Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Seattle Genetics Inc. (NASDAQ:SGEN)

Q1 2010 Earnings Call Transcript

April 27, 2010 5:00 pm ET

Executives

Peggy Pinkston – Director, Corporate Communications

Clay Siegall – Chairman, President and CEO

Todd Simpson – CFO

Tom Reynolds – Chief Medical Officer

Eric Dobmeier – Chief Business Officer

Analysts

Cory Kasimov – JP Morgan

Jason Kantor – RBC Capital Markets

Mark Monane – Needham & Company

George Farmer – Canaccord Adams

Bret Holley – Oppenheimer

David Miller – Biotech Stock Research

Howard Liang – Leerink Swann

Ling Wang – Brean Murray

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Seattle Genetics' first quarter 2010 financial results conference call. (Operator instructions) This conference is being recorded today, Tuesday, April 27, 2010.

And I would like to now turn the conference over to Ms. Peggy Pinkston, Director of Corporate Communications. Please go ahead.

Peggy Pinkston

Thank you, operator. I'd like to welcome all of you to Seattle Genetics' first quarter 2010 conference call. With me today are Clay Siegall, President and Chief Executive Officer, Todd Simpson, Chief Financial Officer, Eric Dobmeier, Chief Business Officer and Tom Reynolds, Chief Medical Officer.

This afternoon, Clay will provide an update on our programs including recent highlights and upcoming activities and Todd will discuss our first quarter 2010 financial results. After that, we'll open the call for your questions.

Today's conference call will include forward-looking statements based on current expectations. Such statements are only predictions and actual results may vary materially from those projected. Please refer to the documents that we file from time-to-time with the SEC and which are available on our website for information concerning the factors that could affect the company.

I'll now turn the call over to Clay.

Clay Siegall

Thanks, Peg and thank you all for joining us this afternoon. 2010 is off to a great start. We ended the first quarter in a strong financial position and expect to report key data from two late-stage programs, brentuximab vedotin and lintuzumab, later this year. We are also having – we are also advancing a robust pipeline of earlier stage programs and we are continuing to generate value through our antibody drug conjugate or ADC technology collaborations.

Today, I'll provide a summary of our recent accomplishments and key upcoming milestones. I'll begin with an update on our lead product candidate, brentuximab vedotin, also known as SGN-35. This is an ADC targeting CD30, the defining marker for Hodgkin lymphoma and a target also expressed on several T-cell lymphomas including anaplastic large cell lymphoma or ALCL.

We are on track to report data from our pivotal Hodgkin lymphoma trial in the second half of 2010. This trial is designed to provide the basis for an NDA in the United States under the Accelerated Approval Regulations and an MAA in Europe under the Conditional Authorization Regulations, both in the first half of 2011.

This single agent pivotal trial in 100 relapsed or refractory Hodgkin lymphoma patients is being conducted under a special protocol assessment with the FDA. Key endpoints include objective response rate assessed by independent review, complete response rate, duration of response and tolerability. Although frontline treatments for Hodgkin lymphoma result in a high percentage of durable remissions and cures, a significant number of patients are refractory or relapse and require additional therapies.

In second-line Hodgkin lymphoma, patients are generally treated with salvage chemotherapy, with most patients then receiving an autologous stem cell transplant. Patients with Hodgkin lymphoma who relapse after autologous transplant have a median survival of between two and three years, during which time they often cycle through multiple treatments that provide transient clinical benefit.

Given the unmet medical need in this patient population, relapsed and refractory Hodgkin lymphoma is our initial focus for brentuximab vedotin. We are also beginning to evaluate brentuximab vedotin as an integrated component of second-line Hodgkin lymphoma treatment with initiation earlier this month of the AETHERA trial. This is a Phase III relapse prevention study in approximately 325 post-autologous transplant Hodgkin lymphoma patients who are at high risk for residual disease.

Eligible patients must have either a history of refractory Hodgkin lymphoma have relapsed or progressed within one year from receiving frontline chemotherapy and/or have disease involvement that has spread beyond the lymph nodes at the time of pre-transplant relapse. The study is designed to evaluate whether brentuximab vedotin can extend progression-free survival in these patients. The AETHERA trial is intended to fulfill regulatory requirements for full approval in the United States and Europe.

We're also evaluating brentuximab vedotin in a Phase II systemic ALCL trial. This study is enrolling rapidly and we expect to complete our target accrual of 55 patients in the second quarter. The primary endpoint is objective response rate assessed by independent review. Secondary endpoints include complete response, duration of response and tolerability.

Systemic ALCL may provide an additional registration pathway for brentuximab vedotin. Based on our rapid enrollment, we now plan to report top line results from this trial in the second half of 2010.

At the American Society of Clinical Oncology meeting in June, we will present preliminary data from our experience with brentuximab vedotin in the retreatment setting. This will include findings from our Phase I trials as well as from our ongoing Phase II clinical trial for the retreatment of patients who relapsed after having previously responded to brentuximab vedotin. Through our evaluation of brentuximab vedotin in the retreatment setting, we may be able to provide further patient benefit and offer an additional therapeutic option for managing relapsed Hodgkin lymphoma and systemic ALCL.

To build on our work in second and third-line Hodgkin lymphoma, in January, we initiated a Phase I clinical trial of brentuximab vedotin in combination with chemotherapy for the treatment of frontline patients. We are evaluating its safety in combination with ABVD, a standard chemotherapy regimen for frontline Hodgkin lymphoma. The trial will enroll approximately 40 newly diagnosed patients and is designed to advance the development of brentuximab vedotin in this setting.

In addition to our broad clinical development activity with brentuximab vedotin, we are focused on the manufacturing, nonclinical and other required components of our planned NDA submission. We are also building our commercial organization, including adding senior marketing and sales personnel and starting put in place the infrastructure necessary for launch.

An important of the brentuximab vedotin is our intellectual property protection. We recently received a U.S. patent covering the cleavable linker and potent auristatin drug payload used in brentuximab vedotin as well as in other internal and collaborator ADC programs. The patent extends IP protection for brentuximab vedotin to at least 2025, providing substantial value to the program as well as our ADC platform more broadly.

We are collaborating closely with Millennium Takeda, our partner outside of the United States and Canada, on the global commercialization of brentuximab vedotin. We look forward to bringing this promising ADC to patients worldwide.

In addition to reporting pivotal Hodgkin lymphoma and Phase II systemic ALCL data from our brentuximab vedotin program later this year, we are expecting key data from our lintuzumab program. Lintuzumab, or SGN-33, is an antibody targeting CD33 found on leukemic blasts. Our primary focus with lintuzumab is a Phase II B trial of 210 patients aged 60 or older with acute myeloid leukemia.

This population of AML patients represents a substantial unmet medical need. For older patients unable to tolerate high dose induction chemotherapy, therapeutic options are limited. Low dose cytarabine is a commonly used treatment approach for these patients.

Our Phase II B trial is a randomized, double blind, placebo controlled study comparing overall survival of patients receiving low dose cytarabine plus lintuzumab to those receiving low dose cytarabine alone. In Phase I, lintuzumab was generally well-tolerated and demonstrated anti-leukemic activity as a single agent, providing rationale for its use in combination.

We are now expecting that top line data from the Phase II B trial of lintuzumab will be reported in late second quarter to mid-third quarter of 2010. This is slightly later than our last guidance and is based on our projections for when we will reach 186 events to trigger for unblinding the data. We look forward to reporting results from this trial later this year.

In addition to our late stage clinical programs, we are making substantial progress with our earlier stage pipeline of product candidates. This includes SGN-75, an ADC targeting CD70, which has a broad expression profile on solid tumors and hematologic malignancies. We are conducting a Phase I dose escalation trial of SGN-75 in non-Hodgkin lymphoma and renal cell carcinoma, making it our second auristatin-based ADC in the clinic.

By leveraging our experience in ADC clinical development, the study was designed to be informative of dose schedule and indications for future trials. We look forward to keeping you updated on this program.

Our next ADC to enter clinical trials is expected to be ASG-5ME under our collaboration with Agensys, an affiliate of Astellas. This ADC targets the ASG-5 antigen, which is found on a number of solid tumor types. We and Agensys expect to initiate Phase I clinical trials with ASG-5ME during 2010 for both prostate and pancreatic cancer.

Our ADC collaborators also continue to make progress with programs using our technology, five of which have advanced into the clinic. In the first quarter, we received a milestone payment from Genentech triggered by an IND submission. In addition, we recently announced that Genentech will pay us $9.5 million to renew exclusive licenses to specific targets and extend the research term of our ongoing ADC collaboration.

In total across all of our ADC collaborations, we have generated approximately $120 million to date. We expect to receive additional milestones as collaborator programs advance as well as potential royalties upon commercialization.

At the recent American Association of Cancer Research annual meeting, we presented multiple preclinical datasets. These included a poster describing the mechanism of action of SGN-75 in preclinical models. The data showed that the cell killing activity of SGN-75 is derived from the release of its payload upon degradation of the antibody inside of tumor cells.

In two other poster sessions, data were presented on the potent and durable activity of ASG-5ME in solid tumor models as well as the expression of AGS-5 in several gastrointestinal tract cancers.

We also presented data on our novel SEA technology, which can be used to enhance the effector function of antibodies. We believe our approach is simple and less expensive compared to other methods to reduce fucosylation of antibodies. Our SEA technology provides us with additional opportunities for our internal product pipeline as well as the potential for collaborations.

At this point, I'd like to turn the call over to Todd to discuss our financials.

Todd Simpson

All right. Thanks, Clay and thanks everyone for joining us this afternoon. We entered the year in a strong financial position, bolstered by deal making in late 2009 and with continued progress in 2010. And as a result, we are well positioned to drive our lead programs towards key data events later this year and to bring brentuximab vedotin to a planned NDA submission in the first half of next year.

In early January, we received cash payments of $72 million under our Millennium and GSK deals. And as of March 31st, we had more than $331 million in cash and investments. We continue to project that net cash used to fund our operating activities will be less than $20 million in 2010 and to end the year with more than $265 million in cash and investments.

Our revenues for the first quarter of 2010 were $46.5 million compared to $9.1 million in the first quarter of 2009. A substantial portion of these revenues related to the dacetuzumab collaboration with Genentech that will end in June. As we discussed during our year-end call in February, revenues in the first half of 2010 are expected to include an estimated $70 million related to this collaboration as it winds down. Approximately $40 million of this was recognized in the first quarter and the remaining $30 million is expected to be recorded in the second quarter.

Revenues in the second half of the year will be driven by our ongoing ADC collaborations as well as by our brentuximab vedotin collaboration with Millennium. Operating expenses for the first quarter of 2010 were $35.5 million, which is down 5% from the first quarter of 2009. This decrease reflects lower costs for the dacetuzumab program as we complete clinical trials and lower lintuzumab clinical costs as we approach the completion of the Phase II B combination trial in AML.

Brentuximab vedotin spending increased in 2010, reflecting the expansion of our clinical program, which now includes seven ongoing trials. This was partially offset, though, by lower manufacturing costs, which is tied to the timing of drug supply campaigns. We expect that manufacturing costs for brentuximab vedotin will increase later in the year as we proceed with our validation runs and position ourselves for our pre-approval inspection campaign in 2011.

As a reminder, 50% of brentuximab vedotin development costs incurred under the Joint Global Product Development Plan are funded by Millennium. Development activities performed by us are charged to R&D expense as incurred. Development funding, along with the upfront payment and other payments, are being amortized into revenue over the development period of the collaboration.

In the first quarter of 2010, noncash share-based compensation expense was $3.2 million compared to $2.7 million in the first quarter of 2009.

So, in closing, we continue to be well positioned financially and this enables us to continue to drive our programs toward key data events in 2010. We look forward to keeping you updated on our progress.

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

Clay Siegall

Thanks, Todd. Before we open for questions, I'll quickly recap our key upcoming activities. For brentuximab vedotin, we expect to report data from our pivotal Hodgkin lymphoma trial in the second half of 2010, complete enrollment this quarter in our Phase II ALCL trial and report data in the second half of the year, present data on our retreatment experience at ASCO and position the program for an NDA submission in the first half of 2011.

For lintuzumab, we anticipate reporting top line data from the Phase II B study in late second quarter to mid-third quarter of this year. For SGN-75, we are advancing the ongoing Phase I trial for CD70 positive non-Hodgkin lymphoma and renal cell carcinoma. And for ASG-5ME, we and Agensys plan to initiate clinical trials for prostate and pancreatic cancer this year. As you can see, we have a number of exciting milestones ahead.

Operator, we'd like to open the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question is from the line of Cory Kasimov with JP Morgan.

Cory Kasimov – JP Morgan

Great. Thanks. Good afternoon, guys and thank you for taking the questions. I have two for you, one on SGN-33 and one on 35. So, first on 33, Clay, as you acknowledged in your prepared comments, the event timing here is slipping beyond your initial assumptions. And I'm just wondering if there's anything that we can or should be reading into that in terms of patients living longer than you had assumed or is that a dangerous assumption to be making at this point?

Clay Siegall

I think – Cory and thanks for the question. I think it is a little bit of a dangerous assumption to make, as you put it. It's very hard to determine anything based on the data so far. We're blinded to this. It's a double blind, placebo controlled study.

We're excited with the program. We were excited to initiate this program two and a half years go. We think we have a potential opportunity in AML. The study was well designed. We modeled our timings based on the data from the Alan Burnett study with five and a half month median survival and 25% one year survival in 60 and older AML patients. But, it's very difficult to read into any delay in time for reporting. It's an event driven study and that comes with the territory.

Cory Kasimov – JP Morgan

Well, historically, how variable is that five and a half month survival for elderly patients on low dose ara-C?

Clay Siegall

It's a very good question. It's not like there's dozens of papers that describe this. And Tom, do you want to add anything to that?

Tom Reynolds

Yes. Cory, there's been a couple of studies that have used low dose ara-C as a component of the comparator arm. And depending on that patient population, those numbers have swung. I think in the more recent tipifarnib study were that was a component of the comparator arm, the overall survival in that arm was a little bit shorter. But those tended to be somewhat older patients and a little bit sicker.

So, although we think we've modeled this well against Alan Burnett's data, we are cognizant that the demographics can impact the timing of both arms. And so, we're really not in a position to read much into this except to say that we're executing well on the study. And when we hit our event rate, we'll clean the data and report as quickly as we can and share it with you all.

Cory Kasimov – JP Morgan

Okay. Great. And then, the question on SGN-35, I'm wondering if you can talk a little bit about the potential commercial implications if the drug is indeed successful in the post-transplant and retreatment settings relative to just the relapse refractory Hodgkin's market.

Clay Siegall

Sure. Eric, do you want to comment on that? This is Eric Dobmeier.

Eric Dobmeier

Hi, Cory. It's Eric. So, are you referring to the AETHERA trial particularly?

Cory Kasimov – JP Morgan

The AETHERA and then also like what – I mean, as we look at the data you're going to be releasing at ASCO this year to the extent that retreatment becomes kind of standard operating procedure in the future for physicians using SGN-35, how we can be thinking about that in our models.

Eric Dobmeier

Yes. So, let me talk about AETHERA first. So, in the AETHERA trial, we're treating patients post-transplant before they relapse. Whereas with our pivotal trial we're treating them after they've relapsed following transplant. So, it's an earlier line of therapy. There are more patients potentially available in the AETHERA trial population than there would be in relapsed refractory from an incidence point of view.

So, it allows us to start moving earlier into lines of therapy. It also provides us data in a setting where we're essentially doing kind of a maintenance therapy, because patients receive up to a year of treatment post-transplant rather than treating active disease, active progressing disease, in the pivotal trial. So, we think that's important. In terms of the patient numbers, we're also doing, as Clay mentioned, a frontline study combined with ABVD and that's where there are quite a few more patients that potentially could be addressed by the drug. But, we're following that data and we'll be reporting that as it comes out.

Regarding retreatment and the retreatment trial that Clay mentioned, as you I'm sure are aware, a significant component of Rituxan sales are patients who receive Rituxan over and over again though different lines of therapy. And if we can demonstrate that patients who have responded to brentuximab vedotin can be retreated and respond again, that opens up the ability to maintain a prevalence pool that would be larger than if patients can only be treated once.

So, that does provide a significant opportunity in the long run. The data that we're going to be talking about at ASCO is early, but we're continuing to treat additional patients who roll off of our Phase I and II studies currently.

Cory Kasimov – JP Morgan

Okay. That's helpful. Thank you.

Operator

The next question is from the line of Jason Kantor with RBC Capital Markets. Please go ahead.

Jason Kantor – RBC Capital Markets

Thanks for taking my question. On the first-line study, the Phase I combination with ABVD, what kind of data might we be able to expect from that in terms of initial signs of efficacy and when do you think you might have that data? We will have some kind of response rates that we could look at and say this looks like it works in this setting?

Clay Siegall

Jason. This is Clay. Thanks for the question. Clearly, there's a high response rate in this area. And our study is a Phase I study mainly looking at safety. Perhaps, Tom, you want to expand a little bit on that.

Tom Reynolds

Yes. As Clay said, Jason, it is a safety study. As you know, the frontline – development of frontline regimens in Hodgkin's has been a great success story for many patients. Patients respond 80% to 90% with – are responders after frontline therapy. So, showing that we can move that bar up in a Phase I study is going to be pretty hard and that's not the objective. What we are trying to establish is that it's a tolerable regimen and worth studying to compare it to other frontline regimens using endpoints such as PFS or overall survival in much larger studies to come.

We would anticipate, given the interest in the study and how well it's going, that we would complete enrollment of those 40 patients over the next 18 months to two years and have the data roughly in that timeframe. So, we're looking forward to sharing that as it becomes available.

Jason Kantor – RBC Capital Markets

I know it's a Phase I study, but where this drug has been active it's been fabulously active, even in Phase I settings. So, is there – if you're talking about 80%, 90% response rate, is there some aspect of that response, whether it's number of complete responses or something that – where you might get a good sense that this was having the same kind of profile and efficacy?

Tom Reynolds

I think that's going to be hard to read into the study, given one or two – patient experiences from one or two patients could really sway whether you're at 80%, 90%, or 100%. So, I'm not sure we're going to have a lot of certainty about it.

I think where the money is, is in PFS and whether patients relapse. That's a longer term objective and will take some time and quite a few patients to understand that better. What we're hoping for is good tolerability that shows that it plays well with others and that we can really leverage this as an addition to current frontlines therapy.

Jason Kantor – RBC Capital Markets

Okay. Just if I can ask on the pipeline, is SGN-70 still in the pipeline and is ASG-5ME? Are those going to be two separate trials or is that going to just be one trial with both of them?

Clay Siegall

Okay. We'll start with ASG-5ME. Those are going to be two separate trials, the prostate and the pancreatic trials. As far as SGN-70, absolutely it's in the pipeline. We are studying it in patients that have autoimmune disease. We have not reported data as of yet, but that could be in the future.

We are – keep in mind we're a cancer-focused company and it's our first program in a non-cancer indication. And we have a lot on our plate right now with brentuximab vedotin getting near pivotal data and lintuzumab being near our Phase II B data release. And so, we did not focus on it in this call just because it is not at the top of our priority list. But the study is still going on, we're still excited with the program and we intend to report data and use those kinds of data to guide our next decision for clinical trials going forward. And so, it's still very active in our pipeline, yes.

Jason Kantor – RBC Capital Markets

Thank you.

Operator

The next question is from the line of Mark Monane with Needham & Company. Please go ahead.

Mark Monane – Needham & Company

Thank you. Good afternoon, I'm from New York City and thanks for taking my question. As you talk about B-ved, it makes me think about and if I heard you say it, Clay, K-FED, who began. We began as you know, as a backup dancer for a number of superstars.

If you see data, as we've seen nicely in the third-line setting, does that portend even a better result in a second-line or a first-line setting? What do you know about the mechanism of action and can you speculate on what you expect to see in those settings?

Clay Siegall

Well, Mark, first, thank you for the questions, but I am actually a little disappointed that we did not get the weather report in New York City.

Mark Monane – Needham & Company

It was stormy earlier, extremely stormy. Bright and sunny just in time for the call.

Clay Siegall

All right. Now I feel better. It's hard to totally portend what you'd get in second and first-line when you have some very nice data like we've reported from Phase I in the third-line Hodgkin lymphoma patients. It's really hard to tell, which is why you do the trials.

So, I think that our trial in second-line in the relapse prevention setting and then our trial in the frontline in combination with ABVD are both trials we're really excited about bringing this agent into earlier stages of Hodgkin lymphoma. And I think that we're bullish on it. We're excited on where this drug can go in the future. We'd love to see this drug as a part of frontline therapy with chemotherapy and brentuximab vedotin and where we have a very, very high response rate in patients.

So, that's really a longer term goal. But, as Tom said before, this first trial is generally a safety trial which would lead to a larger trial that we could do to really look at the response rate – or, I mean, the PFS and CR rate and long-term durable response rate.

So, we're excited in the second and first-line, but I don't think, based on our data yet, we can – it's definitely a connection between third line. But, we're excited enough to be investing in it and working hard on it.

Mark Monane – Needham & Company

Okay. That was a good answer. And in follow up, though, when I think about the market research, what populations are actually available for SGN-35, what's the eligible population? When I think about frontline, I think about incidence numbers. When I think about second and third-line, or third-line at the moment, I think about prevalence numbers. How does the company think about that? How has Takeda thought about that in doing projections going forward?

Clay Siegall

Yeah, Mark. Thank you for the questions. They're really good. I don't think we could comment on what Takeda has thought about it. We can tell you a little bit about our thoughts. Eric has led the charge thinking about all those. Eric, would you like to comment?

Eric Dobmeier

Sure. Hi, Mark.

Mark Monane – Needham & Company

Hi, Eric.

Eric Dobmeier

I think you're absolutely right that frontline lymphoma is an incidence population and relapsed refractory is a – it's combined incidence and prevalence, because each year there are patients who are newly relapsed. And that's an incidence population, but they're flowing into a prevalence pool of patients who are living with the disease. And as Clay said in his prepared remarks, they're cycling through various therapies that provide transient clinical benefit and have associated toxicities.

And that's the initial population we're targeting with our pivotal trial is those patients who are newly relapsed or have been relapsed for a few years. Their median survival post-transplant, once they fail, is two to three years. So, there's a not a lot of great therapies out there. That's where we think there's a strong unmet medical need.

But, in the longer term, moving into earlier lines of therapy would open up additional patients to our drug. The question is how do you fit our drug into the existing therapies, which, as Tom said, have served Hodgkin patients very well with 70% to 80% of those patients being either cured or having durable, long-term remissions with frontline therapy.

We think there's room for improvement on the efficacy side, especially for higher risk patients, as well as on the safety side, because there are quite a few long-term toxicities associated with ABVD such as lung toxicity, secondary malignancies and other problems.

Mark Monane – Needham & Company

That was helpful. Thanks very much for the added information.

Operator

The next question is from the line of George Farmer with Canaccord Adams.

George Farmer – Canaccord Adams

Hi. Good afternoon. Thanks for taking my questions. Thinking beyond chemotherapy in Hodgkin's disease, are you guys planning any studies with 35 and perhaps HDAC inhibitors?

Clay Siegall

George. Thanks for the question. We're certainly watching very closely what's going on with HDAC inhibitors in a variety of different diseases including Hodgkin lymphoma. And I think that could be subject to trials for the future. It's not something that we have planned today. I think that it's little premature to go and set up a trial like that today.

Tom, would you like to add to anything there?

Tom Reynolds

Yes. George, we've had a pretty active program in our research labs here looking at novel combinations, not only combining brentuximab vedotin with standard chemo agents, but also with some of this novel epigenetic or other targeted agents. So, we've got a full spectrum of things going on in the lab. It's beginning to look pretty interesting. I'm hoping over the next year or so we're able to present some of those data and share them with you. We're also received a great deal of interest from the investigator community in a number of novel trial designs that would combine these types of agents to really try to give the best outcome for Hodgkin patients. So, I think you'll see more of that.

I agree with Clay completely. It's preliminary to put out exactly what those are going to be. But, I think you'll see a strong involvement of that over the next year or two, especially with our partnership with Millennium, another leader in developing novel therapies. They've got a strong interest in thinking about how we could best combine these drugs.

George Farmer – Canaccord Adams

Okay. And Clay, thinking more bigger picture, you finished the quarter with $330 million in cash. You're guiding to somewhere north of $265 by the end of the year. That leaves you with a very strong balance sheet at the end of this year and potentially even stronger with filings for SGN-35 and potential approvals. Don't take this the wrong way, but are you investing enough in the business? You have a lot of money here. You have a – it appears that you have a lot of leeway to be spending a lot more in other programs. Is this something that you guys have been thinking about, or am I out of line in suggesting that you should be spending more money? Can you help me with that a bit?

Clay Siegall

Yes. George. Thanks for the question. Isn't this a wonderful question versus the other types of questions that biotech could be asked? We have had internal meetings on trying to evaluate our resources in trying to see how we could deploy them in the best way possible. And our resources doesn't only include dollars, it includes people, our programs, our relationships, our collaborations. So, we're evaluating all of what we're doing to see how best we can position and forward the company. And I think that we are spending more.

And I'd like to turn it over to Todd to talk about the kinds of things that we're spending on and where we're really focused on in the future, not only for '10 but going to '11 and future. Todd can give you a little guidance there.

Todd Simpson

Yes. Sure. So, you're right. We are in a very solid financial position, $331 million on the end of the first quarter and more than $265 projected at the end of the year. I would point out that that includes a burn this year of about $20 million, less than $20 million. And that was greatly impacted, of course, by the over $70 million that we received in the first quarter related to the Millennium and the GSK deals.

So we are in a solid financial position, but I'd characterize ourselves as being very thoughtful in how we invest and really taking the attitude that our principal goal at the company is to get brentuximab vedotin to its NDA and hopefully launched. And we're looking for the NDA submission in the first half of next year.

That, this year at least, is the lion's share of our investment this year. However, we do have substantive efforts underway with lintuzumab, SGN-75. We have a very robust Phase I clinical program underway looking at multiple dosing schedules in different cancer types. So a very robust program there in addition to the SGN-70 program and the ASG-5ME program. So we're focused on moving brentuximab vedotin to its NDA submission, but we continue to invest in the rest of the pipeline as well.

George Farmer – Canaccord Adams

Okay. Thanks.

Operator

The next question is from the line of Bret Holley with Oppenheimer. Please go ahead.

Bret Holley – Oppenheimer

Yeah. Hi, thanks for taking my question. I was wondering if you had any updated thoughts on what response rate would be adequate in the Phase III. Have you had any new discussions with KOLs that give you kind of a – I guess a line in the sand that you're looking for in the trial? I mean I know we've talked about this in the past. I'm just wondering if you have updated kind of thoughts on that going into the actual data.

Clay Siegall

Bret, this is Clay. I just want to make sure when you say the Phase III, you mean the AETHERA trial?

Bret Holley – Oppenheimer

No. In the single-agent trial.

Clay Siegall

Okay. I just wanted to – I wasn't sure which one you meant.

Bret Holley – Oppenheimer

Yeah.

Clay Siegall

I wanted to be clear with that. We've talked about that a lot. We've talked about – we've guided a lot before. Perhaps, Tom, would be best to take that question and give you a little clinical viewpoint.

Tom Reynolds

Yes. Bret, I don't think our thinking has changed that much, but I think it's a little bit solidified after the ODACs last fall. What we've been saying I think for quite some time is that we think we would like to be north of a 30% overall response rate. We'd like a good proportion of CRS and durability of four to six months.

I think that data that we've put out from our Phase I experience beats that in all of those categories. And although, we don't have the data from the pivotal study yet, we're hopeful that it'll be in that range as well.

I do point out that both Istodax and Folotyn, when they had their ODAC reviews and then subsequent approvals had data that were similar in those ranges toward – both in terms of response rate and durability's a little more for Istodax, a little bit less for Folotyn. Both of those drugs also have reasonably low CR rates.

So, given the complete response rates we've seen historically from Phase I. We're pretty confident that we'll have a good data package and that the benchmarks haven't radically changed. And clearly, things below that benchmark have been approved. So that's as much as we know at this point.

Bret Holley – Oppenheimer

Okay. That's great. And then I was also wondering based on your discussions, how many candidates – how many patients in the frontline setting are not candidates for ABVD just based on comorbidities or patients that are quickly intolerant of ABVD?

Clay Siegall

Well, patients that don't get ABVD are very few. So it's the vast majority get ABVD. And as far as intolerant I mean, ABVD is tough chemotherapy for sure. And as we talk to KOLs, they would love to see – especially patients that don't respond quickly. Some patients respond quickly. But some don't and they keep them on ABVD for many cycles. And they'd love to see a reduction in cycles of ABVD because it's pretty darn toxic. So as far as intolerant, I mean everybody's intolerant to an extent, but they do take it. It's really difficult. Tom, would you like to add anything to that?

Tom Reynolds

Actually, I think Eric has a few points to make.

Eric Dobmeier

Yeah. I was just going to say, I agree with what you said Clay. Almost everybody gets ABVD currently. But if there were another option where you could have a less toxic therapy with similar efficacy, I think that would be something that would be really interesting to a lot of these doctors. Especially – I think docs feel like there are a number of HL patients who are over treated, who don't really need the full regimen of ABVD in order to achieve a good clinical outcome. And obviously that data is going to take some time to pull together. But if there were a better option, there is a desire for that.

Tom Reynolds

Yeah, Bret. This is Tom. There is a couple other instances in frontline. So, one area that's not always well served with ABVD are the elderly. We know that incidents of Hodgkin's is a bimodal distribution, there's a significant older population. And as our population ages that continues to grow. Due to comorbidities, they can't always tolerate all the drugs in ABVD or enough courses of ABVD.

So there's clearly an interest in that population of having some alternatives or some substitutions in the ABVD regimen. And even in younger patients some of the drugs are a problem. Particularly bleomycin has been shown to have a 10 to 20% incidence of lung toxicity even in healthy young adults. And so there's some interest in removing those more toxic drugs but still providing equal or better efficacy. And I think this is where brentuximab vedotin can play.

Bret Holley – Oppenheimer

Great. That was very helpful. Thanks.

Operator

The next question is from the line of David Miller with Biotech Stock Research. Please go ahead.

David Miller – Biotech Stock Research

Good morning. And thanks for taking my questions. I appreciate it. Good afternoon actually. Are you guys there?

Clay Siegall

Yes.

David Miller – Biotech Stock Research

Sorry. The first question I have is what is the current status of SGN-40?

Clay Siegall

SGN-40 is an antibody that targets CD40. It's a target we're very interested in and have been for many years. We are evaluating all our clinical data with SGN-40. We're also evaluating second generation products such as what a drug conjugate would look like with our ADC technology targeted to CD40 as well as an SEA product that's the enhanced effector function type of antibody.

So we're clearly looking at the clinical data, looking at ADC for the future, looking at SEA type antibodies for future consideration. And as soon as we make any clear decisions on this, we will talk about it more publicly. But for now we are looking at this internally and trying to make the best decisions possible for Seattle Genetics for the program and for potential patients.

David Miller – Biotech Stock Research

Okay. At AACR, we saw some preclinical data on a conjugated – on an ABC technology, your technology in combination with the Herceptin monoclonal antibody. Do you know if Genentech plans to take that into the clinic?

Clay Siegall

They have presented a number of things over the years. And we do not routinely comment on what Genentech is presenting, what they're going to develop and how they're going to do it and their timing. We are excited to be their partner. And like we've said, we had one milestone payment we got for an IND filing that we announced not too long ago.

They recently extended the term of the deal we currently have with them. We received $9.5 million for that. That was this quarter that wasn't the previous quarter. So that's not counted into our cash position that we reported now. And but the specifics of what they're doing are best suited by contacting them and not us.

David Miller – Biotech Stock Research

Okay. Are you going to be running the 5ME pancreatic trial and your partner running the prostate or are you running them together? Or what's the division of labor there?

Clay Siegall

We're really jointly developing the program. But to make the division of labor work well, Agensys is going to be running the prostate study and Seattle Genetics will be running the pancreatic study. But we're definitely going to be going back and forth with our joint working team talking about the data every step of the way. So it really – it's not too important who's running what. It's important that our joint teams work together and they really do phenomenally well.

David Miller – Biotech Stock Research

Okay. My last question is you clearly have enough cash to get to SGN-35 approval provided the data are as we expect. Is that your plan or can we assume that you'll top up the tank between now and then, being with some kind of equity financing?

Clay Siegall

I think it's a good question. And thanks for thinking for our – about our strategy going forward. We like to always keep our options open and on the table. We never want to say we're not financing, we are financing and all these things looking into the future. I think there's a lot of important milestones and datasets that will be coming out over – in 2010 certainly and into 2011 and a lot of important submissions to the FDA et cetera.

So we'll consider things as we go forward. So I don't want to really make a specific comment on that. We intend to be an important – our goal is to be an important biotechnology company making products that really affect patients that have cancer, especially that have cancer. That's our main focus with unmet medical needs, and so we want to do that to the best we can. And we think we are making a difference in some patients – in patients' lives and we want to continue doing that.

And if we have enough dollars to go forward, then it will alleviate having to go finance. And if we think it's the right opportunity for the company for all our products to go forward to finance because of the breadth of what we're doing, we'll consider doing that. But I don't have a specific comment now.

David Miller – Biotech Stock Research

Okay. Great. Thanks. Keep up the good work.

Clay Siegall

Thanks.

Operator

The next question is from the line of Howard Liang with Leerink Swann. Please go ahead.

Howard Liang – Leerink Swann

Hi, thank you very much for taking my questions. The first question is regarding the lintuzumab Phase II trial. Is the dropout rate or maybe the rate of loss to follow up, similar to what you had assumed?

Clay Siegall

That question I'm going to turn over to Tom.

Tom Reynolds

Yes. So we're not disclosing any specifics, but all I'll share is I'm really pleased with how well the team has been doing on tracking the patients. And my hope is when we report the data that everyone that takes a look at it will be pleased as well.

Howard Liang – Leerink Swann

Okay. Thanks. Regarding the retreatment trial that you'll be presenting at ASCO, can you give us a sense of how extensive or how many patients we're going to see? I think the trial decided to have 125 patients total.

Clay Siegall

What I can tell you about what we're going to be showing is that it's preliminary data from our retreatment trial. So just – that's all. We're not putting out any numbers of patients or anything. The trial is open. It will continue to be open after ASCO. It's not a completed trial, so it's preliminary data.

Howard Liang – Leerink Swann

Maybe if I can have a quick follow-up. Have you said what kind of patients are coming into the trial in terms of whether they had needed to have responded to prior SGN-35 treatment?And how are you evaluating whether the treatment is worthwhile?

Clay Siegall

Right. Well, these are patients all of them had to have a prior response to brentuximab vedotin to come into the trial. So they get a response and for some time period stay on the product. But then they came off the product for one or another reason. Like for example, they might have come off the product to go to transplant, which is something that docs like to do because it provides them some potential advantage looking forward. And sometimes patients to on to transplant and at a later time they relapse. Tom, do you want to comment on that?

Tom Reynolds

Yes. So basically the retreatment trial was open to any of our patients who achieved a response either a CR or a PR, in a prior trial while receiving SGN-35. And that's really the requirement to go on to that study. We think it will provide data similar we hope, to the way Rituxan has provided data to allow repeated courses of therapy in the second line or better scenario.

Howard Liang – Leerink Swann

Thanks very much.

Operator

The next question is from the line Ling Wang with Brean Murray. Please go ahead.

Ling Wang – Brean Murray

Good afternoon. Thank you for taking my question. So for the Phase III confirmatory AETHERA trial, I was wondering whether you can give me some specifics about the statistical plan. And also can you explain why overall survival is a secondary endpoint and not the primary endpoint?

Clay Siegall

Thanks for the question. We've not put out any specifics on the statistical plan for that trial. We've generally described the trial. Tom, you might want to go through a little bit more of that for clarity.

Tom Reynolds

Yeah. So we're not disclosing all the statistical details at this point. But what's fair to say is if you look in the immediate post-ASCT transplant setting and you look at the high risk patients that we have defined. And you ask what fraction of those patients relapse and when they relapse. You see that well north of 50% of those high risk patients will relapse. And most of those relapses are happening in nine to 12 months.

We think a meaningful extension of that relapse time would be at least four to six months as measured by PFS. We had a lot of dialog with regulatory agencies on that primary endpoint and what the secondary should be. We believe that PFS is achievable and measurable and will allow us to make a conclusion about whether brentuximab vedotin adds value in the post-transplant setting quickly. So that if it does this can be out to patients when they need it rather than waiting for a long time for survival.

In addition, there is this potential confounding with second or multiple other therapies following relapse. And that could really muddy a determination of OS especially in the setting where brentuximab vedotin, if it were approved.

Ling Wang – Brean Murray

Thank you.

Operator

(Operator instructions) We do have a follow-up question from the line of Jason Kantor with RBC Capital Markets. Please go ahead.

Jason Kantor – RBC Capital Markets

Hi. Thanks for this follow-up. Just housekeeping, accounting question on the $9.5 million payment from Genentech. How's that going to be recognized?

Todd Simpson

So that $9.5 million payment represented a three-year extension to the research term of the collaboration. So the payment will be amortized into revenue over the three-year period.

Jason Kantor – RBC Capital Markets

Thank you.

Peggy Pinkston

Operator?

Operator

We do have a follow up from the line of Mark Monane with Needham & Company. Please go ahead.

Mark Monane – Needham & Company

Thank you. A question for the Todd. How many people now at Seattle Genetics? What's the optimal number, do you think for 2010? And could you review again please, what you expect to be the year-end cash position?

Todd Simpson

Sure. So let me start with year-end cash position. We've been guiding to operating cash burn this year of less than $20 million and to end the year with more than $265 million in cash. With respect to headcount, we hired our 300 employee in the first quarter. So we're at about 300 employees now.

We expect some modest growth to continue, maybe in the 15 to 20% this year. A fair amount of that growth is going to be in our clinical team really to support the NDA submission, begin to build out our medical affairs group, as well as support some of the CMC and manufacturing activities.

We'll also though begin to build out our commercial infrastructure. We announced, I think towards the end of last year that we had hired Bruce Seeley to head up our commercial group. He is in the process of building out his team, although we will not likely be hiring a large number of reps until we're much closer to our launch.

Mark Monane – Needham & Company

Okay. Thank you for the follow-up.

Operator

(Operator instructions) And I am showing that there are no further questions.

Peggy Pinkston

Okay. Thank you, operator. And thanks, everybody for joining us this afternoon. Have a good evening. Good night.

Operator

Ladies and gentlemen, this concludes Seattle Genetics' first quarter 2010 financial results conference call. If you'd like to listen to a replay of today's conference, please dial 1-800-406-7325 or 1-303-590-3030 and enter in the access code of 4284781. ACT would like to thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Seattle Genetics Inc. Q1 2010 Earnings Call Transcript
This Transcript
All Transcripts