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Edited Transcript of SGEN earnings conference call or presentation 7-Feb-19 9:30pm GMT

Q4 2018 Seattle Genetics Inc Earnings Call

Bothell Feb 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Seattle Genetics Inc earnings conference call or presentation Thursday, February 7, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Clay B. Siegall

Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO

* Darren S. Cline

Seattle Genetics, Inc. - EVP of Commercial

* Peggy Pinkston

Seattle Genetics, Inc. - VP of IR & Executive Director of Corporate Communications

* Roger D. Dansey

Seattle Genetics, Inc. - Chief Medical Officer

* Todd E. Simpson

Seattle Genetics, Inc. - CFO

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Conference Call Participants

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* Andrew Scott Berens

SVB Leerink LLC, Research Division - MD of Targeted Oncology & Senior Research Analyst

* Boris Peaker

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Cory William Kasimov

JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst

* Geoffrey Christopher Meacham

Barclays Bank PLC, Research Division - MD & Senior Research Analyst

* Kennen B. MacKay

RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research

* Michael Werner Schmidt

Guggenheim Securities, LLC, Research Division - Senior Analyst & Senior MD

* Salveen Jaswal Richter

Goldman Sachs Group Inc., Research Division - VP

* Silvan Can Tuerkcan

Oppenheimer & Co. Inc., Research Division - Associate

* Tsan-Yu Hsieh

William Blair & Company L.L.C., Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Seattle Genetics Fourth Quarter and Year 2018 Financial Results. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Peggy Pinkston, Vice President, Investor Relations. Please go ahead, ma'am.

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Peggy Pinkston, Seattle Genetics, Inc. - VP of IR & Executive Director of Corporate Communications [2]

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Thank you, operator, and good afternoon, everyone. I'd like to welcome all of you to Seattle Genetics' fourth quarter and year 2018 conference call. With me today are Clay Siegall, President and Chief Executive Officer; Todd Simpson, Chief Financial Officer; Roger Dansey, Chief Medical Officer; and Darren Cline, Executive Vice President, Commercial.

Accompanying today's conference call are supporting slides, which are available on our website in the Investor section, the Events and Presentations page. Following our prepared remarks today, we'll open the line for question.

Today's conference call will include forward-looking statements regarding future events or the future financial and operating performance of the company such as those, among others, relating to the company's 2019 financial outlook, including anticipated 2019 ADCETRIS sales and future revenues; cost and expenses; the company's potential and anticipated timing to achieve future clinical and regulatory milestones and published data for ADCETRIS, enfortumab vedotin, tucatinib and tisotumab vedotin. Actual results or developments may differ materially from those projected or implied in these forward-looking statements.

Among the factors that may cause such a difference, includes the difficulty in forecasting sales, revenues and expenses and the uncertainty associated with the pharmaceutical development and regulatory approval process. More information about the risks and uncertainties faced by Seattle Genetics is contained under the caption Risk Factors, included in the company's periodic reports filed with the securities and exchange commission, including the company's quarterly report on Form 10-Q for the quarter ended September 30, 2018, and future periodic reports filed by the company, including the company's annual report on Form 10-K for the year ended December 31, 2018.

Now I'll turn the call over to Clay.

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [3]

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Thanks, Peg, and good afternoon, everyone. 2018 was a remarkable year, highlighted by significant ADCETRIS achievements and substantial progress with our late-stage clinical portfolio, bringing us closer to becoming a multiproduct oncology company.

In 2018, ADCETRIS was launched in 2 frontline indications and is becoming the foundational therapy in CD30-expressing lymphomas. We expect to continue our momentum in 2019, including maintaining focus on ADCETRIS commercial growth.

Beyond ADCETRIS are 3 late-stage programs in solid tumors that are approaching near-term milestones. Importantly, in 2019, we'll report data from pivotal trials with enfortumab vedotin and tucatinib.

In March, ADCETRIS in combination with chemotherapy was approved for Stage III and IV Hodgkin lymphoma, based on the ECHELON-1 trial. And in mid-November, ADCETRIS in combination with chemotherapy was granted Breakthrough Therapy designation and then approved in frontline CD30-expressing peripheral T-cell lymphoma, based on the positive results from the ECHELON-2 trial.

The PTCL approval came 11 days after submission under the FDA's Real-Time Oncology Review pilot program. This is a testament to the strength of data, close collaboration with FDA and our commitment to bringing ADCETRIS to patients in need.

In 2018, we achieved record net sales of $477 million in the U.S. and Canada. U.S. approval in frontline Hodgkin lymphoma was a primary contributor to the 55% increase in net sales in 2018 over 2017. For 2019, we estimate that ADCETRIS net sales in the U.S. and Canada will be in the range of $610 million to $640 million, an increase of 28% to 34% over last year.

Our guidance reflects the expanded patient populations provided by the new frontline labels in indications with decades-old standards of care. Globally, ADCETRIS could exceed $1 billion in sales in 2019. Our partner, Takeda, continues to make great progress in its territories.

In Japan, ADCETRIS was approved for frontline Hodgkin lymphoma in September. In Europe, approval is pending in frontline Hodgkin lymphoma based on the E1 trial, and Takeda plans to submit E2 data to the EMA and other health authorities later this year.

Turning to our 3 late-stage solid tumor programs. We are preparing for several upcoming milestones. With enfortumab vedotin, or EV, we and our partner, Astellas, expect to report top-line data from a pivotal trial in metastatic urothelial cancer this quarter. These data could support a regulatory submission in 2019 under the FDA's accelerated approval regulations putting EV on the path to becoming our next marketed drug.

Our second late-stage program is tucatinib, which is an oral tyrosine kinase inhibitor that targets HER2. The pivotal trial called HER2CLIMB, we've completed the enrollment of 480 patients to enable analysis of PFS, the primary endpoint of the trial. We expect to report topline data this year. If HER2CLIMB is successful, our intention is to build tucatinib into a broad development program into earlier lines of breast cancer and other HER2-expressing tumor types, which Roger will further outline.

Our third pivotal stage program is tisotumab vedotin, or TV, which we're developing in partnership with Genmab. Our initial focus with TV is metastatic cervical cancer, where we're conducting an ongoing pivotal trial designed to support a regulatory submission under the FDA's accelerated approval pathway. We expect to complete enrollment by mid-2019. In parallel, we're evaluating TV in earlier lines of cervical cancer and other solid tumors that express tissue factor.

In addition to these late-stage programs, we're developing multiple targeted therapies, including ladiratuzumab vedotin and ADC for triple-negative breast cancer that's in Phase II development, and SEA-BCMA, an empowered antibody in Phase I development for multiple myeloma.

We also expect to submit INDs during 2019 for additional novel agents to treat cancer. Investing in our pipeline is a key part of our strategy for future growth.

Our ADC collaborators are also making progress with programs using our technologies. Of note, Genentech/Roche announced that they have submitted polatuzumab vedotin in relapsed/refractory diffuse large B-cell lymphoma for approval in both the U.S. and EU. We believe that our accomplishments in 2018 and progress expected in 2019 position us better than ever to bring new medicines to people with cancer.

At this point, I'll turn the call over to Darren to review our commercial activities. After that, Todd will discuss our 2018 financial results as well as our 2019 guidance. And then Roger will provide additional comments on our clinical pipelines. Darren?

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Darren S. Cline, Seattle Genetics, Inc. - EVP of Commercial [4]

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Thanks, Clay. Since the commercial launch in 2011, our vision has been to build ADCETRIS into a blockbuster brand in the U.S. and Canada. The frontline approvals in 2018 bring the number of approved indications in the U.S. to 6 and further position us to achieve that vision.

In the fourth quarter of 2018, we saw continued sales growth. ADCETRIS net sales were $132 million in the quarter and were $477 million for the full year in 2018, a 55% increase over 2017. The frontline approvals significantly expanded the addressable patient opportunity for ADCETRIS. We're confident that an ADCETRIS-based frontline regimen could become the preferred treatment of choice. This is based on the strength of our clinical data from our frontline trials and the experienced commercial team that we have in place.

That said, we're up against longstanding broadly used chemotherapy standards of care in both settings with ingrained physician habits. Therefore, achieving our vision will take time and solid execution.

I'd like to share with -- some additional context around the frontline opportunities. Let me start with an update on frontline Hodgkin's lymphoma. As you know, this was approved in March 2018 for Stage III and IV patients. During the fourth quarter, we continued to build physician awareness in both community and academic centers. It will take time and effort to establish A+ AVD to its full potential in the setting.

We view the marketplace as having 3 main segments: first, physicians who are familiar with ADCETRIS and regularly treat patients with Hodgkin lymphoma; second, physicians who appreciate the product profile of ADCETRIS but see only a few Hodgkin lymphoma patients per year; and third, physicians who do not recognize the benefit that ADCETRIS may have for their patients and continue to use ABVD.

Our commercial plan is intended to reach of these physician profiles, and our market research shows that we're making progress. We continue to see increased utilization in newly diagnosed Stage III and IV patients. This is reflected in market share improvement over the last 2 quarters and an increase in the number of new ordering accounts. Importantly, we've seen growth in community practices where the majority of frontline Hodgkin lymphoma patients are diagnosed and treated. Physician recall of our key messages continues to be strong.

We're also focused on ensuring that physicians have access to the evolving ADCETRIS data. For example, the North American data from the E1 trial were recently published. These data provide additional evidence that A+ AVD along with prophylactic growth factor support can result in superior, efficacy, while avoiding the toxicities associated with bleomycin. These data are an important part of our efforts to align the treatment guidelines and pathways with our label.

Next, I'll comment on our most recent approval in frontline PTCL. As you know, we received this approval rapidly following the submission, and the commercial team was ready. While still early into the launch, we are hearing positive reactions to the E2 data from the physician community, including the significant improvement in overall survival.

The efficacy advantage of using the ADCETRIS regimen, shown in the E2 trial, resulted in conclusion of A+ CHP into the NCCN guidelines in December that is consistent with the label. Our goal with the E2 trial was to improve upon the decades-old CHOP chemotherapy regimen that leaves a significant unmet need for patients in frontline PTCL. The successful E2 trial supports our belief that A+ CHP can become the new standard of care for CD30-expressing PTCL patients in the U.S.

In conclusion, we believe that ADCETRIS will have a meaningful impact on the lives of patients with CD30-expressing lymphomas. This is an exciting time in the life cycle of the brand. We believe that ADCETRIS can become the product of choice in these frontline indications. We will also continue our efforts in the 4 other labeled indications. Our ultimate goal is to ensure the best possible treatment outcomes for both patients and physicians. I look forward to updating you on our progress.

I'll now turn the call over to Todd to discuss our financial results.

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Todd E. Simpson, Seattle Genetics, Inc. - CFO [5]

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Great. Thanks, Darren, and thanks to everyone for joining us on the call this afternoon. In addition to achieving important milestones with ADCETRIS and making substantial progress with our late-stage pipeline, we also had a strong year financially with record ADCETRIS sales. Today, I'll summarize our 2018 financial results for the fourth quarter and full year and then provide our financial outlook for 2019.

Total revenues in the fourth quarter of 2018 were $175 million. This included ADCETRIS net sales in the U.S. and Canada of $132 million. For the year in 2018, total revenues were $655 million, including ADCETRIS net sales of $477 million. The 55% increase in 2018 primarily reflects the label expansion in frontline Hodgkin lymphoma. Royalty revenues in the fourth quarter increased to $25 million compared to $20 million in the fourth quarter of 2017.

For the year in 2018, royalty revenues increased to $83 million compared to $66 million for 2017. These increases reflect higher sales by Takeda in its territory.

Collaboration revenues were $18 million in the fourth quarter and $94 million for the full year in 2018. These revenues are primarily driven by amounts earned under our ADCETRIS collaboration with Takeda and our ADC deals. The decreases in 2018 collaboration revenues reflect reduced product supply sales to Takeda as they transition to their own primary supply chain. Collaboration revenues also reflect milestone payments earned from our partners who continue to make progress with ADCs that utilize our technology. These included Genentech/Roche, GSK and AbbVie, who each have programs in late-stage development.

In addition to milestones under these deals, we are entitled to receive royalties on future product sales in the mid-single-digit range. R&D expenses were $150 million in the fourth quarter of 2018 and $565 million for the year in 2018. The increases over 2017 primarily reflect higher investment across our pipeline, notably, our late-stage programs EV, tucatinib and TV.

2018 expenses also include technology licensing activities in the first quarter of the year. SG&A expenses were $79 million in the fourth quarter and $261 million for the year in 2018. The increase in SG&A in the fourth quarter reflects the rapid approval and launch of ADCETRIS in frontline PTCL. For the full year in 2018, expenses included costs associated with the acquisition of Cascadian and the commercial launch of ADCETRIS in frontline Hodgkin lymphoma.

We ended 2018 with $460 million in cash and investments. This is in addition to approximately $110 million in common stock holdings in Immunomedics at the end of the year. These shares are mark-to-market, which causes variability in our financial results and is not core to our operations. Of note, this contributed to an investment net loss for the quarter of $53 million and a gain for the year of $14 million.

Regarding our financial guidance for 2019, we anticipate total revenues to increase to a range of $790 million to $840 million. There are 3 main components to our revenues: first, we expect ADCETRIS net sales in the U.S. and Canada to be in the range of $610 million to $640 million. This reflects our expectations for growth within our current labels, including frontline Hodgkin lymphoma and frontline PTCL.

Second, we expect royalty revenues to be in the range of $85 million to $90 million, based upon -- based primarily on anticipated sales of ADCETRIS by Takeda in its territory. As a reminder, royalty rates under the collaboration escalate from the mid-teens to the mid-20s based on sales and reset at the beginning of each year. Also note that Takeda has different approval in reimbursement time lines than what we see here in the U.S. And third, we expect revenues from collaboration and license agreements to be in the range of $95 million to $110 million.

Turning now to expenses. We expect R&D expenses to be in the range of $600 million to $650 million. The increase from last year reflects planned investment in EV, tucatinib, TV, LV and our pipeline programs. SG&A expenses are expected to be in the range of $280 million to $310 million. This reflects commercial activities for ADCETRIS across the 6 labeled indications as well as additional headcount to support our growth. This also includes preparatory work as we approach top line data readouts for EV this quarter and tucatinib later this year.

We expect cost of sales to be in the range of 5% to 6% of sales. Aside from the $18 million charge that we took in the fourth quarter in process inventory that did not meet our release specifications, the improvement in gross margin for ADCETRIS reflects some reduction in royalty obligations related to licensed technologies. As a reminder, cost of royalty revenues reflects the third-party royalty obligation that is owed on sales by Takeda in this territory. This will decrease to a low single-digit percentage on ADCETRIS -- on Takeda sale.

As we've discussed today, we expect significant progress with our late-stage programs this year. As a result, we anticipate that we'll provide updates to our financial guidance in subsequent calls based on pivotal trial data and any resulting regulatory interactions.

Now I'll turn the call over to Roger.

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Roger D. Dansey, Seattle Genetics, Inc. - Chief Medical Officer [6]

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Thanks, Todd, and good afternoon, everyone. Today, I'll comment on recent upcoming development activities with the ADCETRIS in our pipeline. First, there were more than 30 ADCETRIS-containing data presentations at the American Society of Hematology's Annual Meeting in December. Notably, the ECHELON-2 trial was featured in an oral presentation and simultaneously published in The Lancet. The data demonstrated statistically significant and clinically meaningful improvements in both progression-free and overall survival of A+ CHP compared to CHOP in PTCL patients. All other key endpoints also achieved the statistical significance. This was an unprecedented and practiced change in result.

Also presented were important data with 18 more months of follow-up on ECHELON-1 in frontline Hodgkin lymphoma. Showing that the PFS benefit for ADCETRIS plus AVD was maintained at 3 years. An updated analysis of peripheral neuropathy was also presented, which showed further resolution. These data are key to understanding the long-term benefits of ADCETRIS, and we will continue to report on the E1 trial at appropriate time points in the future.

Beyond the 2 successful frontline trials of E1 and E2, where ADCETRIS was combined with standard chemotherapy, we are evaluating further development opportunities for ADCETRIS in combination with either fewer chemotherapy agents and/or the PD-1 inhibitor such as nivolumab. Support for using less chemotherapy comes from investigator trial results presented at ASH by Dr. Abramson, where a 3-drug combination of ADCETRIS with adriamycin and dacarbazine produced a 100% response rate in 34 early-stage Hodgkin lymphoma patients with no progressions or deaths after a median follow-up of 15 months.

This regimen produced intriguing activity without the use of bleomycin and vinblastine, thus avoiding pulmonary toxicity and reducing neutropenia and peripheral neuropathy rates. For ADCETRIS and a PD-1 inhibitor, we now collaborate with Bristol-Myers Squibb, showed that the combination of ADCETRIS and nivolumab produced a 93% overall response rate and an 80% complete response rate in second-line relapsed Hodgkin lymphoma patients, and a 70% objective response rate in relapsed primary mediastinal B-cell lymphoma patients.

I'll now move on to enfortumab vedotin. Our current focus with EV is in metastatic urothelial cancer. Several PD-1 and PD-L1 inhibitors have been approved in the second-line phasing, yet many patients do not directly respond to treatment of checkpoint inhibitors and need new treatment options. Data from the Phase I study EV-101 supported the FDA Breakthrough Therapy designation, and results from this trial will be updated next week at the ASCO GU meeting in San Francisco.

The pivotal trial, EV-201, is currently being conducted in locally advanced or metastatic urothelial cancer patients, who previously received platinum therapy and a PD-1 or a PDL-1 inhibitor. As Clay mentioned earlier, we are on track to report the top-line data this quarter, which could result in a regulatory submission in the U.S. during 2019. Beyond previously treated metastatic urothelial cancer, we believe EV has the potential to provide benefit to patients with this cancer in a number of different clinical settings and in combination with other therapies.

To this end, we are conducting the EV-103 trial in combination with pembrolizumab, which is standard of care in second-line treatment, and in combination with a platinum agent, which are the current first-line standard of care.

Data generated from these combinations, along with the results from frontline trials incorporating PD-1, PD-L1 agents, will inform our first-line registration strategy. We also believe EV has potential in other solid tumor types, given the expression profile of Nectin-4 and are considering future developments.

Next in our late-stage pipeline is tucatinib. Tucatinib has the potential to be a best-in-class [RO] HER2 TKI. It has high selectivity and affinity for HER2 without meaningful inhibition of EGFR, which reduces the rate of toxicities, such as rash and diarrhea, that make less-selective HER2 TKI treatment difficult for patients to tolerate. In this program, our highest priority is the pivotal trial called HER2CLIMB, which is evaluating tucatinib or placebo in combination with capecitabine and trastuzumab in patients with HER2-positive metastatic breast cancer who previously received other HER2-targeted therapies. Enrollment in this trial continues to be brisk, and we plan to report data later this year on the primary endpoint of PFS in 480 patients.

In addition, we are continuing to enroll HER2CLIMB up to a total of 600 patients to support analysis of the secondary endpoints of overall survival as well as PFS in patients with brain metastases. We anticipate completing accrual by mid-2019.

Assuming positive data from HER2CLIMB, we see multiple opportunities to develop tucatinib further in earlier lines of breast cancer and other tumor, such as HER2 gastric cancer. Initial efforts are already underway with tucatinib now included in the I-SPY trial for HER2-positive patients. This is in combination with standard treatments in the near adjutant breast cancer setting. For HER2-positive colorectal cancer, there's an ongoing investigator-led trial evaluating tucatinib together with trastuzumab in third-line patients with data likely in 2019.

In closing, 2018 was a year of substantial clinical and regulatory progress with 2 ADCETRIS frontline approvals. We see additional opportunities for ADCETRIS in lymphoma, and we are preparing for another busy year in 2019 with 2 pivotal trial readouts that may lead to important regulatory submissions for new drug approvals in solid tumors. It is a potentially transformative time for Seattle Genetics.

With that, I'll turn the call back over to Clay.

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [7]

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Thanks, Roger. In the year ahead, we expect to grow the ADCETRIS brand globally and to make significant progress toward becoming a multiproduct oncology company. Key activities expected in 2019 for ADCETRIS and our pivotal state programs include, first, continue to establish ADCETRIS as the standard of care in frontline Hodgkin lymphoma and frontline PTCL; second, reporting top line data from EV pivotal trial in urothelial cancer in the first quarter potentially enabling a BLA submission later this year; third, reporting top-line data from the tucatinib pivotal trial, HER2CLIMB; and lastly, completing enrollment in the pivotal trial of TV in cervical cancer by midyear.

At this point, we'll open the line for Q&A. Operator, please open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question from Kennen MacKay of RBC Capital Markets.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [2]

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Maybe hoping for a little bit more color around the guidance, given the sort of $5 million quarter-over-quarter increase, wondering sort of, if we run-rate Q4, we get to around $528 million. And so to where we're going to get the additional $82 million to $112 million in sales to meet the guidance that you issued? Is that coming from sort of the E2 population? Or where we -- we should be thinking about that coming from versus, again, the incremental quarter-over-quarter sales we saw in Q4?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [3]

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Yes, thanks, Kennen. So the incremental or the guidance, I should say, of $610 million to $640 million, includes the E2 launch, and it includes continuing to increase penetration into the E1 population. Keep in mind that with the E2 regimen, it uses less cycles of drugs then the E1 regimen, and so it's going really great. And ADCETRIS is a -- is an awesome drug. But this will take time and persistence to continue to build this market, and that's what we're doing in 2019. We're up for the challenge, and we're making great progress.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [4]

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Maybe a quick follow-up. There have been some changes, at least in guidelines in terms of how in the relapse/refractory setting, checkpoints previously had been recommended versus sort of the current recommendations previously being behind brentuximab vedotin and now sort of being behind 3 or more prior therapies. Is there any color you can give us in terms of how bad is that sort of affecting the dynamics in the relapse/refractory setting?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [5]

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Sure. I'll turn it over to Roger to address that.

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Roger D. Dansey, Seattle Genetics, Inc. - Chief Medical Officer [6]

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Sure. So as you point out, PD-1 inhibitors certainly have a role in Hodgkin lymphoma. I think our view of ADCETRIS, as Clay indicates, it's a great drug. It has approvals all the way from frontline to relapsed/refractory Hodgkin lymphoma and literally has a role to play almost at every stage of the disease. And so yes, it's good that there other therapies available. We remain confident that ADCETRIS will be used broadly in Hodgkin lymphoma from front to all the way to the end.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [7]

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Got you. And maybe just one follow-up then on the pipeline. I noticed at after GU, we're going to get mature data from the Phase I cohort of enfortumab vedotin in bladder cancer. Wondering if there's any kind of color around what kind of maturity that can imply if that's referring to duration response or survival data and very much looking forward to that.

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [8]

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It's from the Phase I study. So it's really the responses, the duration, the safety and all things like that. It's premature to talk about survival at this point.

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Operator [9]

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Our next question will come from Geoff Meacham of Barclays.

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Geoffrey Christopher Meacham, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [10]

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Just on ADCETRIS commercially, I'm curious if there's any metrics you can give on utilization in the E1 population among community docs? I guess, I'm trying to figure out what percent haven't adopted it, and of the ones that have, maybe what the new start trends are? And then any ability you can give us on the PTCL adoption will be helpful? I know it's early on that.

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [11]

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Right. More and more community docs are taking this on, so we see that. We're not providing the specific numbers for you on that, but we continue to see more community docs using the E1 regimen, and that's really good. We're increasing our market share, we have increased new accounts, we're increasing the market penetration, increasing the connection we have with docs using ADCETRIS, and it's going in the right direction. It's just we're facing a regimen that was out there for 41 years before we got approved. And there's docs that take it on right away, and then there's other docs that need to be convinced, and we're doing that. And there's still some docs that just say "hey, no, I've been using ABVD for decades. This is what I want to do." But we are not giving up, and we're working with them. And we're showing them the benefits of using the E1 regimen, I mean the data is with us. It's better data. It's better for the patients. And so we think that if we continue up and continue our efforts, we'll get everybody. It's just going to take a little bit of time. You asked also about PTCL. PTCL is just a little different than Hodgkin lymphoma. In PTCL, we are going after patients that have good results, not great results with chemotherapy. ABVD gave pretty great results. It was a chemotherapy success story. With PTCL, CHOP chemotherapy gave pretty good responses, I mean, way more than half the patients. I don't know what it was but more than half the patients had very nice responses immediately to CHOP therapy. Now some of them relapsed, but the data -- so the data is good, not great, which is what ABVD was thought of initially that we had to go against. So there's more upside there as far as treating the patients and more patients declining faster with PTCL, and we hear great stuff from docs. We hear the docs want to use this. They're using it, using it more and more. But keep in mind, it's an incident population. So when we get approval toward the end of the year, first that have to happen is docs have to identify patients with T-cell lymphomas and then start to put them on to the protocol, and then when we charge per each time we send that vial, so we don't charge for the whole regimen all at once. So you can only get so much at a time. And we're building this, and just to place it so that you totally understand it. An average patient with -- on the E1 regimen, it's about $125,000. Please keep in mind, it could be higher or lower, based on how much they weigh. The average regimen with the E2 -- or the average cost, excuse me, for the E2 regimen, is more like about $90,000 to $100,000. So it's just they get less drug because it's less number of cycles there. So there is a difference there that if we had even the equal number of patients, we're going to have less dollars from the E2 regimen, but that's something we always knew, and I've discussed for a long time.

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Geoffrey Christopher Meacham, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [12]

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Okay. And just a follow-up to the earlier question on 201. The language seems pretty good on filing an ultimate approval ahead of top-line data. I'm just curious if you guys can take a stab at what you view as clinically meaningful in urothelial, either PFS or OS or duration of therapy?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [13]

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In our pivotal trial for EV you're talking about, the primary endpoint is ORR. And I'll make one comment and see if Roger wants to add any color to that. The last approvals in urothelial cancer were for different checkpoints, and the approvals were based on response rates between 14% and 21%. So when we came in with our data from our lead-in trial at 40%, 41% or so objective response, we have a lot of room from their Phase I trial. Now we don't have the data yet. We haven't reported the data on our pivotal trial, but we feel very strongly about our data. We got Breakthrough Therapy designation. And you'll hear this quarter what the data is. So we feel really good about that. Roger?

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Roger D. Dansey, Seattle Genetics, Inc. - Chief Medical Officer [14]

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Sure. Just to add one comment. And the initial signal in the Phase I trial is based over 100 patients. So it's a robust number of patients the results, as Clay said, in the context of bladder cancer, the response rates for that outcome was excellent. And so the drug really -- if we recapitulate even close to what we saw in Phase I, I think we would be confident we could make an argument to regulators that this is something that should be seriously considered for use.

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Geoffrey Christopher Meacham, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [15]

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But just to be clear, though, the PFS and OS weren't considered in the FDA discussions. It's still about ORR?

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Roger D. Dansey, Seattle Genetics, Inc. - Chief Medical Officer [16]

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That's right. This is an accelerated approval approach, and the 2 key outcomes are overall response and duration of response.

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Operator [17]

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Our next question will be coming from Mr. Michael Schmidt of the Guggenheim Securities.

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Michael Werner Schmidt, Guggenheim Securities, LLC, Research Division - Senior Analyst & Senior MD [18]

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Thanks for taking my questions. I had a few on tucatinib. And we've seen a couple of positive trials here recently in the metastatic HER2+ breast cancer space. And I was just wondering if you could share with us maybe the baseline assumptions that were used for PFS and OS to power the HER2CLIMB study? And then the follow-up would be whether you're planning to file already this on the initial PFS data at the

(technical difficulty)

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [19]

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Okay, Michael, you kind of phased out there at the end. And I think we got the question before you phased out. You were asking about PFS and OS and HER2CLIMB. And would we be able to submit based on the 480 patients? I think it was something like that.

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Michael Werner Schmidt, Guggenheim Securities, LLC, Research Division - Senior Analyst & Senior MD [20]

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That is correct, yes.

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [21]

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So. Okay. Thank you. You're back. I can hear you now. So absolutely, we -- our primary endpoint is at 480, and it's PFS. So we are fully enrolled in that 480. Data comes this year, and we're really excited and looking forward to that. We think that tucatinib is a really exciting drug because of the activity we've seen in the lead-in trial and other trials that had used tucatinib historically. We also are excited with the safety profile, and it's very different. It's a totally differentiated, potentially best-in-class HER2 tyrosine kinase because of that very clear interaction with HER2 but not with EGFR. And so it's certainly a one-of-a-kind there that we hope to take this and prove, with the data from HER2CLIMB, that it's best-in-class. And that's going to come out -- the first dataset is really the 480 patients with the primary endpoint of PFS.

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Michael Werner Schmidt, Guggenheim Securities, LLC, Research Division - Senior Analyst & Senior MD [22]

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Anything specific you can share maybe on the specific assumption for PFS for powering the HER2CLIMB study in the treatment and control arm?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [23]

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We don't normally talk about the specifics of how we power the study and what our underlying assumptions are. In this case, there's a lot of other data that was available on treating HER2-positive patients. But there's never perfect datasets to make all the assumptions by. That's why they call them assumptions and not facts. And so I think we've used all of the available data to help us look at what is best, how to power it. It's something that would be meaningful to doctors and patients, and I think that's really how you do it. It's not just to have the most minor, minor, minor differences in a drug. it's really to make something that docs are going to want to use and patients are going to want to take. And we think that the trial was designed for that. Roger, do you want to add anything to the trial design? Or...

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Roger D. Dansey, Seattle Genetics, Inc. - Chief Medical Officer [24]

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No, I agree. And just to add to Clay's commentary, this is a -- it's a well-thought-out design. The control arm is commonly used, and it's simple add-on design, where we're adding a TKI on top of a HER2 antibody plus chemotherapy. So we should be able to -- if tucatinib has the treatment effect that we believe it does, this trial should be able to really demonstrate that. Not only in a general population but also in a population of patients with brain metastases, which is an area of high unmet need.

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Operator [25]

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(Operator Instructions) Our next question comes from Salveen Richter of Goldman Sachs.

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Salveen Jaswal Richter, Goldman Sachs Group Inc., Research Division - VP [26]

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With regard to the first-line HL setting, there appeared to be pent-up demand for ADCETRIS, just curious whether we should expect that same trend for PTCL in the frontline, just given the existing regimen?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [27]

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For frontline Hodgkin lymphoma, there wasn't really a pent-up demand. Remember, this is an incident population. What there was, was we had a few people that transferred over from the existing ABVD protocol, and they were on that regimen, and then they didn't finish it and transferred over. If that's what you meant by pent-up demand, we've talked about that. But it is an incident population. With PTCL, there's going to be less of that, and that's because the CHOP regimen for PTCL is not as toxic as the bleomycin-containing ABVD regimen, where some docs just wanted to get away from it. I think there might have been a very little bit of that but really nothing to mention.

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Salveen Jaswal Richter, Goldman Sachs Group Inc., Research Division - VP [28]

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And then with regard to tucatinib, I know the core study is 480 patients and you're adding another 120 for the secondary endpoints and OS. Do you need data from those 120 to file the NDA?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [29]

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We decided that we wanted to have more data since we had the time between when we finished the 480 and the data was going to come out and the enrollment being so brisk. That -- so we went to FDA, and we said, look, we'd to enroll to 600 so we can have a bigger dataset to look at 2 things -- not the primary endpoint, to look at 2 secondary endpoints: one being OS, which we always want more patients to look at OS; and the other one was really the brain mets. And the reason why we wanted to look at more with brain mets is because brain mets are only in half off of the patients. So it gets us additional patients to look at a little bit of a bigger pool. So no with the primary endpoints. It's really going based on that 480.

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Salveen Jaswal Richter, Goldman Sachs Group Inc., Research Division - VP [30]

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And just maybe one last question. With regard to your comments earlier about PD-1 use in HL. Do you expect an impact here from Merck's KEYNOTE-204 study. I'm just curious how you think about that read in the context of the drug having HL on its label.

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [31]

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Okay. The KEYNOTE-204 study, initially, it was our understanding, they said it would readout in the fourth quarter, and we're now in February. It hasn't read out. So we don't know the data, first and foremost, so I can't really comment on the specifics of their data. Clearly, I want the best for patients, and I want different options for patients with Hodgkin lymphoma and other lymphomas. So I hope it can help patients. What I would say is we have data with ADCETRIS and bendamustine showing more than a 90% ORR in the relapse setting, and we have a very high response rate of ADCETRIS plus PD-1 in nivolumab with a very high ORR. And both these have very high CR rates. And to us, this is the way you really treat the relapse patients the best. And I think that when we get into relapse setting, using single agent is probably not best for the patient. So I don't think that doctors are going to make necessarily strong decisions based on more single-agent data at this point when so much combination data and such strong data is available. I will add one other thing that the use of ADCETRIS in combination with different drugs, including bendamustine, is in guidelines right now and reimbursed.

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Operator [32]

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Our next question comes from Andrew Berens of SVB Leerink.

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Andrew Scott Berens, SVB Leerink LLC, Research Division - MD of Targeted Oncology & Senior Research Analyst [33]

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I just had a question. During the Q3 call, you guys mentioned a couple of things that impacted the numbers, one of which was the seasonality in the diagnosis rate of Hodgkin's. I was wondering, has that returned to what it was previously? Or is it still well within you had expected?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [34]

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When you look back over a 10-year period with Hodgkin lymphoma, it kind of -- it does go up and down, and these things happen in the demographics of the patients, and I'm talking about the United States numbers. And over the last few years, it's slightly gone down each year, and we don't know exactly the rationale for why that is. I mean, it's obviously good for patients in the -- or people in the U.S. that there's less Hodgkin lymphoma diagnosed. It's not diagnosed on a -- it's not a huge decline, but it has declined a few years. Whether next year it starts raising back up, it is very hard to know, and you've just seen the ups and downs over the years. So that's one thing on the diagnostic rate. And on the seasonality, there are some quarters where you see more diagnosed and other quarters a little less. It depends on when patients want to go in to get therapy and how it relates to different holiday periods and things like that. So sure, there's seasonality of how many patients come in. We hear that from the docs. So I hope that goes and addresses your question.

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Andrew Scott Berens, SVB Leerink LLC, Research Division - MD of Targeted Oncology & Senior Research Analyst [35]

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Okay. And then I just -- I had a question on EV since it's coming imminently. We've heard from some of the competitors or eventual competitors that actually have compounds that the bar is probably much lower than what you guys have seen in the Phase I. I was just wondering -- I know somebody already asked the question, but I'd like to just, I guess, get a sense of how much headroom do you think there is between what you saw in Phase I and what the FDA bar might be for an accelerated approval on response rates?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [36]

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In our work with FDA and getting BTD, we didn't see any line in the sand from regulators. I think they're interested in 2 things: one is -- well, 3 things, I should say for this: one is clearly the safety of the drug. But we have a lot of information on that. And one is the response rate, the ORR that you get. And the last one, Roger mentioned briefly, was the duration. I think that's really important. If you have a very high response rate and a tiny duration, docs, the FDA, patients won't care as much if the drug you're using doesn't have a good duration. We've seen good duration with this drug in our lead-in trial. So we just want to see what our response rate is, what our duration we think that what we saw in the lead-in trial of approximately 40% ORR with a duration, I think that was between -- it was close to 6 months or something like that. I don't remember exactly. And some of the patients were on a long time. I mean, that is well in excess of what we think the bottom line is for the FDA in this setting of the relapsed patients. So we think we have a lot of headroom. I just don't know -- I don't want to give you a number of the bottom FDA number because I don't know what they haven't told us what it is. So I don't know that they established something like that. They want to see the whole package. I will also say with EV that we have other studies going on, most notably in combination with KEYTRUDA, and that's something we've been enrolling well, and we look forward to presenting data on that because we think that, that is a really interesting approach to getting up earlier in lines of therapy.

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Andrew Scott Berens, SVB Leerink LLC, Research Division - MD of Targeted Oncology & Senior Research Analyst [37]

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Okay. And then just one quick housekeeping question. You had a write-down, it was $18.1 million of ADCETRIS, I assume. And I was just wondering, is that a onetime event. Or is it something that could continue? Can you give us some more color on it?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [38]

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Yes, Todd?

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Todd E. Simpson, Seattle Genetics, Inc. - CFO [39]

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Yes, sure. So it's actually a very infrequent thing for us. This is, I think, the first time we've had this. It related to some in-process manufacturing of ADCETRIS. They were lots that didn't need our release specifications. So we basically took them out of inventory, wrote them off. This, I would add, was product that never got into the supply chain. It was in process. So it didn't impact our ability to make sure that drug got to patients, and again, it's, I think, the first time it's happened to us, but I didn't want to call it out today because it was about an $18 million charge that is included in COGS.

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Operator [40]

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Our next question comes from Cory Kasimov of JPMorgan.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [41]

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First of all, for the 4Q results, are you able to break out kind of relative sales contribution at least roughly from frontline PTCL or perhaps within PTCL? Anything you can say about the different subsegments of disease where the drug is currently or initially being used?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [42]

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I will say that we study that very closely as best as we can. It's hard to be precise. It's really hard to look at it, but that's not something that we intend to report. But we try to track as best we can, just to understand the dynamics of the marketplace and what the docs are saying.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [43]

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Okay, good. PTCL was a contributor to the fourth quarter in terms of sales?

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Todd E. Simpson, Seattle Genetics, Inc. - CFO [44]

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Yes, let me jump in. The approval came mid-November, so it likely had a very modest contribution to Q4 but certainly is included in our 2019 guidance.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [45]

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Okay. Yes, the reason I was asking, you had like -- that was like 3 or 4 selling days for E1, and you've done a good job talking about the differences between those markets. But that's what I was wondering for the 1 1/2 months, even with the holidays and stuff like that -- and ASH, what that relative contribution might have been.

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Darren S. Cline, Seattle Genetics, Inc. - EVP of Commercial [46]

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Yes, Cory, it's Darren. You're exactly right. I think, we got the indication, we had 20-some selling days. And to Clay's point, we will look at it, but it's just too early in the launch at this point.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [47]

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Okay. And then question maybe for Roger. I'm curious about next steps for potentially testing ADCETRIS in early-stage Hodgkin lymphoma. What kind of endpoints could you potentially use in a study like that?

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Roger D. Dansey, Seattle Genetics, Inc. - Chief Medical Officer [48]

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Yes, it's a great question. Thank you. So we are still walking the square on what that could potentially look like. One of the obvious concerns with a very large early-stage Hodgkin lymphoma trial powered for a traditional outcome could take a very long time. And so we are thinking through are there other ways potentially of generating data that will be meaningful for various audiences, but we are certainly compiled by the information that was presented at ASH. It looks like a pretty appealing proposition, but we have no plans to share with you. We're still thinking it through.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [49]

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Okay. Last one for Todd, a modeling question on that cost of goods guidance. So 5% to 6% this year, when historically I believe, it's been north of 10%. Is that all a result of this royalty falling off? Or is there something else changing as well?

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Todd E. Simpson, Seattle Genetics, Inc. - CFO [50]

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No, that's -- if you take the write-off out of the equation, we've been running sort of in the 10%, 11% range. That comes down to 5% or 6%. And that's largely the result of some royalty obligation on in-license technology that's now sort of run it's term. So we're no longer paying those royalties.

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Operator [51]

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(Operator Instructions) Our next question comes from Boris Peaker of Cowen and Company.

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Boris Peaker, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [52]

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Maybe first question on Hodgkin's lymphoma. You've talked about the commercial strategies for community docs and kind of the variability of community docs based on their prior history and the lack of approved agents over 4 decades. I'm just curious what fraction of patients of Hodgkin's lymphoma are treated by community docs versus academic docs?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [53]

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Darren?

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Darren S. Cline, Seattle Genetics, Inc. - EVP of Commercial [54]

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Boris, about 70% of frontline de novo Hodgkin lymphoma patients are both diagnosed and treated in the community versus the academic setting.

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Boris Peaker, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [55]

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Got you. My second question on PTCL. I'm just curious how long you anticipate the patient to be on treatment? Or how many cycle cover, best to describe it.

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [56]

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In the trial, I think there was up to 6 to 8 cycles in the trial that were used.

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Darren S. Cline, Seattle Genetics, Inc. - EVP of Commercial [57]

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Most did 6.

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [58]

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Yes, most of the patients, they were allowed up to 8 but most had 6.

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Boris Peaker, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [59]

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And how do you expect that to translate to the real world? Would it be a little shorter? Or do you think will be consistent?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [60]

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It's hard to know exactly how to translate it. I would say it's never identical, but I think when you have potentially curative therapy, patients tend to stay on.

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Boris Peaker, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [61]

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Got you. My last question, I don't know if this is for Clay or Todd, but with all the discussion around drug pricing, I'm just curious how should we think about price increases going forward relative to the historicals?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [62]

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I'll start by saying we don't normally discuss our thoughts on exactly what our prices are and how we do it. We've been very reasonable in what we've looked at and for the value that ADCETRIS brings, we think ADCETRIS is a very reasonably priced drug. Todd, do you want to add anything to that?

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Todd E. Simpson, Seattle Genetics, Inc. - CFO [63]

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No, I think that says it well. Obviously, the pricing environment is something that we and many others stare at constantly. So we do take that into consideration. I think Clay's right, in a world of pricing pressure, having a drug like ADCETRIS that really provides profound patient benefit is where you want to be. So we feel gratified that we've got such a good drug in a tough pricing environment.

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Operator [64]

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Our next question comes from Silvan Tuerkcan of Oppenheimer & Co.

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Silvan Can Tuerkcan, Oppenheimer & Co. Inc., Research Division - Associate [65]

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First along the lines of a earlier question. What would you say is the split of the additional 8,000 patients for in frontline Hodgkin's lymphoma and PTCL in terms of community setting and academic centers?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [66]

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With Hodgkin lymphoma, there's a larger percentage, probably more like 60% of patients come in the community. Whereas, in PTCL, it's probably the other way around just because it's not -- the outcome is not as strong with PTCL.

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Silvan Can Tuerkcan, Oppenheimer & Co. Inc., Research Division - Associate [67]

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Thank you. And a quick question on the HER2CLIMB trial. The additional patients that you're enrolling post the 480 patients, are they enriched in patients with brain mets? Or does that not adjust as they show up?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [68]

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It's half of them, roughly, are the -- this stratification for patients that have preexisting brain metastasis.

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Silvan Can Tuerkcan, Oppenheimer & Co. Inc., Research Division - Associate [69]

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Great, and in terms of filing after the EV-101 top line -- I know you have Breakthrough Therapy designation, but when can we expect an update on your discussions with the FDA and their signoff on allowing you to file an ORR? Would you give any guidance on that?

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Clay B. Siegall, Seattle Genetics, Inc. - Co-Founder, Chairman, President & CEO [70]

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We've had a lot of discussions with regulators, and we continue to have discussions with regulators on EV and specifics of those are, obviously, confidential. So as soon as we have the top-line data, which is -- we've guided to this quarter, so sometime soon, we'll have data. And then usually at some point you know not that distance from then, we start to give guidance on other aspects like when we're planning to submit. And then as far as filing goes, filing is usually within 60 days of submission unless there's an issue as you know. So that's what we would start talking about the ability to submit based on the data we have. Now we have said that we plan to submit this year. We haven't given a specific month, but our goal is to submit on EV in 2019.

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Operator [71]

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Our last question for today comes from Andy Hsieh of William Blair.

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Tsan-Yu Hsieh, William Blair & Company L.L.C., Research Division - Senior Research Analyst [72]

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Maybe a longer-term question -- strategy question for Roger. Frontline, you see there's different pieces probably different segments. And you can probably stratify them by PD-L1 statuses eligibility. Just wondering if you could remind us, for EV, is there any particular area where it has shown strength and how that would inform your strategy in earlier lines going forward?

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Roger D. Dansey, Seattle Genetics, Inc. - Chief Medical Officer [73]

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Thanks, great question. Just a couple of observations. Obviously, EV is based on -- in Nectin-4 expression, however, we don't see any need for a biomarker, so EV can be broadly used. Certainly, the data's been generated from a post-PD-1 exposed population, potentially shows that EV is effective in both a PD-1 exposed and a PD-1 naive population that helps us a little bit in understanding what the role of a PD-1 inhibitor together with EV would be, and then as we have done -- ADCETRIS is a great example. We can combine, at least in the BV construct, we can combine a vedotin-based antibody ADC with chemotherapy. So we have a number of options. And I've mentioned it a couple times. We've designed our trials such that we will hopefully be configured to be able to choose what looks like the best-possible available option to move into frontline, if that's appropriate.

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Operator [74]

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Speakers, that concludes today's Q&A.

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Peggy Pinkston, Seattle Genetics, Inc. - VP of IR & Executive Director of Corporate Communications [75]

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Thank you, operator, and thanks, everybody, for joining us this afternoon. Have a good evening.

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Operator [76]

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Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.