Analyst Conference Summary


Seattle Genetics

conference date: February 6, 2018 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2017 (fourth quarter, Q4)

Forward-looking statements

Overview: Continues to ramp Adcetris and overall revenue, but still in the red.

Basic data (GAAP):

Revenue was $129.6 million, down 4% sequentially from $135.3 million, and up 23% from $105.3 million in the year-earlier quarter.

Net income was negative $59.2 million, down sequentially from $50.0 million, and up from negative $55.1 million year-earlier.

EPS (earnings per share, diluted) were negative $0.41, down sequentially from $0.34 and up from negative $0.39 year-earlier.


For the full year 2018 total revenue is expected between $470 and $505 million. R&D expense planned for $460 to $500 million; SG&A expense $200 to $220 million. Cost of sales expected between 11% and 13% of Adcetris net product sales. Expects another $90 to $100 million in non-cash costs due to share-based compensation.

Revenue guidance does not assume an FDA approval based on the Echelon-1 data. It does include the CTLA label.

Conference Highlights:

Clay Siegall, CEO said "We anticipate several additional ADCETRIS milestones in 2018, including its potential approval and commercial launch for use in combination with chemotherapy in frontline advanced classical Hodgkin lymphoma patients based on the ECHELON-1 trial as well as reporting data from the phase 3 ECHELON-2 trial in frontline mature T-cell lymphomas."

Believes Adcetris has the potential to be a billion dollar brand in the U.S., if results from ongoing trials are successful.

Recently Seattle Genetics agreed to acquire Cascadia Therapeutics $614 million, with its pivotal-stage program of tucatinib for HER2-positive metastatic breast cancer. On February 5, 2018 Seattle Genetics raised $690 million with an equity offering.

Adcetris (brentuximab vedotin) sales for CD30-positive malignancies (relapsed HL and relapsed systemic ALCL) in the quarter were $83.7 million, up 6% sequentially from $79.2 million, and up 18% from $70.8 million year-earlier.

Collaboration and license revenue was $25.9 million, up sequentially from $39.4 million, and up from $20.8 million year-earlier.

Royalty revenue was $20.0 million, up sequentially from $16.7 million, and up from $13.7 million year-earlier. Royalties mainly reflect Adcetris sales by Takeda in 67 non-U.S. nations.

Other non-cash expense of $42.9 million was related to Immunomedics warrants, with an associated income tax benefit of $33.4 million. But there was a gain on the same warrants during the full time held. Common stock investment in Immunomedics will be marked to market.

Share-based compensation for the full year 2017 was $63.8 million.

ECHELON-1 (frontline Hodgkin Lymphoma) Adcetris Phase 3 trial reported positive results. Full results were reported at ASH. Filed a BLA with the FDA; PDUFA date is May 1, 2018.

E-2 (ECHELON-2) enrollment for MTCL (mature T-cell lymphoma) should have Phase 3 data readouts in 2018.

Adcetris label was expanded to CD30-expressing cutaneous T-cell lymphoma (CTCL).

In collaboration with Bristol-Myers Squibb, a Phase 3 trial to test Adcetris with checkpoint inhibitor Opdivo (nivolumab) in relapsed or refractory HL (Hodgkin lymphoma) was ongoing. Earlier data announced was very positive.

Enfortumab Vedotin (ASG-22ME or EV) , in collaboration with Agensys/Astellas, has a Phase 3 trial in metastatic urothelial cancer that started in October, for patients who already failed a checkpoint inhibitor. A post-CPI setting trial is also planned, as are earlier lines of treatment and combination therapies.

Seattle Genetics will co-develop tisotumab vedotin (TV) with Genmab, on a 50:50 basis. They now plan a pivotal Phase 2 trial in advanced cervical cancer to begin in 1H 2018. Other Phase 2 trials with tisotumab will try it as part of a combination regimen in front-line cervical cancer and as a monotherapy in other tumor types.

Tucatinib, an oral tyrosine kinase inhibitor, is in a global pivotal trial for HER2+ metastatic breast cancer.

A Phase 1 trial of SEA-CD40 for solid tumors continues.

SGN-CD19A or Denintuzumab Mafodotin: phase 2 trial in frontline diffuse large B-cell lymphoma (DLBCL) continued.

SGN-CD19B continued a Phase 1 trial for relapsed or refractory B-cell non-Hodgkin lymphoma.

SGN-LIV1A Phase 1 data was presented in December showing antitumor activity for heavily pretreated triple-negative breast cancer. An expansion cohort is enrolling, with data to be presented in December. Plans a combination with tecentriq for triple-negative breast cancer, conducted by Roche. Added an agreement with Merck to try with Keytruda.

"Seattle Genetics achieved a milestone payment under its ongoing ADC collaboration with Genentech/Roche triggered by a phase 3 trial initiation of polatuzumab vedotin for patients with diffuse large B-cell lymphoma. Polatuzumab vedotin is an ADC targeting CD79b utilizing Seattle Genetics’ proprietary technology. The program has received both Breakthrough Therapy Designation from the FDA and PRIME (PRIority MEdicines) designation by the European Medicines Agency."

SGN-CD352A continued a Phase 1 trail for multiple myeloma.

SEA-CD40 is a novel immuno-oncology agent targeted to CD40 utilizing Seattle Genetics’ proprietary sugar-engineered antibody (SEA) technology to produce a non-fucosylated antibody. Planning a trial in combination with a checkpoint inhibitor.

SGN-CD123A continued a Phase 1 trial for relapsed/refractory AML. CD123 is expressed on leukemic stem cells, which have proven difficult to kill.

SGN-2FF continued a Phase 1 trial for relapsed or refractory solid tumors.

SGN-CD48A will start a Phase 1 trial in early 2018 for multiple myeloma.

SGN-BCMA program should enter phase 1 in 2018.

Roche's program with polatuzumab vedotin, an anti CD79b ADC using SGEN technology, in diffuse large B-cell lymphoma, initiated a Phase 3 trial in late 2017. Abbvie's ADC for glioblastoma is now in a Phase 3 trial.

See also Seattle Genetics pipeline.

Cash ended at $413.2 million, down sequentially from $470.4 million. There was no debt. After the quarter ended a common stock offering was made to finance the acquisition.

Total costs and expenses were $174.6 million, consisting of: cost of sales $10.2 million; cost of royalty revenue $5.5 million, R&D $110.5 million; selling, general and administrative expense $48.5 million. Resulting in a loss from operations of $45.0 million. Other loss $42.1 million. Income tax benefit $27.9 million.

Full year 2017 revenue was $482.3 million. Net loss was $125.5 million. EPS was negative $0.88.


Revenue guidance by patient type? Don't do that. Would update guidance if we gain the new FDA approval; we need to see what the actual label is. The ramp would be gradual.

First line effect on later line prescriptions? Sure if we get the first line label it should reduce sales in later lines. The FDA already removed the 16-cycle cap. Second line could become Adcetris plus nivolumab.

Believes the work the Cascadian team has done with tucatinib is really good. Has to refrain from details until the acquisition is completed.

Volume growth v. price growth in 2018? We don't comment on price increases ahead of time. We are seeing volume growth. We did not include any E1 possible revenue in our guidance. There was a price increase January 1.

Multiple myeloma drugs? The CD48A is an ADC. The BCMA drug, SEA-CD40 is not an ADC, but a sugar-engineered antibody or SEA.

Increase in SG&A for 2018? Increased field team by roughly 90 already for E1 sales. Also included some Cascadian transaction costs, but not the ongoing costs, which we won't include until the transaction completes.

We expect to see a pattern where royalties grow throughout the year. Recall the tiered rates reset each January 1, so the second half rate is higher than the first half rate.

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Disclaimer: My analyst call summaries may include both our condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2018 William P. Meyers