Peggy Pinkston - Seattle Genetics, Inc. Clay B.

Siegall, Ph.D. - Seattle Genetics, Inc.

Todd E. Simpson - Seattle Genetics, Inc.

Jonathan Drachman, M.D. - Seattle Genetics, Inc.

Thank you, operator, and good afternoon, everyone. I'd like to welcome all of you to Seattle Genetics fourth quarter and year 2016 conference call.

With me today are Clay Siegall, President and Chief Executive Officer; Todd Simpson, Chief Financial Officer; Eric Dobmeier, Chief Operating Officer; and Jonathan Drachman, Chief Medical Officer and Executive Vice President, Research and Development. Following our prepared remarks today, we will open the line for questions.

If we are unable to get to all of your questions, we will be available after the conclusion of the call. Today's conference call will include forward-looking statements regarding future events or the future financial and operating performance of the company.

Such forward-looking statements are only predictions based on current expectations, and actual results may vary materially from those projected. Please refer to the documents that we file from time to time with the SEC, including the company's Form 10-Q for the quarter ended September 30, 2016 for information concerning the risk factors that could cause actual results to differ materially from those contained in any forward-looking statements.

And with that, I'll turn the call over to Clay.

Thanks, Peg, and good afternoon, everyone. Thank you for joining us.

2016 was a year of important milestones for Seattle Genetics with our lead commercial product ADCETRIS, as well as across our entire pipelines. We delivered continued sales growth with ADCETRIS and are now positioned for several near-term phase 3 catalyst that could establish ADCETRIS as the foundation of therapy for CD30-expressing lymphomas.

We also initiated the phase 3 CASCADE clinical trial of vadastuximab talirine or SGN-SGN-CD33A in acute myeloid leukemia. And we reported promising phase 1 data from enfortumab vedotin or ASG-22ME in urothelial cancer that we believe support advancement of this program into registration trials.

Our SGN-LIV1A program is also emerging with encouraging interim phase 1 data that may ultimately lead to later stage trials. While ADCETRIS remains a key value driver for Seattle Genetics, we are involved in a multi – in a global – we are evolving into a global multi-product oncology company both in hematologic malignancies and in solid tumors.

We reported record product sales in both the fourth quarter and for the year in 2016. ADCETRIS sales for the U.S.

and Canada in the fourth quarter were $70.8 million, and for the year were $265.8 million. For 2017, we estimate that ADCETRIS net sales in the U.S.

and Canada will be in the range of $280 million to $300 million. Our expectations reflect modest growth of the brand in 2017 as we prepare for potential frontline labels to our ongoing phase 3 trials.

We believe that success of these trials will transform the brand and drive significant future growth. Globally, ADCETRIS net sales in 2016 were approximately $520 million.

Our partner, Takeda, continues to make strong commercial and regulatory progress in its territory. ADCETRIS is now commercially available in 66 countries worldwide.

At the ASH annual meeting in December, we presented the full data set from our phase 3 ALCANZA clinical trial in CD30-expressing cutaneous T-cell lymphoma. The trial was highly statistically significant in favor of ADCETRIS across the primary and all secondary endpoints.

The safety profile of ADCETRIS was generally consistent with the existing prescribing information. In November, we received Breakthrough Therapy Designation for ADCETRIS in CD30-expressing mycosis fungoides and primary cutaneous anaplastic large cell lymphoma.

These represent the most common subtypes of CTCL. In addition to the ALCANZA trial data, there are positive data from two investigator-sponsored trials of ADCETRIS in CTCL.

These trials included patients with additional subtypes of CTCL and CD30-expression levels below the 10% cutoff used for ALCANZA. Based on discussions with the FDA under our BTD, we plan to incorporate data from these two ISTs along with data from ALCANZA into our supplemental BLA.

Our goal is to support a broader label in CTCL by including these additional data. In light of this opportunity, we now expect to submit the supplemental BLA to the FDA in mid-2017.

Another significant activity for the ADCETRIS program this year is planned data from our ECHELON-1 phase 3 trial in frontline Hodgkin lymphoma. We continue to expect top-line data from the trial during 2017.

Our goal with ECHELON-1 is to improve progression-free survival in newly diagnosed Hodgkin lymphoma patients by establishing an ADCETRIS-containing regimen called A plus AVD as the new standard of care, replacing the decades old regimen known as ABVD. During the fourth quarter of 2016, we completed enrollment of 452 patients to the ECHELON-2 phase 3 trial in frontline mature T-cell lymphoma, commonly referred to by clinicians as peripheral T-cell lymphoma.

With ECHELON-2, we evaluated progression-free survival in a ADCETRIS-containing regimen called A plus CHP compared to the standard of care CHOP chemotherapy in newly diagnosed patients. Today, we are narrowing our expected timeline for top-line data from ECHELON-2 to be during 2018.

I'll now turn to vadastuximab talirine or SGN-CD33A. We are conducting trials of SGN-CD33A in AML and myelodysplastic syndrome, both of which broadly express CD33.

At the end of December, we announced that the FDA placed a clinical hold on several early-stage trials of SGN-CD33A in AML. This was initiated to evaluate the potential risk of hepatotoxicity in patients who were treated with SGN-CD33A and received allogeneic stem cell transplant.

We are continuing to work closely with the FDA on a resolution. AML is a devastating disease with a poor prognosis in most patients.

Treatment is complicated because patients are often frail, older, and there are many underlying toxicities associated with standard regimens. We are committed to work towards making a difference in these patients' lives despite these difficulties.

The clinical hold does not apply to our ongoing CASCADE phase 3 trial. This global randomized trial is comparing SGN-CD33A plus decitabine or azacitidine to either of these hypomethylating agents alone in older patients with AML.

Planned enrollment is 500 patients. Our goal is to improve overall survival in this disease setting where the unmet medical need is significant.

Our phase 1/2 trial of SGN-CD33A in myelodysplastic syndrome is also ongoing. In this trial, we are investigating SGN-CD33A in combination with azacitidine in newly diagnosed patients with high risk MDS.

Approximately 15,000 patients with high risk MDS are diagnosed annually in the U.S. and these patients are underserved by current therapies.

ADCETRIS and SGN-CD33A represent our lead programs in development for hematologic malignancies. I'm also pleased that we are making strong pipeline progress with ADCs for solid tumors.

This includes enfortumab vedotin, which we are co-developing with Astellas. This ADC targets Nectin-4 and is in development for metastatic urothelial cancer.

In our phase 1 trial, ASG-22ME had a 59% objective response rate at the recommended phase 2 dose and was generally well tolerated. We and Astellas intend to discuss with regulatory agencies our plan to advance enfortumab vedotin into registrational trials, including in patients who have previously been treated with a checkpoint inhibitor.

In summary, we made tremendous progress in 2016 and are strongly positioned moving forward. At this point, I'll go through the commercial activities.

Darren came in this morning, but he's under the weather, so you got me today. In the fourth quarter, ADCETRIS sales were $70.8 million.

Net sales increased slightly from the third quarter and were up 12% versus the fourth quarter of 2015. For the year, net sales reached $266 million, an 18% increase over 2015.

This robust growth in our fifth year since approval was predominantly driven by increased volume. Sales in the initial ADCETRIS launch indications continued to be strong and it is the preferred choice of physicians in relapsed Hodgkin lymphoma and ALCL.

Market research indicates that patient shares remained stable and duration is trending above six cycles. The commercial team continues to focus on the most recent indications in the consolidation setting following autologous stem cell transplant in patients with Hodgkin lymphoma at high risk of relapse or the AETHERA setting.

Based on market research, share in this setting has surpassed 50% and duration is approximately nine cycles. The team continues to reinforce the AETHERA data with both transplanters and community physicians, ensuring that they appropriately assess patient risk of relapse and identify those most likely to benefit from ADCETRIS.

Looking ahead, 2017 is an important year as we continue preparation for possible new indications based on our phase 3 trials. Planning is well underway for a potential label expansion in CTCL.

Upon approval, our goal is to rapidly raise awareness within the labeled indication among targeted healthcare providers who are most likely to treat these patients. In anticipation of ECHELON-1 data, we are preparing for a potential frontline Hodgkin lymphoma indication.

We recently initiated a disease state education campaign to increase awareness of treatment outcomes and the need to improve therapy for advanced frontline Hodgkin lymphoma patients, which is the single largest commercial opportunity for the brand. In closing, the ADCETRIS business continues to grow, and we are excited for the opportunities that potential future indications represent.

Commercial launch readiness will be a significant focus for the team this year, and we look forward to updating you on our progress on future calls. Now, I would like to turn the call over to Todd to discuss our financial results.

Then, Jonathan will cover key research and development progress.

Thanks, Clay, and thanks, everyone, for joining us on the call this afternoon. In addition to significant progress with ADCETRIS and our pipeline during 2016, we're in a strong financial position to drive our key programs forward in 2017.

During 2016, we generated cash inflows of over $400 million. This came primarily from ADCETRIS sales and royalties, as well as our collaborations.

We entered 2017 with a cash position of $619 million. Today, I'll highlight our financial results for the fourth quarter and year in 2016, and then I'll provide our financial outlook for 2017.

Total fourth quarter revenues were $105 million, which included ADCETRIS net sales of $71 million. For the year in 2016, and consistent with our guidance, revenues increased by 24% to $418 million, including ADCETRIS net sales that increased by 18% to $266 million.

Royalty revenues were $14 million in the fourth quarter and $67 million for the year in 2016. This primarily relate to intentional sales of ADCETRIS by Takeda.

As a reminder, royalties included a $20 million sales milestone reported in the first quarter of 2016. Excluding this milestone, royalty revenues in 2016 increased by 15%, reflecting ADCETRIS sales growth by Takeda in its territory.

Collaboration revenues were $21 million in the fourth quarter and $85 million for the year in 2016. These revenues are driven by amounts earned under our ADCETRIS collaboration with Takeda and our ADC deals.

R&D expenses were $108 million in the fourth quarter and $379 million for the year in 2016, which was within our expectations. The increase in annual expenses over 2015 primarily reflects investment in SGN-CD33A, ADCETRIS and our broad pipelines.

SG&A expenses were $139 million for the year, also within our expectations. Regarding our financial guidance for 2017, we anticipate total revenues to increase to a range of $405 million to $445 million.

There are three main components to our revenues. First, we expect ADCETRIS net sales in the U.S.

and Canada to be in the range of $280 million to $300 million. This represents an increase over 2016 of about 10% and is predominantly volume-driven.

Second, we expect 2017 revenues from collaboration and license agreements to be in the range of $75 million to $90 million. And third, we expect royalty revenues in 2017 to be in the range of $50 million to $55 million based primarily on sales of ADCETRIS by Takeda in its territory.

We report royalties one quarter after Takeda sales of ADCETRIS and expect royalty revenues in 2017 to follow the same general pattern seen in 2016, with higher amounts in the first quarter followed by a reset of the royalty rate reflected in the second quarter, and then growth through the remainder of the year. Also bear in mind that first quarter 2016 royalty revenue included a one-time sales milestone of $20 million.

Turning now to expenses, we expect R&D expenses to be in the range of $460 million to $500 million. The increase from last year reflects investment in ADCETRIS, SGN-CD33A and ASG-22ME.

For ADCETRIS, this includes several clinical trials as well as the cost of drug supply sold to Takeda under the collaboration. For SGN-CD33A, the investment includes the phase 3 CASCADE trial and other planned activities.

And for ASG-22ME, it includes the potential registrational trial and supporting activities. SG&A expenses are expected to be in the range of $160 million to $170 million.

This reflects activities to prepare for potential expansion of the ADCETRIS label, as well as additional head count in support of our commercial and operational needs. We expect the cost of sales as a percentage of sales will continue to be in the range of 10% to 12% in 2017.

And with that, I will now turn the call over to Jonathan.

Thanks, Todd. As Clay highlighted, we're making strong progress in advancing ADCETRIS, SGN-CD33A and enfortumab vedotin, while also expanding our clinical pipeline and introducing innovative new technologies.

We had a broad presence at the ASH Annual Meeting in December. There were more than 25 abstracts on our programs including seven oral presentations from corporate-sponsored trials.

Highlights included the long-term follow-up from our ADCETRIS pivotal phase 2 monotherapy trial in relapsed and refractory systemic ALCL. Remarkably, the median overall survival still had not been reached, and the estimated five-year survival rate is 60%.

We also presented four-year survival and durability data from our phase 1 trial of ADCETRIS plus CHP in frontline PTCL. In this trial, the combination showed a four-year PFS of 52% and overall survival rate of 80%, unchanged since the three-year data, with no new reported events.

At ASH, we reported the first data from a trial evaluating ADCETRIS plus nivolumab prior to autologous stem cell transplant in patients with Hodgkin lymphoma in first relapse. This trial is being conducted under our clinical collaboration with Bristol-Myers Squibb.

The objective response rate pre-transplant was 90%, including complete remissions in 62% of patients, and the regimen was reasonably well tolerated. We recently amended this trial to add more patients and further investigate the combination.

In addition to the second line Hodgkin lymphoma trial, we're working with BMS to evaluate ADCETRIS plus nivolumab in relapsed and refractory non-Hodgkin lymphoma, a trial that was expanded to include two rare subtypes of B-cell lymphoma known to frequently express CD30. And we will also evaluate the combination in frontline older Hodgkin lymphoma patients.

And lastly, at ASH, there were four oral presentations on our SGN-CD33A program, both as monotherapy and in combination with other agents for newly diagnosed AML patients. Our SGN-CD33A clinical development program includes the ongoing global randomized phase 3 CASCADE trial in frontline older AML patients.

We are also running a phase 1/2 trial in high risk MDS patients. Moving on now to enfortumab vedotin, we're preparing for discussions with regulatory agencies on registrational trials based on our promising phase 1 data for patients with metastatic urothelial cancer.

An estimated 80,000 people are diagnosed annually in the United States with urothelial cancer, which includes carcinoma of the bladder, ureter and renal pelvis. Outcomes are poor for patients diagnosed with locally advanced or metastatic disease.

Frontline therapies in this setting generally consist of platinum-based chemotherapy combinations with significant toxicity and limited clinical benefit. Increasingly, patients are being treated with a number of immuno-oncology agents targeting the PD-1, PD-L1 pathway.

However, most patients treated with checkpoint inhibitors failed to respond and are in need of additional therapies. We believe that enfortumab vedotin could potentially play an important role in this setting.

Looking ahead, the development opportunities for enfortumab vedotin may include clinical trials in earlier lines of therapy for patients with metastatic urothelial cancer, including in combination with checkpoint inhibitors. We look forward to working closely with our partner, Astellas, and regulatory agencies to define next steps for this program.

Shortly after ASH, we presented data on our SGN-LIV1A program at the San Antonio Breast Cancer Symposium. SGN-LIV1A is an ADC utilizing the same technology as ADCETRIS.

The target, LIV1, is expressed by the majority of metastatic breast cancers. Our clinical program is focused in particular on patients with triple negative disease where we reported an objective response rate of 37% in patients who had received a median of four prior systemic therapies.

We're continuing to enroll patients to further refine and optimize those in schedule. In our earlier stage pipeline, we've advanced two new programs into clinical trials recently.

First, SGN-CD352A is in a phase 1 trial for relapsed or refractory multiple myeloma. This is a novel ADC that utilizes our proprietary PBD dimer payload and site-specific conjugation technology.

And second, SGN-2FF, which is in a phase 1 trial for solid tumors including non-small cell lung cancer. SGN-2FF is an oral agent that has been shown in preclinical models to inhibit fucosylation of proteins, which is intended to stimulate the immune system and slow the growth and spread of cancer cells.

In 2017, we expect to submit an IND for an additional program, SGN-CD48A, for multiple myeloma. Preclinical data were described at ASH on this novel ADC that utilizes our latest technology including a new highly stable, hydrophilic linker, more drugs per antibody, increased potency, and a favorable therapeutic index in preclinical testing.

Our ADC collaborators are also making progress with programs using our technology. This includes AbbVie with an anti-EGFR ADC for glioblastoma and Genentech Roche with its anti-CD79b ADC polatuzumab vedotin for non-Hodgkin lymphoma.

And we've recently achieved a milestone under our collaboration with Genmab when they initiated a phase 1/2 trial of HuMax-AXL-ADC for solid tumors. As a reminder, we have an opt-in after phase 1 for tisotumab vedotin, an ADC being developed by Genmab, targeted the Tissue Factor.

I'm proud of all that we've accomplished in 2016 across a growing and robust pipeline. I expect 2017 to be another year of substantial progress with our programs in the clinic- and laboratory-based research.

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

Thanks, Jonathan. In closing, 2016 was a year of substantial progress for Seattle Genetics.

We have grown to more than 900 employees, including key senior hires in clinical development, commercial and other parts of our organization, and made progress establishing our international offices in Switzerland. We have one approved product, ADCETRIS, with the potential to be a major global brand, three promising ADCs, and a broad pipeline of seven other proprietary programs in the clinic.

Our primary focus is on the development of our four lead programs, ADCETRIS and vadastuximab talirine for hematologic malignancies, and enfortumab vedotin and SGN-LIV1A for solid tumors. Looking ahead to the remainder of 2017 and 2018, we anticipate a series of important clinical, regulatory and commercial milestones.

For ADCETRIS, these include submitting a supplemental BLA to the FDA for ALCANZA in mid-2017, reporting data from the phase 3 ECHELON-1 trial in frontline Hodgkin lymphoma in 2017, and reporting data from the phase 3 ECHELON-2 trial in frontline MTCL in 2018. For SGN-CD33A, we are advancing the phase 3 CASCADE trial in frontline older AML and a phase 1/2 trial in frontline MDS.

In addition, we are working closely with the FDA to resolve the clinical hold on several earlier stage trials. For enfortumab vedotin, we and our partner, Astellas, will be talking with regulatory agencies about advancing the program into registrational trials in metastatic urothelial cancer.

And lastly, with SGN-LIV1A, we will continue dose refinements in our phase 1 trial for triple negative metastatic breast cancer towards our goal of moving this ADC into later stage development. We will keep you updated on our progress on these expected milestones, as well as activities across our earlier stage pipeline programs.

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

Good afternoon and thanks for taking my questions. I had a couple.

The first question is a commercial one around the ADCETRIS sales figure in the fourth quarter and 2017 guidance. It looks like growth has been a bit slower this quarter, and guidance also reflects a slowing down relative to this year and the prior year.

Can you just provide some more color on underlying market dynamics, sort of what do you see in terms of your market research, and what are the driving assumptions behind the 2017 guidance number? And then I had a follow-up.

Okay. So thanks for the question, Michael.

So, for the fourth quarter, we had record revenues of ADCETRIS, so we think it was actually a really strong quarter. For 2017 sales guidance, these are increased by about 10% above net sales, so keep that in mind.

Second of all, what's really important with ADCETRIS is not the sales we have now. What's really important is going toward the big items of E-1 and E-2 and you can even include ALCANZA in there.

E-1 and E-2 represent very substantial markets larger than we've ever gotten into with frontline Hodgkin and frontline T-cell lymphoma, and so we see very big potential upside there. Lastly, our guidance does not include any positive E-1 data, so there's no impact on our guidance on getting E-1 data anytime during the year.

So, we've chosen not to do that.

Okay. Thanks.

And can you break out a few, if you – to what degree you account for price versus volume in 2017 guidance?

I could comment on that. It's really a volume increase that we think will take up the bulk of our 10%.

Understood. And then the second question relates to SGN-CD33A.

I was just wondering if you could provide an update regarding where you are in the process around the investigation of the safety events reported in December and maybe provide some more color on the background rate and the setting and also how this compares to the experience that has been made with Mylotarg in the past. Thanks.

Yeah. So, first of all, we remain excited about the SGN-CD33A program.

Second of all, I just want to make sure we point out that enrollment is ongoing in the phase 3 CASCADE trials and the phase 1/2 MDS trial. Third, to address your question, I would say we are continuing to work closely with the FDA on a resolution, and it would be inappropriate to give you any more color on that.

So, really no more – no comments on regulatory interactions.

Okay. Thank you, Clay.

Hey, good afternoon, guys. Thanks for taking my questions.

I guess on SGN-CD33A to follow up on the safety thing from another perspective. Curious how accrual for CASCADE has gone so far relative to your expectations.

And has that hold for the earlier stage unrelated studies had any sort of impact in terms of demand to get into the trial? And then I have one other question.

The enrollment of SGN-CD33A has gone as we've expected it. There clearly are a lot of AML patients in need of treatment, and so we have quite a number of sites across the globe for this trial.

Nearly all of them are open, and enrollment is going as expected. What was your second question?

I'm sorry.

That was it. And then, the second question I want to ask you about was, Clay, to your comments on kind of the real important thing with ADCETRIS being the future growth of the brand.

And I completely recognized that most of the focus right now is on ECHELON-1. But can you talk a little bit more about the market opportunity for the ECHELON-2 patient population, so PTCL?

Sure. Yeah.

For the grouping that will be under MTCL or as doctors refer to it more often as PTCL, so either one can really work. There's about 5,000 or so patients in that sector and it really depends on data and what you get with data and patients that have CD30 expression on it.

But we think it's a very substantial market. A lot of patients have CD30 on it.

We've even shown that patients can respond with lower or almost very small detectable CD30 expression that's histology being kind of a blunt tool. And using more fine-tune analysis, you can really see CD30 in almost every patient with T-cell lymphoma.

So, we think there's substantial upside there, and the study is fully enrolled. We're guiding now to 2018.

I would say note that we just announced in November that we finished our enrollment of all the patients and they are treated for up to six months. So, we are still treating quite a number of patients.

And then it takes time to put all the data together. So, that really contributed to giving our guidance to 2018.

So, we think that's – it is what we expected. Jonathan, would you like to add a little bit to that?

Sure. I think the – what's interesting is that we've done the follow-up from the phase 1b trial, and I mentioned that there was the four-year follow-up at ASH showing that there was still 52% of the patients who haven't progressed at four years, and such a high survival rate in this patient population which has – traditionally doesn't do well is quite encouraging, and we're hoping that the results from ECHELON-2 will similarly show a really strong benefit across this population for patients.

Okay. Great.

Thanks for taking my questions.

Thanks for taking my questions. Clay, maybe one for you, on CTCL.

I think we're actually pretty significantly under the street here in 2017 and maybe some of that was people thinking maybe we do some sales there in 2017 and cash under about $30 million under the street there in 2018. So, I was hoping maybe you could discuss some of the commercial plans there, how you really plan to target the patients and the opportunity for the – really, the prevalent patients in addition to some of the newcomers that are out there because I'm just wondering maybe we're thinking about something wrong there?

Thank you.

So, you are right. There is actually a fairly substantial prevalence pool out there.

It's – we don't have a label right now, so it's something that we can't be promoting to at all. As you know, we are in guidelines, and you only get a limited amount of news when you're in guidelines.

So, we're pleased with guidelines, but it's limited. We're not promoting this at all in our commercial group.

Also note that we talked about what we're planning to do with CTCL. And we have this ALCANZA data set that really is superb and we're very proud we hit the primary endpoint easily and we hit every secondary endpoint, and the p-values were incredibly small.

You rarely see a study with as little p-value – as low p-value as we had. So, really good statistical power on everything we did.

So, we got breakthrough designation with the FDA and we had discussions with them. And there are other trials that had been done and they've been presented.

There's a lot of other data using patients that have other subtypes of CTCL and also using different levels of CD30 below detection from histology whereby finer-tuned technology definitely see CD30, but you don't necessarily see it. It's more at the ends of the ability of histology to see it.

And the data is really good there. So, we've been discussing with the FDA, under our BTD designation, ways to bring in all of the data to have a discussion.

And while I can't promise what we will get, our goal is to get a broad label. And so, we're guiding that we would be submitting that midyear.

We are working with the FDA on it. It's a very strong discussion that we're having with them.

And I think we have a really good opportunity to end up with a bigger market if we could get a bigger label. So, I just think that as far as your model and what you said, perhaps it's just in there too early.

Got you. Okay.

Thanks, Clay. And maybe just a follow-up.

We saw on the Pfizer call, obviously, that they had submitted their – or resubmitted their BLA for Mylotarg, maybe potentially derisking some of the concern around CD33 as a target. And it looks like that's actually on top of seven plus three or at least it sounds that way from what we saw on the ALFA trial 0701 that they had mentioned.

Just wanted to get your perspective on whether that could be any kind of read in terms of sort of the safety of CD33 as a target.

I think that Mylotarg stands alone. It's a very different drug than SGN-CD33A, and I don't think you should connect them at this point in any way until we have data that would indicate such.

But given that AML is such a life-threatening disease, we totally believe at Seattle Genetics that all new therapies that can offer any positive benefit to risk ratio for patients should be advanced forward and provide hope and opportunity for patients and their physicians. We believe SGN-CD33A is an important therapy and we working very hard on SGN-CD33A in different patient populations, older, younger myelodysplastic syndrome.

That's our intention, to really cover the gamut with it. And we'll see what the FDA does, we'll see what Pfizer does.

I can't comment on what they've done. But we're very proud of our SGN-CD33A program, I should say.

Fair enough. Thanks so much, Clay and team.

Really appreciate you answering my questions.

Thanks. Clay, perhaps I'll ask the question more directly.

In terms of guidance, would guidance have been higher if the CTCL sBLA had been filed sooner?

Perhaps. I mean, the goal here is not – the goal is always to get label fast.

You always wanted it as fast as possible. But in speaking with the FDA, we had an opportunity here with two pretty large ISTs that had a lot of other data to bring forward.

And since there is already some use based on NCCN Guidelines, it makes the most sense to go for the broadest label possible. I cannot promise we will get that, but it just makes sense to do that.

And that means incorporating data that's not from a corporate study, it's from an IST, and so there are things we have to do to bring the data together and summarise it, and chart it and table it in a way that the FDA expects from a investigator-sponsored trial. So, we're very pleased with our discussions under BTD with the FDA.

We're very pleased they will consider to look at our entire package and we're hopeful that we could get a great opportunity here that actually exceeds your expectation. So, it's worth a little bit, a short timeframe that it needs to take – to put all of this together to get a much better label.

So, that's why, you pointed out, the early 2017 submission which we previously set to a midyear submission is the only – to me, it's not a delay; to me, it's taking advantage of an opportunity.

Understood. And if I can get a pipeline question.

Maybe, Jonathan, for ASG-22ME, when would you be able to provide thinking around what a pivotal could look like and are you considering also combinations of a checkpoint inhibitors and if so, is there any work that's been done with 22ME in combination with PD-1 or PD-L1?

So, let me start that now, turn it over to Jonathan. First of all, we and Astellas, working together, are planning to have discussions with regulatory agencies on potential registration trials.

And these could include trials that have already seen – or patients, I should say, that have already seen checkpoint inhibitors. And note that there is two approvals now that I see it, probably more coming, I would say highly likely.

But Roche had atezolizumab approved, TECENTRIQ as they call it, with, I think, a 14% or 15% response rate; and Bristol recently got OPDIVO approved with I think it was 19.6% response rate. So, 80% or more of patients treated with checkpoint inhibitors failed to respond.

So, there's a real need here. Jonathan, do you want to comment on our history of working with combinations with checkpoints and how that can be applied to this?

Sure. Thanks, Clay.

So, as you're aware, we've already combined ADCETRIS with nivolumab or OPDIVO in clinical trials and have really seen some exciting early results there. And we've also shown preclinically that MMAE, which is the payload on 22ME combines – the way it kills cells causes an immunogenic cell death.

And so, preclinically, MMAE containing ADCs work really well with checkpoint inhibitors. So, that's an area where we'd be very excited to do some clinical testing.

So, standby and we'll update you when we can about our plans going forward.

But, overall, I think it would be – I think it is likely that we will be working with this agent as a single agent and in combination moving forward. I think that's the most likely scenario, but stay tuned, as Jonathan said, to hear from us and Astellas on concrete plans.

Great. Thank you.

Hi. Good afternoon.

Thanks for taking my question. The first one, Clay, maybe – can you give us a little bit more color on ECHELON?

I know you've said that in the frontline setting, you think you'd be able to try to go for a broad label. So, does that mean that in addition to enrolling stage 3 and stage 4 patients, you were able to include some stage 1 and stage 2 or do you think that you wouldn't need to show efficacy in those patients in order to still get a broad label?

And then I have another follow-up question.

Well, a broad label is something that we think is kind of dependent on our data and the summation of all the data that's been evaluated with ADCETRIS in the frontline. So, right now, I think that when you look at our trial on its own, we use stage 3 and stage 4 patients in the trial.

So, that's the immediate focus. But certainly, there – in other trials, there's been different stages used and we've seen great data.

And so it is – I think it's really data dependent here. And, Jonathan, perhaps you want to add a little color on to what you think is possible and how they would have viewed this and potentially look at what a label could be?

Yeah. Thanks.

So, we wanted to enroll a population with the highest unmet need and so we really focused on the advanced patients. It also gives us an opportunity to really understand the benefit to risk in patients.

And so, I think when those data are available, oncologists will look at this broadly to understand kind of where they think their patients would be most – which patients might be most likely to benefit. I think that if this new therapy results in fewer patients needing additional therapies and fewer patients needing radiation at the end of treatment, that could be a real benefit that people would think about potentially with maybe some of the more high risk phase 2 or phase 2b patients.

Okay. Thanks for that color.

And then, maybe one question about what you had said earlier about R&D expenses moving up this year, being distributed among ADCETRIS, 33A and 22ME. Just for modelling purposes, would it be correct to assume that the contribution from ADCETRIS is still the biggest or should we assume that 33A is going to be taking on more weight?

Thanks for taking my questions. So, we're getting closer to the ECHELON-1 readout.

Can you just remind us how your modified PFS endpoint differs from regular PFS and then your rationale for using this in the trial?

Sure. There was a presentation at the International Hodgkin Symposia that was in Cologne, Germany by Joe Connors.

He's a world expert in lymphoma. And with his strong belief that modified PFS is the best readout for Hodgkin lymphoma, its best determination of how patients will do, had nothing to do with ADCETRIS.

And so, this was a endpoint that we used and was agreed upon with FDA and EMA when we began the study. And we think it is right the endpoint.

Joe – and maybe, Jonathan, you could talk about what Joe said and the differences and why this is important?

Yeah. So, they're very similar.

So, really the only difference is that at the end of your frontline treatment with ABVD or A plus AVD, if you don't – if you have residual disease that needs additional therapy, that's an event even if it's not a progression. So, if you finished with reduced disease, maybe it's a PR, but you still had active disease that needed treatment, that would be considered an event.

That's really the only difference. And it results in rates that are just a little bit lower than traditional PFS because of the opportunity to salvage patients with additional therapy.

But this is really – the goal of this is to provide definitive therapy and for patients at the end not to require additional therapy to try to complete getting them into a CR.

And that additional therapy could include something like radiation therapy...

Right.

...which we're really trying to get away from and say, can we treat people, can they get A plus AVD and not have to go get radiation as those patients go on to get a very substantive rate of secondary malignancies. And so, to give you a real number, I think Joe Connors reported at the International Hodgkin Symposia, just generally between Hodgkin – frontline Hodgkin lymphoma patients treated with ABVD.

It was, I think, somewhere between 4% and 6% different, out of PFS rate, when you look at, let's say, a two-year PFS or something like that.

Right.

So, it's something like that. It's not 10% or 20%, it's 4% to 6% different.

But we think it's the right way to really know what you have and to keep patients away from getting substantive additional therapies.

And then in terms of the pipeline, when do you think you'll be able to give timelines for CASCADE? Are you waiting until enrollment is complete here?

And then, why not move forward with the LIV1A program versus expanding the current trials specifically in triple negative breast cancer?

Jonathan, you want to take that?

So, we'll start with the timeline on the CASCADE trial. I think we've talked about about three years for a readout, and I don't think we have more – any more specificity than that right now.

And then the question on LIV1, was that – that was about – can you repeat that question?

Yes. Why not move forward versus expanding the current trials, especially with regard to triple negative breast cancer?

Well, we're thinking about all different possibilities for what to do there. And as we presented at San Antonio, we're still in the phases of choosing exactly what the right dose is to take forward, and then we'll be able to talk about what our plans are on moving that forward aggressively.

Yeah. But you can – I think you can say that we are really interested and excited about our data, and you'll be hearing some pretty discrete plans on this, I think, likely this year.

Thanks. And then just one last question.

I mean, there's been some energy behind the notion of rolling Medicare Part B into Part D and I'm just wondering if you have any thoughts – some early thoughts here on the impact to you just given Medicare Part B exposure.

At this point, we don't have a comment on that.

Thanks, Clay.

Great. Thanks for taking my questions.

Wondering if you could just help quantify what the expanded opportunity with a broader ALCANZA label might be. I know I think of CD30 CTCL or at least CD30 positive relates historically, the measured is about 1,000 patients.

What's the potential upside if you can get a broader label?

The incidents of CTCL is about 2,000 patients a year and these are U.S. incidents by the way, not global.

And a little bit more than 1,000 of them are easily detectible with CD30. So, looking at different levels of CD30 is really important.

Sometimes it's heterogeneity even in the sample. So, this is actually complicated to determine.

And sometimes docs will look at one sample and it'd be negative and then the next sample positive, because often these patients have dozens of lesions. So – and there might be a temporal nature to the expression of CD30.

So, it's not a very simple way to assess it, but the opportunity could be double if we get a broader label. So, it's worth taking the time and effort to put together all the potential data, not only the corporate data, but the IST data which really covers a lot of this in our package.

And the FDA, as I said, has indicated its willingness to look at the whole thing. And now, going back a little bit to something Kennen brought up earlier, the prevalence.

The prevalence of CTCL is a little over 20,000 patients in the U.S. alone.

So, that would – that really looks and says about 10,000 of them, or a little bit more than that, would be CD30 positive. And, now the prevalence includes a lot of different patients and it includes patients that have low disease burden and includes patients that have high disease burden.

And it's more likely that the ones with higher disease burden would be the ones that would get systemic therapy with something like ADCETRIS. And if you have very low disease burden in these prevalence cases, sometimes they get these non-systemic therapies with skin lymphoma.

So, I think that – it's not that we think you get all the prevalence, but I think that having a label really would help getting the prevalence patients, or at least some of them, and having a broader label would help getting more.

Okay. Understood.

And if I may – one more in a different direction here. Your guidance for ADCETRIS next year 10%, mostly volume-driven.

Historically for most of the launch, you've had mid-high percentage price increases. So, this implies something substantially below what.

Is that correct? And maybe your thoughts on price increases going forward changing as we approach a launch into a larger market.

So, thanks for the question. So, we did do a 3.9% price increase in January.

And, sort of to put that into context with the increase that we're projecting with our guidance this year, just keep in mind that about 45% to 50% of our business is subject to government-mandated discounts. So, when we take out 4% price increase, that doesn't go through to the whole business, it only goes to part of it.

So, we did have a small price increase in January, but most of our growth for 2017 is going to be based on our goal to drive vial usage higher.

Okay. Thanks for taking my questions.

Hey, guys. Jason Szymanski (55:45) on for Geoff.

Thanks so much for taking our question. Real quickly, I just wanted to explore operating expenses, specifically SG&A.

I noticed that's – it's up about 15%. But if you can give us an idea of how that's evolving this year and into next year, 2018, given the rollouts of all the different presumable ADCETRIS indications?

Thanks.

Yes. So, it's – I would call it a modest increase over last year.

Keep in mind, the organization is now over 900 people. We're a fairly good sized organization.

We have a lot going on in order to support that. So, the growth in expenses is primarily attributable to just sort of growth in the size of the company, but we've also got some projected increases in the commercial side of the organization.

We want to be prepared for a potential label in CTCL with the ALCANZA submission midyear, and we're already thinking proactively about making us ready for a label for E-1 and ultimately E-2. So, it's a little bit of growth.

It's focused on sort of our commercial infrastructure being ready for label expansions and then just general increasing corporate requirements.

Perfect. Thanks.

And then, just to switch gears a little bit. With regards to the CASCADE 33A trial, I know you mentioned that enrollments still continuing as planned.

But is there a sense from any of the regulatory agencies that they're going to take a longer look given the clinical hold or is there no read through there?

We do not see a read through there. I mean, this clinical hold was really related to an early stage trial that we were doing that was pre-transplant where you use SGN-CD33A on top of conditioning regimen, which has been published that you see hepatotoxicity and VOD.

So, that's what these was – were related to. In the CASCADE enrollment, the expectation is we will have a de minimis number of patients go on to transplant, a very low number.

And it's expected that because either patients that don't quality for intensive therapy and as a result wouldn't qualify for transplant. So, it's really a complete separate issue there.

Perfect. Thank you so much.

That's very helpful.

Hi, guys. Thank you for taking my question.

Just a couple of questions on ADCETRIS, starting with the AETHERA setting. I mean, you are already at 50% penetration there, duration about nine cycle, as you mentioned.

I mean, what sort of peak share do you expect there? And how do you expect the duration to trend?

And I do have a couple more.

So, the duration I would say – it's hard to know exactly, but I wouldn't say it's going to go much higher or much lower. I think we're probably at a steady state, we'll keep following it.

As far as the market penetration goes, we're at a strong market penetration. I think it's possible that we could go a little higher than that.

But there are some docs that just feel very confident about using ADCETRIS on the original label or even in retreatment. And so – and really dependent on when you do a transplant, it's getting docs to put patients on ADCETRIS really fast after the transplant.

And so, if a transplanter doesn't put the patient right on to ADCETRIS, they go back at a later time point. So, in a sense, it's almost get ADCETRIS now or potentially get it later.

So, I think we can go a little bit higher than that, but I do not think that we'll get up to the kind of market penetration we did when we first launched, where we had 80% to 90% market penetration, but I think there's a little bit of room there.

Got it. And then on ADCETRIS, I think, if I remember correctly last year in Q1 you saw some weakness.

Is there anything to worry about this quarter, specifically Q1 of 2017. And any changes in gross to net that you are seeing or how should we think about gross to net in 2017?

I'll take the first part, and ask Todd to comment on the gross to net. You saw something that's kind of interesting, and I talked to my clinical team – commercial team, excuse me, about this.

What we've seen year-over-year-over-year is the first quarter's a little softer and then it picks up, it picks up, it picks up and – through the year. And I don't know what that is and I don't know if the holidays, there's less people that, let's say, are arranging transplant right before the holidays and maybe they're doing that through January into February and starting later, or whatever.

We don't know the exact reason for it, but we've seen this now for a couple of years in the first quarter that we haven't obviously – I don't know first quarter of this year, but that is something we've seen historically, so you are correct with that if you're looking back historically. Todd, you want to comment on gross (01:01:30).

Yeah. So, our gross to net last year were kind of in the 23% range.

We expect that to go up a few percentage points this year to the mid-20% range.

And then final question. Let's say E-1 is positive, how quickly you might be able to file?

I mean, we understand ALCANZA, you need to incorporate these two trials, it took a little longer. What about E-1 if that's positive?

Thank you.

Yeah. So, we are really ready to get the data.

I mean, we're ready and positioned. We have our teams ready, between us and Takeda.

We're really looking to get this going as soon as we get the data. So, we're going to try to do it really fast.

And I think that depending on how the data look and if the data are really strong. I mean, our lead-in data from our trials is spectacular, but that's from a smaller section of patients.

And so, if our data are anything close to like our lead-in trial, I think there's a good chance the FDA can work on this in a pretty rapid clip and work with us on it and make it into something where we could change the life history of Hodgkin lymphoma patients in a shortest time period that we can get there. So, you bet you, we're going to be right on top of this.

Great. Thanks, guys.

Clay, thank you. One, just one question for the last comments on the lead-in data.

Aside from the lead-in data, and I recognize that E-1 is shortly to unveil, do you actually need OS in order to really drive home the notion that this is the new standard of care or what do you really need to see, maybe even minimally to believe that from only a PFS perspective, it is the new standard of care? If you could comment, I'd appreciate it.

Thanks very much.

Our primary endpoint, as agreed to by the FDA and the EMA, is PFS. That is the primary endpoint.

And so, it is not OS. So, I do not believe based on all our interactions with them that an OS endpoint is what they're going to be looking for here.

These are patients that that would be a different study and a different power, and different timing for that. So, it's PFS.

Great. Many of my questions have been asked already, but just another on 33A.

You mentioned that the hepatotoxicity may be due with the transplant for treatment regimen. Is there any mechanism, at least that you know of hepatotoxicity that may be from the actual SGN-CD33A itself?

We have not reported this in our findings yet. We did say that the FDA wanted us to do an evaluation of hepatotoxicity.

It was over all the patients that we've treated with our product. We've treated now over 350 patients, I think the number is a lot higher than that actually.

And we presented data on numerous occasions here and we presented the top findings, hepatotoxicity was not in the top toxicities, and we presented all our data over and over at different conferences including recently at ASH. So, we're doing – right now, we're doing an extensive analysis.

But keep in mind, at ASH, we did not present any data on the pre-transplant in patients with active disease. And so, that's a separate small trial that's very early stage, exploratory trial that we're working on that really is the center of what the hold was about.

Great. Got you.

And my second question, in terms of the mycosis fungoides and the primary cutaneous ALCL, how long of a duration of treatment do you anticipate on these patients?

That's a good question. I would say that the – I would anticipate somewhere between four and six months in the real world.

I think that in clinical trials, we'll have a lot of patients on it for six months, but in a real world, it would be a little smaller. It will be range, some will take it more, some will take it a little less.

And then, there'll be the occasional patients who take it long, long time. And so, it's going to be a little bit of a mix bag, but I would say the mean will probably be three, four and six months, which is maybe five to six cycles, something like that.

Got you.

Because every cycle is once every three weeks.

Got you. Great.

Thank you very much for taking my questions.

Okay. Thank you, operator, and thanks, everybody, for joining us this afternoon.

Have a great evening.