence in market research suggest that interest by physicians continues to grow in using ADCETRIS for other CD30 mediated diseases, notably PTCL-NOS, CTCL and DLBCL. In addition, over 90% of survey physicians in Q3 indicate that they would use ADCETRIS in the re-treatment setting. We’ve also seen some limited use of ADCETRIS in frontline HL among patients who cannot tolerate standard ABVD therapy. Turning to Canada, we are negotiations with provincial health officials to secure coverage and reimbursement for ADCETRIS. Since Canadian approval in February 2013, most provinces have reimbursed ADCETRIS through different provincial exception processes that have enabled some patients to access the product. We will continue to work through Canadian reimbursement processes over the reminder of this year. In closing, we are encouraged by the results of the quarter and remain committed to ensuring that all on-label patients, who can benefit from ADCETRIS, will have access to the drug. Now I would like to turn the call over to Jonathan to discuss progress in our pipeline.

[Jonathan Drachman:]

Thanks Chris. It’s a pleasure to be here today to review the work that our teams are doing on our development programs. ADCETRIS is a remarkable drug and we’re gratified to be able to bring this therapeutic patients with relapsed Hodgkin lymphoma and systemic ALCL. Our goal now is to focus on demonstrating that ADCETRIS can be incorporated into novel frontline regimen for Hodgkin lymphoma and mature T-cell lymphoma and to identify other subtypes of lymphoma in which ADCETRIS may provide clinical benefit. I’ll begin by reviewing the key initiatives in our comprehensive ADCETRIS development program which includes four Phase III trials that we are conducting in collaboration with Takeda. Then I will move on to discuss our pipeline programs. In Hodgkin lymphoma, we’re conducting two international Phase III randomized placebo-controlled trials. The AETHERA trial is accessing ADCETRIS compared to placebo in 329 Hodgkin lymphoma patients with increased risk factors for disease progression after autologous stem cell transplant. We are evaluating whether ADCETRIS can extend progression-free survival in a consolidation or maintenance type settings for these patients. During the third quarter we completed treatment of all patients on AETHERA. As previously described, the current rate of progressions suggests that reaching the targeted number of events is likely to extend into at least 2015. We indicate are aligned on a strategy that could enable unblinding of the trial in the second half of 2014, while maintaining the integrity of the safety and efficacy evaluations. To this end we are in active discussions with regulatory agencies in the U.S. and Europe. Moving to frontline Hodgkin lymphoma, the Phase III ECHELON-1 trial is designed to determine its ADCETRIS plus AVD is superior to standard frontline ABVD therapy while removing what is believed to be the least active and most toxic component of the regiment bleomycin. We believe that data from our Phase I trial of ADCETRIS plus AVD demonstrating a 96% complete remission rate with manageable safety profile and no pulmonary toxicity highlight the exciting potential we have with this study to redefine standard frontline treatment for patients with advanced Hodgkin lymphoma. ECHELON-1 will enrolled approximately 1040 patients worldwide. We are also evaluating ADCETRIS in two other Hodgkin lymphoma corporate trials. One is a monotherapy Phase II frontline trial for patient 60 years of age older who are unable to tolerate combination chemotherapy. Interim data from this ongoing trial will be reported in a poster at ASH. The other is a Phase II trial of ADCETRIS in combination with bendamustine in the salvage settings data from this ongoing trial are planned during 2014. Turning to non-Hodgkin lymphoma there is great deal of activity to report in three different type of lymphoma, Cutaneous T-Cell Lymphoma, Mature T-Cell Lymphoma and diffuse large B-cell lymphoma. In CTCL, we are conducting the Phase III ALCANZA trial intended to support registration in the relapse setting. This is global randomize Phase III trial in approximately 124 patients to evaluate single agent at ADCETRIS versus physician's choice of methotrexate or bexarotene. The primary endpoint is objective response rate with duration of at least four months. The ALCANZA trial is designed to confirm the promising data from two investigators sponsored trials in these patients, which showed approximately 70% objective response rates in relapsed patient. One of these IST will be featured in oral presentation at ASH. Our fourth Phase III ADCETRIS trial is ECHELON-2, a frontline trial in patients with Mature T-cell Lymphomas comparing ADCETRIS plus CHP to the current standard regimen CHOP or C-H-O-P. As with Hodgkin lymphoma this study has the potential to redefine frontline standard of care in MTCL. ECHELON-2 will enroll approximately 300 patients and the primary end point is progression free survivals. We previously reported data from a Phase I combination trail in the setting with 100% response rate and 88% CR rate providing a strong rational for the Phase III trial. Follow-up data from the Phase I trial are planned ASH another accomplished in this area was our recent receipt of FDA orphan drug designation for angioimmunoblastic T-cell lymphoma, AITL is an aggressive subtype of MTCL. In our Phase II single agent trial of ADCETRIS for NHL we reported data that five of ten AITL patients achieved an objective response including four complete remissions. Now turning to the diffuse large B-cell lymphoma. At ASH last year we reported encouraging single agent activity for ADCETRIS and relapsed and refractory patients. Data from the Phase II trail will be updated in an oral presentation at ASH this year including response rate and duration of response. Earlier this year we added two additional arms to the trial. One Arm is setting activity and safety of the combination of ADCETRIS plus Rituxan. Another arm is evaluating single agent ADCETRIS in patients through tumor do not express detectable CD30 using standard immunohistochemistry method. This will allow us to further evaluate activity of ADCETRIS in patients with low or undetectable CD30 expression. Finally we recently initiated a Phase II trial to evaluate ADCETRIS plus RCHOP in newly diagnosis DLBCL patients this trial was design to access objective response rate complete response rate and PFS as well as the safety of adding ADCETRIS to the frontline standard of care. The trial was open high risk patients regardless of CD30 expression level. With these ongoing efforts we are well positioned to quickly advantage ADCETRIS development in DLBCL which is the most common type of B-cell non- Hodgkin lymphoma. At this point, I would like highlight some key activities from the rest of our product pipeline. We’ve advanced three new ADC programs into the clinic already this year and our on track for a fourth before the end of 2013. First is SGN-CD19A, a CD19 targeted ADC that’s in two Phase I trials, one for acute lymphoblastic leukemia and one for aggressive B-cell non-Hodgkin lymphoma. We will report interim clinical data from the ALL trial at ASH and we plan to report data from the NHL trial during 2014. Second is SGN-CD33A, a CD33 targeted ADC the design in ongoing Phase I trial for acute myeloid leukemia. CD33 is a validated target for AML. This ADC utilizes an innovative new technology consisting of highly protein cell-killing agent called PBD dimer a novel linkers and proprietary site-specific conjugate technology known as EC-mAb. This trial began few months ago and we expect to report interm clinical data during 2014. Third is SGN-LIV1A, targeted to LIV1, which is another proprietary auristatin-based ADC that uses the same drug linker as ADCETRIS. We recently initiated a Phase I trial of SGN-LIV1A for patients with multiple subtype of metastatic breast cancer for which there are no currently curative therapies. And fourth the fourth ADC we plan to advance into the clinic this year is ASG-15ME which we are co-developing under our collaboration with Agensys, Astellas. Agensys submitted in IND earlier this year and we expect to initiate Phase I trial in bladder cancer during 2013. Now I would like to take a moment to talk about SGN75. Of CD70 targeted ADC, we have made a decision to discontinue to Phase I program. Although SGN75 had shown some single agent activity our focus is on developing new therapies that represent significant an important advances for cancer patient. We remain very enthusiastic about CD70 as a cancer target and we have developed second generation ADC that is more active in pre-clinical models. This molecule which were calling SGN-CD70A utilizes our proprietary PBD dimer payload and our EC-mAb technology we plan to submit in INA and initiative Phase I trial during 2014. Finally I want to say that I’m thrilled to be stepping into the role of CMO at Seattle Genetics at a time when there are such tremendous opportunities ahead for ADCETRIS and our product pipeline. AT time point, I’ll turn the call over to Todd to discuss our third quarter results. Todd.

[Todd E. Simpson:]

Thanks Jonathan. And thanks to everyone for joining us on the call this afternoon. Our financial performance in the third quarter was strong, we generated substantial cash flow during the quarter from sales of ADCETRIS collaboration payments and royalties and we ended September with a cash position of nearly $374 million. Today I’ll highlight our financial performance and also provide updated guidance for ADCETRIS sales and collaboration revenues. Total revenues for the third quarter of 2013 were $71 million, which included at ADCETRIS net sales of $36.5 million. For the year-to-date, total revenues were $201.9 million including at ADCETRIS net sales of $106.1 million. Based on strong ADCETRIS sales we are increasing our 2013 sales guidance to $140 million to $145 million. We also recorded ADCETRIS royalty revenue up $5.3 million in the third quarter and $11.2 million for the year-to-date as our partner Takeda continues to obtain reimbursement approvals and launch ADCETRIS throughout the world. As a reminder, we report royalties one quarter in arrears. Collaboration revenues increased to $29.2 million in the third quarter and $84.5 million for the year-to-date in 2013. We are increasing our guidance for 2013 collaboration revenues to now be in the range of $95 million to $100 million. Contributing approximately $30 million to collaboration revenue growth this year, has been the upfront payment received under the new Bayer collaboration in the second quarter and ADCETRIS drug supply sold to Takeda throughout the year as it establishes its commercial and clinical inventory of ADCETRIS. We believe that these sales have now largely been completed and they illustrate the progress that Takeda is making in its territory. R&D expenses were $67.8 million in the third quarter and $167.9 million for the year-to-date in 2013, compared to $41.4 million and $122.6 million for the same periods in 2012. These planned increases reflect ADCETRIS development activities, as well as increased investment in our other ADC pipeline that now includes five clinical stage programs. It also includes the cost of drugs sold to Takeda under our collaboration. And as I previously mentioned, this has also contributed to higher collaboration revenues this year. SG&A expenses were up modestly year-over-year primarily attributable to increase staffing levels. Non-cash share-based compensation expense for the first nine-months of 2013 was $21.6 million, compared to $17.9 million for the same period in 2012. In addition to a strong quarter financially, operationally we advanced four new clinical stage ADCs this year and continue to execute on our strategy to expand the ADCETRIS franchise. With that, I will now turn the call over to Clay.

[Clay B. Siegall:]

Thanks Todd. At this point, we will open the line for questions-and-answers. We ask that you limit yourselves to one to two questions and then re-queue with any additional questions. Operator, please open the call for question.

[Operator:]

Thank you sir we will now begin the question-and-answer session. (Operator Instructions) One moment for our first question. Our first question comes from the line of Thomas Wei with Jefferies.

[Thomas Wei:]

Thanks. Just wanted to ask a couple of things the first on CTCL and how much of a contribution there might have been during the quarter from that. And I thought that we'd spoken earlier about compendia listing as a possibility near-term for that indication would love to get your updated thoughts there. And then on the CD19 data at ASH, can you just remind us, you said that it was interim. How many patients or dose cohorts? It sounds like you have not hit an MTD, so should our expectations be largely gauged around really just getting some initial safety data, or is there enough for there to be interpretable efficacy data as well? Thanks.

[Clay B. Siegall:]

Okay thanks Thomas. So on CTCL first of all we certainly don’t promote to any off-label uses, but we have heard some anecdotes about contributions to our sales from some docs prescribing ADCETRIS for CTCL. Concerning compendia, we have worked with the guideline committees, what we understand is that its very important to get publications here and we are working with the two centers we have a study from MD Anderson and a study from Stanford that’s we’ve talked about, both of them have 70% objective response rate. We’ve talked about those, we presented data there and as one of our focus is to make sure we get these papers published and we are working hard on that and I think that that’s one of the items that we really need to have working with compendia on that. Now switching over to CD19. As we said in the prepared remarks, we are only going to presenting on the ALL Phase I; there is two Phase Is, one in ALL and one in NHL. The NHL one we in our remarks we said that it’s our intention to present in 2014 and we would be excited to do that. For this specific presentation at ASH is really initial data only, its during dose escalation, its – our intention was to present as much as we can and we are still dose escalating and so there will be – and there is always a data cut off point when you present to ASH so we could summarize data effectively. So it will only be some of dose escalation with some data on safety and initial responses, things like that. So it is just an interim data report on our CD19 program, much more in 2014.

[Operator:]

Thank you. Our next question comes from the line of Howard Liang with Leerink Swann.

[Howard Liang:]

Hi and thanks very much. I guess it’s a follow-up on CD19, I think you previously said there are other compounds against the same target, but do you think your is differentiated. Can you talk about how might actually CD19 A, B differentiated from the Sanofi’s CD19 antibody drug conjugate? I think there you have seen some acicular toxicity, do you think that’s a targeted fact or more compound specific?

[Clay B. Siegall:]

You know when you think about CD19, I mean there has been molecules for quite a number of years, I mean years ago there were CD19 ricin conjugates that are not maybe juts a tinier molecules that we had, there was efficacy you could see, but they were also very immunogenic and that was with a plant toxin ricin. So the molecule we have is a much more amenable to commercial product, because if a drug conjugate doesn’t have immunogenic plant toxin attached to it and you asked a question about the differentiation versus where immunogen is with Sanofi on their program. And there is also a by specific antibody CD19 blinatumomab that was acquired by Amgen. So there are a number of different CD19 molecules out there, we really like ours, we think we have a really great antibody that bind and internalizes well, we like our drug conjugate system and we like our technology with our drug link. We think its got a really good stability of a linker and we think that’s very important when you look at this and I think that ultimately when we put out a really good data report and that will probably be at 2014 where you have much more data than you’ll just at ASH this year which is more of an interim report. I think you will be able to decide on your own and for what you think of our molecule. But we really like our molecule, we really like our technology and we’re investing strongly in our program for CD19. And we think that if we stick to it and work hard that, perhaps we can bring something forward that is differentiated and it really helps patients.

[Howard Liang:]

So is the ocular toxicity linker specific or target specific?

[Clay B. Siegall:]

Ocular toxicity is something that you can see with certain types of drugs and certain types of antibodies. We certainly reported on ocular toxicity in a minor way with our CD70 targeted program, actually its 75, in the past. Certainly you’ve seen reports of it in drugs conjugates using [indiscernible] from the individual technology. And I think there’s not a definitive thought out there that it’s a specific definitely for certain antibodies perhaps its linked more to certain drugs. I think that the linkers are very important and trying to have the more stable linker you can isn’t really important. But I think that we’re everyone feels the studies are very closely and CD19 specifically, we certainly are monitoring this very closely. But so far we’re very pleased with our program and investing strongly in it in two disease types ALL and NHL. And I look forward to presenting an interim look at ASH this year as well as much more complete Phase I data sometime in 2014.

[Howard Liang:]

Thanks very much.

[Operator:]

Thank you our next question comes from the line of Matthew Roden with UBS.

[Matthew Roden:]

Great thanks very much for taking the question. And congrats to Jonathan and Eric for their new responsibilities. We don’t like to see the AETHERA data sooner rather than later, but I guess I’m concerned that the data be as good as possible to drive sort of maximum utilization. So as you think about strategies to may be get a read out in the second half of 2014, how do you balance the need to get the data and move on with the need to minimize risk to the read out and maximize the impact that the data will have with the clinician community?

[Clay B. Siegall:]

Matt it is a really, really good question. And I think that just judging from your question you must have the microphone in our executive suite as we have discussions. And as we’ve been discussing this for over a year, we’ve been bringing to the conference calls now for at least three or four conference calls. We’ve been trying to be as transparent as possible saying this is going heck of a lot longer than we think. And trying to really state that our goal is to have a balanced strategy of trying to get readout so that we can help patients, versus not damaging the integrity of the study and not damaging any data potential. So that you are really taking clearly about this. And I think that as we looked at it, there were discussions internally, hey let’s open this right away, because it’s going later. And there was discussions let it go many years. And I think what we have come to something which we think is the right level of risk to the study, but the right timing from trying to bring something that could benefit patients. And we think that really is toward the second half of 2014. And to that end, we’ve started a dialogue with regulatory agencies here we talked extensively with our partner Takeda about this. And we are lock step on it and we’re really working with the regulators on the best way to do this and what we’ve said before at the conference calls is still staying on that second half of 14 is a time where every single patient on the trial even up to the last patient in will get through all the pre-prescribed scans. And so it is really something where we think that from a standpoint of some day looking at curves on a line for a progression free survival, some day looking at that you want to have many scans and pre-prescribed scans as you can to have as clear data as possible and we think that that’s the right level of risk and really the right level of being aggressive and moving forward to try to get data for patients. So I appreciate your question there is no perfect to answer to this, but after studying it for a long time this is where we came down together with our partner and working with regulators as to doing the right thing as we speak.

[Matthew Roden:]

Okay that’s very clear. Thanks for that and I guess my follow-up is on defuse large B-cell data do you expect to have at ASH. It sounds like that’s only going to be the single agent follow-up in refractory patients and not related two arms is that correct? and then related when we do get the response rate and duration of response data and which arms do you guys look at to access the activity and refractory setting, should we be looking at the historical number in that group or do you also consider sort of newer data from the TKIs.

[Clay B. Siegall:]

There is a lot of questions there, first of all why don’t I turn over to – turns it over to Jonathan to talk a little bit about the data from ASH that we’re expecting to present clearly you know we cant give you all the information, because that remains for ASH, but Jonathan will give you a little bit of clues into what we’re thinking about with DLBCL.

[Jonathan Drachman:]

Yes, so that’s for the question. there were I think two parts to that first is what data would be presented and yes it would be the single agent relapsed and refractory patients with response rates and duration and it would be a follow-up on extension of the data that was presented at ASH last year. We will not be presenting the other two arms, which are currently being enrolled and we look forward to presenting those some point in the future. The second question was about what comparable data we look and we really look at all the data that’s out there in defuse large B-cell lymphoma. There are other antibody-drug conjugate there are TKIs and we’ll look at all of those in comparison, not just at response rate but tolerability, duration and importantly complete responses are also important and we look at all of that.

[Matthew Roden:]

Great thanks very much for taking the questions.

[Operator:]

Thank you our next question comes from the line of Rachel McMinn with Bank of America Merrill Lynch.

[Rachel McMinn:]

Thanks very much. I wanted to ask on revenues actually. When we look to 2014, last year at this time you guided us to expect flat revenues, and you're not doing that now. So I guess I just want to understand how to think about just the qualitative thoughts at least if you're not prepared to give specific guidance. But should we think about flattish revenues, or how do we interpret some of your comments about off-label frontline use? Does that have momentum to drive sustainable quarter-over-quarter growth? And then Clay I just wanted to check in with your on the $1 billion U.S. sales target, I know its number that you have quoted in the past but what – just given that trajectory right now with two years of flat sales what do you think needs to happen there do we need to wait frontline can some of these other indications read out before then I just want to get a sense of trajectory. Thank you.

[Clay B. Siegall:]

Sure, I will turn it over to Todd talk about the revenue first and then I will come back on and address your question. Todd?

[Todd E. Simpson:]

Yes, Rachel thanks for the question. So if you recall going back to the beginning of the year when we set guidance, one of the things that we talked about was how we believe that we were largely moving away from that prevalence pool of patients and into a incidence pool of patients. So that was the reason really behind relatively flat revenues projected for this year. I think that was year as unfolded what we’re seeing is that was the case, but I think the commercial team really did a great job of sort of managing the transition into incidence pool of patients. And as a result we were able to see some modest, but nice revenue growth this year. And going into next year, we’ll give guidance on a year-end call, but I think what it’s safe to say now is the growth we come from things like Canada, we expect to have a reimbursements in place for next year perhaps a little bit from compendia. But really what’s going to drive future growth is label expansion. And as you know we’ve got four Phase III studies that are underway, AETHERA trial could readout towards the end of next year, we think that will give us and nice lift. And then ALCANZA follows that and ultimately the two frontline trials ECHELON-1 and ECHELON-2.

[Clay B. Siegall:]

So basically that was the same way I was going to address your question. To get $1 billion target for any U.S. for AETHERA which I still firmly believe is in our size that we will get that is you know the excitement around the many steps that we are going to be taking that Todd mentioned AETHERA cutaneous T-cell lymphoma, DLBCL, ways that we can get label and ways that we can get into compendia and we are in working hard towards that. But ultimately, to make it a $1 billion dollar product, annually in U.S. we’re going to really I think need to frontline. And we have two frontline trials that we are doing in Phase III right now, the Hodgkin lymphoma and the mature T-cell lymphomas trials and we’re excited about this invested in this heavily and we believe that we’ll be doing two things, one is really benefiting patients and redefining therapy in a variety of indications and in the frontline, as well as benefiting the company.

[Rachel McMinn:]

And then I'm sorry, just to follow-up on the diffuse large B-cell lymphoma, do you have a better sense of timelines on when that could move into pivotal or what level of data would be required for registration and indications that you are thinking about there?

[Clay B. Siegall:]

Actually we’ve got a lot of discussions about that. We are very interested in the DLBCL and so it’s really exciting time. We’ve seen and reported on responses in patients that are either relapsed to or lot of them are refractory and you know refractory to our job here pretty bad shape and we had some really nice data. And so we’re pleased with that, in not just TRs but seeing in CRs as well. Over the single agent molecule and pretreated patients that pretty wired to see that. We are really excited about it, right now we’re really involved in trials, we have a lot trials going on. We had two additional arms, Jonathan referred to from our DLBCL trial, one in a combination with retuxin, one in patients that basically have undetectable CD30, based on histology. So keep that in mind. Because as we do find tune analysis, we find that most if not all of them have CD30s as that low level. And we’re going to present some data at ASH, there’s a lot of interest with KOLs in this, just a lot. And as far as our specific regulatory strategy though, I look to really talking about that more into 2014. So we’re not prepared right now to outline that, and that's something that we want to make sure that all our Is are dotted and Ts are crossed with regulators and everything and making sure exactly what we are going to do before we lay it out. That’s something I look forward to doing in 2014. so there is a lot of DLBCL and we are just not outlining everything right now.

[Rachel McMinn:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Adnan Butt with RBC Capital Markets.

[Adnan Butt:]

Okay thanks for the question. I’ll ask two. First, in terms of pursuing DLBCL where there is a very low level of detectible CD30. Is that a term or specific strategy or does that kind of help you broaden where receptors can be used? And then secondly on just so relapsed refractory, obviously DLBCL had interesting data. At this time which sub-tumor type are you seeing the most off-label use in? Is that CTCL or you are using DLBCL as well? Thanks.

[Clay B. Siegall:]

Yes. As far as off-label use, we really, keep in mind we don’t promote to it and that’s not something we are going to list, we have seen off-label use in CTCL and in DLBCL, I’m not prepared to tell you which one you see more or less, but we have seen in both and so it’s a fair question as to something that we are not going to be commenting on the specific of. As far as the level of CD30s and how we think about ADCETRIS, I would like to turn it over to Jonathan to talk a little bit about levels of CD30 and DLBCL, but and other tumor types as well and you could talk about that.

[Jonathan Drachman:]

Yes. Really to – Adnan to your question. Obviously we see really excellent activity where there is a lot of CD30, we are very happy to note that in multiple indications where we see variable and low CD30, we continue to see really good response rate and to specifically to your question, this does not appear to be specific to DLBCL, certainly in CTCL in addition we see very good response rate in patients with low CD30 or undetectable by current IHC. And I really want to reinforce what Clay said which is when you look with more sensitive techniques, almost all of these patients express some CD30 and we are doing this study now to understand exactly what that means for ADCETRIS to DLBCL, CTCL and beyond.

[Adnan Butt:]

Thanks.

[Operator:]

Thank you. Our next question comes from the line of Jason Kantor with Credit Suisse.

[Jason Kantor:]

Thanks for taking my question. I’ve got a commercial and then a clinical one. On the commercial side, you’ve been talking about pushing for a longer duration of treatment for a while. Can you comment on what successes you may have had there? You mentioned also growth from price and volume. Could you break that out a little bit so we know what components are contributing? And then really interested in this new CD70 antibody drug conjugate you are bringing forward. I’m just wondering if the decision to move this new technology forward for CD70 reflects anything that you might be seeing in the clinic in terms of safety at least for the CD33 conjugate, which uses the same technology?

[Clay B. Siegall:]

Sure, let’s start out with commercial. Chris, would like to address that?

[Chris Boerner:]

Yes, absolutely. Thanks for the question Jason. With respect to duration, we’ve spent a lot of time over the last year or so looking into the reasons that we see discontinuation commercially and they really largely mirror what we have seen in our pivotal studies which is patients’ progress or they are coming off of known side effects notably peripheral neuropathy. So the key challenge obviously is to try to address both of those and so what we’ve been doing commercially and we’ll continue is to emphasis the clinical data that we have in our pivotal studies and continue to educate staff on how to best manage through these side effects that could lead patients to come therapy early. We feel that we have the resources in place to be successful on both of those, the majority of physician that we talk to continue to believe that ADCETRIS will be used for longer duration either in the initial therapy or potentially in re-treatment. So we still are focused on those areas and driving duration of therapies, we think that’s the biggest neat-term growth opportunity.

[Clay B. Siegall:]

Could you repeat the second part of your commercial question again, Jason.

[Jason Kantor:]

Yes you mentioned that you saw growth both from price and volume, so I’m just wondering what the contribution of each of those was in the quarter?

[Todd E. Simpson:]

Hi, Jason this Todd I will handle, it was roughly split 50/50 between the two.

[Clay B. Siegall:]

Okay, now switching to CD70 and we have a new ADC that we are working on, we did not make a decision for this based on safety. Our goal is to really making impact on patients. SGN75 had some objective responses, this is not a drug, this is the drug that will have some level of activity, but the activity didn’t reach the level that we were excited about continuing and in laboratory we were working on, we like the target a new form, and I’m going to turn over to Jonathan to talk a little bit about why we are excited about the new one and we made a corporate decision to invest in the new one rather than investing in one that was active but not active enough. Jonathan.

[Jonathan Drachman:]

So, Jason I think what you asked was about the CD33, PBD and did that influence our decision and this decision was really made based on the CD70 PBD pre-clinical data, which we’re very excited about and think could be very exciting and important way to address the CD70 positive tumors.

[Jason Kantor:]

Okay, thank you.

[Operator:]

Thank you. Our next question comes from line of Cory Kasimov with JPMorgan.

[Cory Kasimov:]

Hey, good afternoon guys, thanks for taking the question. One on the pipeline and one on the recent label amendments. So first on the pipeline, I realize it's very, very early. But I'm just curious in the level of investigator interest at this point in CD33A compound for AML given the unmet medical need, and I apologize if you already mentioned this, but should we expect initial data from that in 2014, I assume? And then on the updated label, do you have any updated feedback from the FDA on what might be required to get the retreatment component added to the label? And I'm wondering to if you've seen any early impact or maybe feedback is more appropriate, given how recent this happened, for the removal of their 16th cycle limitation? Thanks.

[Clay B. Siegall:]

Thank you for the question Cory. So first of on CD33A the level of interest in that is incredibly high, it’s a huge unmet medical need AML and I can tell you that so far in our trial, approval is going well and things are going well, where dose escalating, but I don’t have anything more specific to tell you at this point. Its something that was two new to submit to ASH so we just when that abstracts were due in August whenever it was, its just too early in the program to submit anything. So we are very excited to pursue this, we are excited to try make a difference in the life patients with AML and we’re investing strongly in this. As you know we’ve been interested in AML for many years. We developed a product that didn’t work in AML SGN-33 the initial antibody and that was a naked antibody. And we really worked hard at some very good studies, but didn’t pan out for the patients, but we learned a ton and we learned what really what we needed and what kind of potency we needed. And sometimes it’s okay to fail if you learn a lot from it and grow from it. And I think that our experience with targeting AML really gave us a lot of insight into disease and what was needed. And we worked for many years to develop the CD33A drug conjugate and it’s got all of this different new technology and it’s got a linker, a new payload, it’s got a new engineered antibody system we call EC-mAb or Engineered Cysteines mAbs. So I think you should expect data in 2014 on that, as far as the label. And retreatment that goes. I think that by the removal of the 16-cycle cap, it really gave us a lot of the flexibility that we needed for retreatment. And I’m going to turn it over to Chris to make some comments on your questions.

[Chris Boerner:]

Yes so thanks for the question Cory. The removal of the 16-cycle limitation has been viewed very positively by customers. It does a number of things; first, it simplifies the duration messaging to treatment progression or unacceptable toxicity, which is very important. Second, it removes what was a relatively arbitrary 16-cycle limitation based purely based on purely on a year of therapy that was used in our pivotal studies. So that has important potential reimbursement benefits. And then finally it puts the decision as to when to discontinue with patient back in the hands of customers where we think it belong. So all of those things have been viewed very positively by customers.

[Cory Kasimov:]

All right. That’s helpful. Thank you.

[Operator:]

Our next question comes from the line of Navdeep Singh with Goldman Sachs

[Navdeep Singh:]

Hey thanks for taking my questions. Just a couple of questions. For the CD19 ADC, what do you need to see in terms of response rates to advance it into larger Phase II trials in ALL? And then I have a couple of modeling questions.

[Clay B. Siegall:]

So as far as CD19 ADC, there is not a set number that’s out there that you must do or else the project goes away. That’s not really the way it works here. But I would say that we would need something that’s differentiated and you need to see something that just provides CRs. I think coming into a disease whether it’s ALL or NHL and seeing a nice amount of PRs that are durable for a few months is not a meaningful. I think that's not what the market wants to see, that’s certainly not what we want to see. We want to really help patients. So we want to see a fair amount of CRs. You never get all CRs, I mean that would be a great dream, but we would want to see a decently pretty strong number of CRs and we want to see durability. And if we take patients that are refractory and relapse and we could see that, then we have a real drug to build on. And so that’s where we look forward to little bit of data presented at this year, interim data on ALL only but 2014 where the substance of data on this exciting program could come in. You’re next question.

[Navdeep Singh:]

And then I noticed that R&D came in much higher than I think which we had expected. It came in at $68 million. Should this be the go-forward quarterly run rate?

[Clay B. Siegall:]

Todd.

[Todd E. Simpson:]

No I would caution you not to do that. Keep one of the things I commented on earlier in the call is the drug supply that we’re selling to Millennium is it establishes its commercial and clinical inventory. So impacting Q3 quite a bit in the R&D line was the cost of that drug, it gets as we sell it, the cost of that drug get reflected in the R&D line.

[Navdeep Singh:]

Okay thanks.

[Operator:]

Our next question comes form the line of Alan Carr with Needham & Company.

[Alan Carr:]

Hi, thanks for taking my questions. I’m Wondering if you could comment on how enrollment is going for the ADCETRIS frontline Phase III trials. And you touched on some off-label use frontline for ADCETRIS. I was wondering if you could comment a bit more on that, too. Thanks.

[Clay B. Siegall:]

So as far as the frontline trials, we don’t make specific comments on the enrollment, enrollment is ongoing, but the specific level of the enrollment in both of our frontline trials and for that matter for any of our four Phase III trials we don’t make any specific comments, except to say when we start enrollments and that it is enrollment and when the enrollments complete. As far as off-label use also in frontline, every now and then you hear something that’s kind of interesting, that some doctor was able to write a prescription or something and get ADCETRIS involved in some setting in very different setting, sometimes its in relapse settings of disease where its not approved, sometimes its in earlier lines of setting, so we do hear about those now and then, but please note we do not promote two frontline and we are not going to – or I mean two – we don’t two off-label uses which include frontline for now and we do not list specifically what sales are in that regard.

[Alan Carr:]

Okay. And then a follow-up in Europe. You guys haven’t provided much detail on this in the past, but I'm wondering if at this point, you can comment on any significant expansions over there in terms of countries that will be reimbursing – have any of those happened recently, or do you expect any soon?

[Clay B. Siegall:]

Sure well it’s hard – I’ll start this and I’ll turn it over to if Todd and Chris want to put in some words. We are real excited about what Takeda has done there in Europe and Todd, do you want to just have few comments.

[Todd E. Simpson:]

Yes. So first I’ll point out that in Takeda’s call last week, they talked a little bit about the launch of ADCETRIS and I think the takeaway is that its being going very well and I think they are seeing that’s exceeding their expectations. So I think their experience with their launch is similar to what we saw, this is a drug that provides a lot of benefit to patients in the commercial uptake that we saw and they are seeing has been good. There has now been approvals in 36 counties, 34 of those counties are in Millenniums territory. I would point out though that for the most part, those approvals are the initial step in the launch. Many of these countries need reimbursement approvals, I don’t know what the exact count on reimbursement approvals in countries are now, but that’s something that Millennium continues to execute on well in. again their comment is that the launch of ADCETRIS is going great.

[Alan Carr:]

Okay great, thanks very much.

[Operator:]

Thank you. Our next question comes from the line of Mara Goldstein with Cantor Fitzgerald.

[Mara Goldstein:]

Well thanks very much for taking the question. Just as it relates to – we spent a fair amount of time talking about ASH and the data at ASH this year versus next year and next year being the more pivotal year for you. So my question would be, as we think about ASH and all of the data points that will come out in the abstracts next week, what would be the most important one from a commercial perspective for 2014? Is there something in particular that you would point to in that upcoming data set?

[Clay B. Siegall:]

You know we don’t point to anything specifically in our data that could be presented at ASH 2013, as saying this is the most important for commercial. I really – that’s something we, I would not be looking to do. And as far as you made, a comment also that ASH could be a pivotal next year for data. I wouldn’t rule out some pretty exciting ASCO data, as well. So I want you to if not just – we are not trying to push up off all the data to the end of 2014 I think all of 2014 could be a very exciting year for us.

[Mara Goldstein:]

Okay. And what then might be available earlier in 2014?

[Clay B. Siegall:]

Well we have, we talked about our CD19 program, we talked about a CD33 program, we have new data that consistently emerges with ADCETRIS. There could be a lot of different things. We now have – and I’m not making any promises at all, but we now have a drug that’s in clinical targeting LIV1 and that’s progress cancer now. I just don’t know where we will be and I don’t know whether it’s, there is other conferences too, it’s not just ASCO and ASH. There’s other EORTC and other important conferences. So I think that 2014 I’m really excited about it, I’m excited about our pipeline. I think we have some great technology. And I’m looking forward to continue helping patients.

[Mara Goldstein:]

Okay. Thank you.

[Operator:]

And our final question is from the line of [indiscernible].

[Unidentified Analyst:]

Hi guys thanks for taking the question. This is Mat for Boris [ph]. Sort of following-on the discussion about CD30 expression levels, what is the ratio of antibodies delivered to actual antigens and various malignancies where ADCETRIS is being investigated, based on actual tumor low dosing and half-life. And secondly, how does that compare to Hodgkin disease, is there any idea when dose per ADCs, because that are optimized as the efficacy and minimized as the off target effects? Thank you.

[Clay B. Siegall:]

Well that is if you’re starting to talk about the ratio of antibody to antigen, I can take a step back from there and I could try to ask you think about some of the data that we’ve had and how we think about drug antibody drug conjugates. You look at Hodgkin lymphoma and the only thing in Hodgkin lymphoma that has CD30 is the [indiscernible]. And that represents around 5% to 6% of the entire tumor molecule itself. Yet we have really profound activity. When you look at the ALCL, you have a much more homogenious expression profile for CD30 on that. And we really have a good activity there. So when using antibody to conjugate, I think it doesn’t necessarily mean you have to have a lot of expression on all the cells. And as we are learning from the TTCL and TLDCL, we’re having expression levels at high and low expression levels and different responses. I was saying responses in all the areas that are high and low. So it’s a real book that we’re really trying to write right now and trying to understand really the ratio of antibody, antigen to where this could be used. And we don’t know all the answers, but I think what we are finding out that histology – simple histology is not as precise as we would love it to be. And that a small amount of antigen on a tumor can represent a great target for ADC. Operator are you still there?

[Operator:]

Yes we have no additional questions sir.

[Rachel L. McMinn:]

Okay so thank you operator and thanks everybody for joining us this afternoon. Have a good evening.

[Operator:]

Ladies and gentlemen this concludes our conference for today. Thank you for your participation. You may now disconnect.