Analyst Conference Summary

conference date: July 31, 2014 @ 1:30 PM
for quarter ending: June 30, 2014 (second quarter, Q2)

Forward-looking statements

Overview: Adcetris revenue is still growing, but unimpressive. Most value is attributed to the ADC pipeline.

Basic data (GAAP):

Revenue was $68.3 million, flat sequentially from $68.3 million, but down 7% from $73.6 million in the year-earlier quarer.

Net income was negative $17.6 million, down sequentially from negative $16.3 million, and also down from negative $6.9 million year-earlier.

EPS (earnings per share, diluted) were negative $0.14, flat sequentially and down from negative $0.06 year-earlier.

Guidance:

Adcetris revenue for the full year 2014 is now expected to be between $160 and $170 million. Research and development expense, full year, expected to be between $235 and $250 million.

Conference Highlights:

Adcetris (brentuximab vedotin) sales set a record in the quarter at $44.8 million, up 25% from $35.7 million in the year-earlier quarter. Collaboration and license revenue decreased to $16.2 million from $34.3 million year-earlier, and royalty revenue increased to $7.3 million from $3.5 million year-earlier. Royalties mainly reflect Adcetris sales by Takeda in its territories.

Adcetris continued to gain international traction with approvals in Israel and Kazakhstan. It is now approved in over 40 countries. Phase 3 data for Adcetris for Hodgkin lymphoma at risk for relapse is due in October 2014. Before the end of 2014 Phase 2 data is due to diffuse large B-cell lymphoma and Hodgkin lympoma. There is evidence of some use outside the current label like PTCL (peripheral T-cell lymphoma). Adcetris gained market share in the U.S. and Canada.

The pipeline advanced with encouraging interim Phase I data for SGN-CD19A for B-cell malignancies that included multiple complete remissions. Phase I data for acute lymphoblastic leukemia and (AML) acute myeloid leukemia is due by the end of 2014. In addition Seattle Genomics ADC (antibody-drug cunjugate) technology is being used in about 24 clinical stage trials by other companies. Roche, AbbVie and Progenics all made data presentations on Seattle Genetics ADC technology at ASCO.

A phase 1 trial of SGN-CD70A is planned for initiation in Q3 2014 for CD70-positive cancers.

Four Phase 3 trials and four Phase 2 trials continued.

See also Seattle Genetics pipeline.

Bayer made a milestone payment under an ADC collaboration agreement after initiating a phase 1 trail for solid tumors.

Cash ended at $349.2 million, down sequentially from $355.4 million. There was no debt.

Share-based compensation expense was near $9 million.

Total costs and expenses were $86.0 million, consisting of: cost of sales $4.1 million; cost of royalty revenue $2.6 million, R&D $53.7 million; selling, general and administrative expense $25.5 million. Resulting in a loss from operations off $17.6 million.

Q&A:

Aethera trial data available in October? We can't say if we will be able to present the data at ASH, but that is the type of conference we would like to present the data at.

Restriction to 16 or less cyles, improvement since removal? We have not seen any large moves in duration. It continues to be around 6 cycles, but varies by setting. We believe there is room to expand duration in the commercial setting.

[more questions about when and where data will be presented]

Adcetris sales vs. actual demand in quarter? There is no inventory change in the number. The number shows continued on-label interest, as well as interest in trying it in related diseases. Believes can grow Adcetris within label.

Echelon-1 trial, relapser types within? We are making progress on the Echelon trials and are aligned with Takeda on a regulatory strategy.

We don't break out label vs. non-label sales for Adcetris, nor by U.S. and Canada.

AML has not seen any advances for decades. Nothing really works in the subsets we are looking at, elderly patients and relapsed patients. We'll have to wait for the Phase I date to see if we might address this. [WPM - but see Cyclacel]

Price increase affect on guidance? It was planned into earlier guidance, so increased guidance for Adcetris is due to increased sales, not the price increase. But about 40% of our sales are paid by the government, where price increases are capped by inflation.

Adcetris and checkpoint inhibitors? That study is being conducted by the Eastern Oncology Group. There is not public data yet to indicate what effects the combination might have. The data will come from the clinic.

Any push back on pricing, in particular for off-label? Pricing continues to be favorable including all the settings where we see use.

There is no treatment today in the post-transplant setting for Hodgkin Lymphoma, so it is hard today to say what the commercial opportunity size is if the Aethera trial results are positive.

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