Seattle Genetics Q3 2007 Earnings Call Transcript

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 |  About: Seattle Genetics, Inc. (SGEN)
by: SA Transcripts

Seattle Genetics (NASDAQ:SGEN)

Q3 2007 Earnings Call

October 23, 2007, 2:30 pm ET

Executives

Clay Siegall - President and Chief Executive Officer

Todd Simpson - Chief Financial Officer

Eric Dobmeier - Chief Business Officer

Tom Reynolds - Chief Medical Officer

Analysts

George Farmer - Wachovia Securities

Mark Monane - Needham and Company

William Sargent - Banc of America Securities

John Sonnier - William Blair

Bret Holley - CIBC World Markets

David Garrett - Fortis Securities

Dhesh Govender - Hardt & Company

Douglas Chow - Caris and Company

Jason Kantor - RBC

Operator

Ladies and gentlemen, thank you for standing by. Welcome tothe 2007 Seattle Genetics Third Quarter Financial and Business UpdateConference Call. At this time, all participants are in a listen-only mode. Andlater, we will conduct a question-and-answer session. Instructions will begiven at that time (Operator Instructions). As a reminder, this conference isbeing recorded today, Tuesday, October 23, 2007.

I would now like to hand the conference over to Ms. PeggyPinkston, Associate Director of Corporate Communications. Please go ahead,ma'am.

Peggy Pinkston

Thank you. I'd like to welcome all of you to SeattleGenetics third quarter 2007 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.

The press release of our financial results is available onour web site. Today's conference call will include forward-looking statementsbased on current expectations. Such statements are only predictions and actualresults may vary materially from those projected. Please refer to the documentsthat 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 will now turn the call over to Clay.

Clay Siegall

Thanks, Peg, and thank you all for joining us this afternoon.We are making substantial progress in advancing our pipeline of antibody-basedcancer therapies focused in particular on initiating multiple clinical trialswith SGN-40, SGN-33 and SGN-35 over the remainder of 2007 and into early 2008.

We're also reporting clinical data on SGN-33 and SGN-35 thisquarter while continuing to advance our preclinical pipeline, notably SGN-70,which is on track to enter clinical trials in 2008.

We ended the third quarter in a strong financial position,enabling us to execute and deliver on our goals. Today, I will discuss theprogress we're making on our pipeline and then Todd will go over the financialdetails for the third quarter and the first nine months of 2007 as well as ourexpectations for the rest of this year. Then, we will open the line forquestions.

SGN-40 is a humanized antibody targeted to CD40 that we'redeveloping under a worldwide collaboration agreement with Genentech. Within thenext six months, our joint development plan includes initiating five clericaltrials in non-Hodgkin's lymphoma and multiple myeloma through a combination ofstandard regimens in addition to advancing the ongoing single-agent trial indiffused large B-cell lymphoma.

We and our collaborator Genentech expect to initiate threeof these trials before the end of this year, each of which will trigger amilestone payment from Genentech. The first is a Phase Ib combination trial ofSGN-40 plus Revlimid and dexamethasone for relapse or refractory multiplemyeloma.

This trial is expected to enroll up to 40 multiple myelomapatients to evaluate safety, preliminary activity and pharmacokinetics of thecombination. The second is a Phase Ib trial to evaluate safety and preliminaryactivity of the combination of SGN-40 plus Rituxan in relapse follicular andmarginal zone B-cell lymphoma.

And the third is Phase IIb trial of RITUXAN ICE, or R-ICE,plus or minus SGN-40 in diffuse large B-cell lymphoma patients. The study willbe the randomized, double-blind and placebo-controlled in approximately 200second-line patients. This international trial will assess safety and potentialefficacy of adding SGN-40 to standard second-line therapy.

There is strong rationale for this trial based on a reportedsingle-agent antitumor activity in SGN-40, as well as preclinical datademonstrating enhanced efficacy of SGN-40 in combination quarter chemotherapy.

We are presenting data tomorrow at the joint AACR-EORTCmeeting in San Francisco, preclinical data that illustrates two mechanisms ofaction of SGN-40 in models of non-Hodgkin's lymphoma.

The data show that SGN-40 depletes an important survivalsignal for cancer cells, while also increasing the level of another proteinthought to enhance susceptibility of tumor cells to chemotherapy.

We believe that this is the first report of a therapeuticantibody able to modulate both of these pathways. At the American Society ofHematology, or ASH, annual meeting in December, we will present further data onpreclinical drug combinations with SGN-40.

In the first quarter of 2008, we plan to initiate twoadditional Phase Ib combination trials with SGN-40, one in combination withRituxan and Gemzar in patients with relapse diffuse large B-cell lymphoma, whoare not eligible for intensive therapy, and a second in combination VELCADE forrelapsed multiple myeloma.

These Phase Ib trials will assess the safety and activity ofSGN-40 in combination with regimens commonly used in the treatment ofnon-Hodgkin's lymphoma and multiple myeloma.

Over the next few quarters, we are focused on new trialinitiations, many of which will trigger milestone payments to Seattle Geneticsand on advancing this product candidate in important indications with unmetmedical needs.

I will move on now to SGN-33, our humanized antibodytargeting CD33. During the third quarter, we completed dose escalation in ourPhase Ia study for patients with acute myeloid leukemia, or AML, andmyelodysplastic syndrome, MDS.

I am pleased to say that our abstract with these data wasaccepted for oral presentation on Monday, December 10th during ASH. This is ourfirst substantive presentation of data from this trial, which was designed toassess safety, pharmacokinetics and efficacy of escalating doses of SGN-33.

Meanwhile, based on the promising data, we have observedduring Phase Ia, we're enrolling patients into Phase Ib. This study willfurther define the single-agent response rate of SGN-33 in up to 50 AML and MDSpatients treated at the top dose. We expect to complete enrollment in thisstudy during 2008.

Before the end of this year, we are also planning toinitiate two combination studies of SGN-33 in AML and MDS. The first of thesetrials is a Phase IIb randomized double-blind placebo-controlled study oflow-dose cytarabine, plus or minus SGN-33 in approximately 220 AML patients 60years of age or older.

Older AML patients have limited treatment options,particularly because many of them can’t tolerate the side effects of intensivechemotherapy regimens. Their median survival from diagnosis is less than six months,clear evidence that there is an unmet medical need for therapies in thispatient population. Therefore, the primary endpoint of our Phase IIb trial isoverall survival.

The other combination study is a Phase I trial of SGN-33plus Revlimid in intermediate and high-risk MDS patients. In this study, whichis open for enrollment, we are evaluating the tolerability, pharmacokineticprofile and antitumor activity of increasing doses of SGN-33 when combined withRevlimid.

At ASH, we will present preclinical data showing the abilityof Revlimid to augment the effect or functions of SGN-33, which representimportant mechanisms of action for this antibody. The trial will allow us toevaluate this combination in the clinical setting and assess potential benefitsfor this underserved patient population.

Our third clinical program is SGN-35, a proprietary antibodydrug conjugate that is in a Phase I clinical trial for patients with Hodgkin'slymphoma, or CD30 positive T-cell lymphoma. We're evaluating safety, antitumoractivity and pharmacokinetics in cohorts of patients receiving escalating dosesof SGN-35.

Multiple objective responses have been observed atwell-tolerated doses of SGN-35 in heavily pretreated relapse patients. Thestudy is progressing rapidly and dose escalation continues. We plan to reportthese exciting interim data at the International symposium on Hodgkin'sLymphoma, a biannual meeting of top oncologists from around the world beingheld November 4 through 7 in Cologne, Germany.

We had originally planned to present these data at ASH, butwere surprised that our abstract was not accepted for presentation. The Colognemeeting is a unique opportunity to highlight our SGN-35 data. Our presentationwill take place on Monday, November 5. We plan to issue a press release andmake the presentation available on our website that morning.

We and our collaborators are also advancing multiple otherADC programs. Tomorrow at the EORTC meeting, we will present for the first timepreclinical data on our AFX anti-CD19 ADC program. The CD19 antigen is apan-B-cell marker expressed on many hematologic malignancies, includingnon-Hodgkin's lymphoma, chronic lymphocytic leukemia and acute lymphoblasticleukemia.

Our anti-CD19 ADC induces durable tumor regressions at lowdoses in multiple cancer models. This poster will be available on our websitetomorrow. Several of our ADC collaborators, including CuraGen and MedImmune,are also presenting this week on their own ADC program utilizing ourtechnology.

With SGN-35 showing objective responses in Phase I, progresswith our preclinical ADC programs and momentum by our collaborators, our ADCtechnology is demonstrating its significant potential to impact the way canceris treated.

Lastly, we continue to make progress with our anti-CD70programs. SGN-70, a humanized antibody targeted to CD70; and SGN-75, ananti-CD70 ADC. CD70 targeted therapies have potential for the treatment ofhematologic malignancies in solid tumors, as well as autoimmune disease basedon preclinical data demonstrating their ability to selectively depleteactivated but not resting T-cells. We're planning an IND for SGN-70 in 2008followed by SGN-75 in 2009.

In summary, we have a robust clinical pipeline, increasinglyexciting data with our ADC technology and a number of milestones planned acrossour portfolio for the rest of 2007 and into 2008.

For SGN-40, we and Genentech are initiating five combinationtrials in non-Hodgkin's lymphoma and multiple myeloma, triggering substantialmilestone payments to Seattle Genetics. For SGN-33, we have advanced into PhaseIb single-agent trial and are initiating two combination studies in AML andMDS.

In addition, we look forward to the oral presentation of thepromising data from our Phase Ia dose escalation study at ASH in December. ForSGN-35, we're continuing dose escalation in our Phase I clinical trial andreport data from our ongoing study at the International Symposium on Hodgkin'slymphoma in early November.

For SGN-70, we're preparing to initiate a Phase I trial in2008, and we will present preclinical SGN-40 findings as well as our data onour anti-CD19 ADC program tomorrow at the EORTC meeting. Several of ourcollaborators are also presenting data from their own ADC programs.

Finally, I wanted to mention that we plan to host an R&Dday in New York on December 12, the day after ASH ends. The primary purposes ofthe meeting are to review our SGN-35 data from the Cologne Hodgkin's lymphomameeting and our SGN-33 data from ASH.

We will also discuss our SGN-40 development program andprovide an opportunity for our investigators to speak about their experience intreating patients and with these three product candidates. The event will beweb cast and we will provide additional information as it gets closer. Now Iwill turn the call over to Todd to discuss financial results.

Todd Simpson

All right. Thanks, Clay, and thanks everyone for joining onthe call this afternoon. Today, I'll highlight our 2007 third quarter andyear-to-date financial results. I'll also provide an update on our financialoutlook for the remainder of the year.

Our 2007 revenues have nearly doubled over 2006, coming inat $4.6 million in the third quarter and $14.6 million for the year-to-date. Aswith last quarter, these increases are primarily the result of amounts earnedunder our SGN-40 collaboration with Genentech.

Our operating expenses reflect the substantial progressbeing made in our pipeline development programs that Clay highlighted.Specifically, research and development expense in the third quarter of 2007 was$17.7 million, up from $9.8 million for the third quarter in 2006, and was$44.7 million for the year-to-date in 2007 compared to $29.1 million for thesame period in 2006.

To put this in context, the increases in 2007 operatingexpenses were primarily driven by higher clinical development activities, thelargest portion of which relates to SGN-40. These and other SGN-40 developmentcosts are reflected in our expenses but are funded by Genentech under the collaboration.

These reimbursements, along with the $60 million up-frontpayment and expected milestone payments, are amortized into revenue over thesix-year development period of the collaboration.

Clinical trial costs for SGN-40 and SGN-33 increased bothquarter over quarter and year over year in 2007, reflecting progress madetowards initiating two international Phase IIb studies.

During the quarter, we entered into agreements with clinicalresearch organizations and began site initiation for both the SGN-40 R-ICEcombination trial and the SGN-33 cytarabine combination trial. Alsocontributing to increased expenses in 2007 were manufacturing campaigns forSGN-33 and SGN-70 to provide clinical supply for upcoming trials.

Non-cash stock-based compensation expense for theyear-to-date in 2007 was $5.4 million, compared to $3.2 million for the sameperiod in 2006. This reflects new hires as well as an increase in our stockprice this year, which increases the per-share cost of each stock option grant.

To wrap up, we're increasing our clinical developmentactivities, specifically for SGN-40 and SGN-33. We have also been successful inrecruiting additional talent to further build our clinical and developmentteams. Because of this, we expect higher than previously planned clinicaldevelopment expenses as well as employee costs, the majority of which thoughrelates to non-cash stock-based compensation expense.

To reflect this, we're increasing our operating expenseguidance by approximately $10 million, bringing our outlook to the $70 to $80million range for the year. However, since much of this increase is eithernon-cash or relates to SGN-40 development that is funded by Genentech, we'renot changing our cash guidance.

We ended the quarter with just over $124 million in cash andinvestments and continue to expect to be cash flow positive for the year. Cashprovided from operating activities should continue to be in the $35 to $45million range for the year and we should end 2007 with more than $120 millionin cash and investments.

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

Clay Siegall

Thanks Todd. Operator, at this point, we will like to openthe call for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will conduct thequestion-and-answer session (Operator Instructions). Our first question comesfrom the line of George Farmer with Wachovia Securities.

George Farmer - Wachovia Securities

Hi. Thanks for taking my question. Clay, can you talk aboutwhat you saw in Phase Ia trial with SGN-33 that necessitates a Phase 1b study,or maybe elaborate a little bit on the differences between the two trials?

Clay Siegall

Well, the Phase Ia data will be presented at ASH, so we havenot really presented or discussed the specific data. We said that we areexcited about the promising data, and that will be presented at ASH later.

One can imagine that if you have cohorts of three, fourpatients in a cohort, it's very hard to get any specific information. I'mlooking at any value of response rate. So you have to -- the study we said is a50-patient study, Phase Ib, and we'll be discussing that in more detail at ourR&D day.

George Farmer - Wachovia Securities

Okay. And Todd, can you talk about the share count at theend of the quarter? Was there a major equity purchase? Was that by Genentech,or did something else go on?

Todd Simpson

No. There was no equity purchase by Genentech. We ended thequarter at about $67 million shares. That's up a little bit during the quarterbecause of the conversion that we made of all the preferred stock into common.

George Farmer - Wachovia Securities

Okay.

Todd Simpson

At the beginning of the quarter that was about $9 millionshares.

George Farmer - Wachovia Securities

And has all of the preferred stock been converted?

Todd Simpson

Yes.

George Farmer - Wachovia Securities

Okay. Thanks.

Operator

Our next question comes from the line of Mark Monane withNeedham and Company. Please go ahead.

Mark Monane - Needham and Company

Good afternoon and thanks for taking my question. Greetingsfrom the AACR meeting, all activity I look forward to your poster tomorrow.Could you outline the strategy on the rollout for the SGN-40 project? Does itreflect confidence in the programs and how should we evaluate the data as theycome out, in terms of predicting the success of the molecule -- SGN-35 clinicaltrials?

Clay Siegall

So what I can tell you on SGN-40 is, we are actually veryconfident with the data. The data that we presented at last year's ASH wassingle-agent data and we showed objective response rate with single-agentSGN-40.

And when you look at most antibodies that are used in cancertherapy, the way that they are really used is in combination with chemotherapy.And working together with our partner Genentech who has really the premiereexperience in the world developing cancer antibodies, we have come up with aplan to go after two diseases initially, and that's non-Hodgkin's lymphomaB-cell, non-Hodgkin's lymphoma; and multiple myeloma.

And the best way to go after these diseases in a robustfashion, in a fashion that we could not have done for say, by ourselves, whichis why we did this deal to expand the program is to initiate five trials in ashort time period.

Keep in mind, we announced our deal in January, we wentthrough HSR clearance, so we really didn't start working with Genentech untilFebruary. And then, it takes a number of -- it took a number of months to planeverything out, organize it, get the protocols ready, go file with the agency,get IRBs and contracts and everything.

So the fruits of all of the work we have done throughout2007 are becoming apparent very soon as we start announcing trial after trialafter trial. That way, really what's happening is within the next six months,we're going to have five trials initiations. I think that is a very strong signof confidence in the program by us and Genentech in the amount of effort andthe amount of dollars being spent on the program.

Tom Reynolds

Yes. And this is Tom Reynolds. I will just second that andsay that we're looking for a couple of things out of these trials. One is toreally understand what the tolerability profile is going to be, and what ourflexibility is to use the antibody with multiple different chemotherapeuticregimens, both in second-line and in third-line.

And the second is, we've got a very large commitment withGenentech to the study of R-ICE, plus and minus SGN-40. We think that's reallygoing to be, lay the basis for potential approval pathway, although in and ofitself, it's not designed as a registration study. So we are pleased that bothwe and Genentech are committed to this.

Mark Monane - Needham and Company

That was helpful. And lastly, in terms of the milestonepayment, maybe Todd can comment -- when will milestone from the programs berecognized, as the programs will allow first patient? How should we think aboutthat in terms of understanding the financial statement?

Todd Simpson

Yes. Most clinical trial initiation milestones are based onfirst patient treatment. So as those occur, we will certainly announceinitiation of the clinical trials, and to the extent we can, the amount of themilestones. And those will start to happen over the next quarter.

Mark Monane - Needham and Company

Will they be amortized, spread over the life of the contractor will they be one-time payments?

Todd Simpson

The cash payment is obviously one-time. They get amortizedinto revenue over the development period.

Mark Monane - Needham and Company

Okay.

Todd Simpson

Six years.

Mark Monane - Needham and Company

Six years. Thank you. Thanks for that information andcongratulations on your progress.

Todd Simpson

Thanks.

Operator

Our next question comes from the line William Sargent, Bancof America. Please go ahead.

William Sargent - Banc of America Securities

Clay, thank you for taking my question. Clay, I waswondering if you could comment on why you think perhaps that the SGN-35abstract wasn't accepted at ASH, and if you could talk to any DLPs or anysafety signals you see at this point.

Clay Siegall

Sure. Actually, I'd rather have, maybe Tom, you want tocomment on ASH and policies and things like that.

Tom Reynolds

Yes. So we submitted the abstract to ASH. We were, as Claysaid, pretty surprised that it wasn't accepted and as were our investigatorsbecause they think the data is pretty compelling. And we are glad to scoop ASHand take it earlier out to you at Cologne. So we feel good about that.

ASH has policy really if you read their abstract submissionguideline, saying they don't want to accept data from studies that are inprogress or interim in presenting preliminary data. That's clearly where weare. We have not even hit an MTD yet. So it's consistent with that policy. Theyare known to make exceptions. We don't know exactly who the review group is,but we have talked with ASH and we know that their policies were followed.

So we are comfortable and we're very pleased that we cantake this to Cologne. We're going to be detailing not only the multipleobjective responses when the Cologne meeting happens, but what we start seeingin terms of toxicities.

And suffice it to say, we have not seen toxicities thatprecluded us continuing to do dose escalation. So we have not yet hit an MTD.And it's a pretty standard design in terms of 3 plus 3 for DLTs, we're not at apoint, where we have reached that maximum tolerated dose.

William Sargent - Banc of AmericaSecurities

And you have an estimate as to when you -- never mind,hopefully longer is better. And then, do you have any plans at this point.

Can you talk about any plans with the 2 ADC programs, or 3ADC programs, going on at EORTC about next steps on any of those programs?

Clay Siegall

At EORTC, we’re talking about some of our pre-clinicalprogram like our CD19 program. Is that what you're referring to?

William Sargent - Banc of AmericaSecurities

I meant, I guess there is some, it looks like somecollaborative work with Genentech being presented, as well as the CuraGen andMedImmune molecules. You could comment on any next steps with those programs?

Clay Siegall

Well, I can't make any specific comments about ourcollaborators' programs. Certainly, there will be presentations, like you say,from Genentech, CuraGen and MedImmune. And we're delighted with ourrelationship with them.

We support the efforts that we're doing, that they're doing,and we look forward to some of our collaborators taking their products intoclinical trials. And we think, that that should happen going forward, and basedon how much effort and work they are doing on those programs. But I can't giveyou any specific on those.

William Sargent - Banc of AmericaSecurities

Do you have any anticipation for milestones from thoseprograms in the fourth quarter?

Eric Dobmeier

This is Eric. What our partners have said publicly,Progenics has said that they're going to file an IND for their PSMA targetedADC, before the end of this year.

And there are a number of other collaborators, includingBayer, MedImmune and Genentech that are looking at getting into the clinicwithin roughly the next year to 18 months. So we’re expecting milestones overthat period of time.

We haven't given any specific guidance, and it's really --it's up to our collaborators when they decide to make move to advance theseprograms forward.

William Sargent - Banc of AmericaSecurities

Okay. Great, thanks for taking my question.

Operator

Our next question comes from the line of John Sonnier withWilliam Blair. Please go ahead.

John Sonnier - William Blair

Thanks for taking the question. Just a couple of, Clay. Talkabout the spectrum of SGN-40 and 33 studies, I guess with respect to -- whatare the possibilities in 2008?

It’s clear you have a lot of trials starting and some thathave been started. But what are the real possibilities for insights intoclinical activity with SGN-40; which of the trials is it the IIb R-ICE study,or something other? And then, with 33, what might we look for over the next,say, four to five quarters?

Clay Siegall

Sure. There's a lot of questions built into that, and somaybe we will try to answer between myself and Tom Reynolds, our CMO, we'll tryto address that on SGN-40 and SGN-33.

Maybe we can start with 33 since, we have a Phase Ib studywe have talked about. Tom, do you want to…

Tom Reynolds

Yes. So let’s talking -- starting out with 33, what’s reallykey to us is our open-label Ib study, which is accruing and accruing rapidly atthis point. We're trying to get a much more precise estimate of what ourobjective response rate is in both AML and MDS, which will really help usfurther define and refine our registration strategy.

And we’re expecting that to accrue rapidly, and for us toget data throughout the year. We maybe in a position to report data late in theyear or early in 2009 from that study, but that‘s moving well.

For our other two studies, the one is simply a doseescalation study in combination with Revlimid and MDS truly to provide a safetymargin for us and to let us know one of the possible pathways for us in movingforward into this big market that's still pretty unmet from a survivalperspective.

The other issue is for the 33 study, plus minus ARC, thatstudy is going to -- is a blinded study, it's randomized. And we areanticipating that that's about a two-year study to run. So we won't be havingany real insight into that study anytime soon. So I think that may answer the33 perspective.

John Sonnier - William Blair

Okay. So Ib possibly late 2008 early '09 and then the doseescalation with Rev, do we get insights into that data next year?

Clay Siegall

We may have some. We would certainly like to reportpreliminary data, if we're in the opportunity. Part of this depends on how farwe go up in the dose escalation. We would expect to be able to do that.

John Sonnier - William Blair

All right. And 40?

Tom Reynolds

So 40, next year is really all about execution for 40. We’vegot studies starting late this year, early next year. For the large part, theywere dose escalation and they are in a pretty competitive landscape. So it isunlikely that we would have some stand-up data to report, although we may havesome things late in the year.

The R-ICE study is clearly a randomized and blinded study,and that's about, again, a two-year study to get that done. So we would notanticipate any news from that study next year.

John Sonnier - William Blair

Okay.

Clay Siegall

We also have the single-agent Phase II study that we are inprogress with, and that is an opportunity for presentation in 2008.

Tom Reynolds

Yes. Clay, and I would agree. We’re well on track inaccruing that study. We've said, we expect to complete enrollment and we'll befollowing the patients next year. And then, we would like to be able to presentdata late in the year on that study as well. So, there will be some visibilityinto SGN-40.

John Sonnier - William Blair

Okay. That’s helpful. And then with 35 as the strategy tofirst identify the maximum tolerated dose before you move into a broadercohort, or do you know enough now about activity that you might start thatstudy before you would identify the maximum tolerated dose?

Tom Reynolds

Given this is an antibody drug conjugate, and given this isone of the few that’s ever been in the clinic and probably one of the firstwith our technology itself, we would really like to see where this goes interms of MTD.

John Sonnier - William Blair

Okay.

Tom Reynolds

We're very pleased that we've been able to push the dose upas high as we have, which is it's better tolerated than we had anticipated. Andwhere we think there's going to be a nice therapeutic margin. We'd like to knowwhat that is.

We’ve also been doing a lot of modeling preclinically tohelp try to identify what the best regimen is going to be to take forward intolater-stage studies that can lead to approval, and we're looking at bothstrategies where we could use this as a more intensive chemo-type regimen, aswell as in a maintenance therapy for different aspects of Hodgkin's disease andother 30-positive malignancies.

So we're doing a lot of the initial work, which we thinkwill lead to a very clear registration strategy, and we're spending a good bitof time with key opinion leaders hammering out what is our fastest route tomarket with this product.

John Sonnier - William Blair

Okay. That’s helpful. I appreciate it.

Tom Reynolds

You’re welcome.

Operator

The next question comes from the line Bret Holley with CIBCWorld Markets. Please go ahead.

Bret Holley - CIBC World Markets

Yeah. Hi, thanks for taking my question, guys. I have onequestion about SGN-40. It seems like the single-agent data for the Phase II. Iguess, Clay, you said, you know, maybe later in the year in 2008. Has thattrial progressed a little bit slower than your expectations?

Clay Siegall

Not really. I think it's a competitive landscape and it’sbeen progressing maybe a little bit at the beginning, a little slower, but theaccrual rate has picked up a lot on that. So I think that we're pretty much ontrack.

Tom Reynolds

Yeah. The only other comment I would make is, often we seein these studies, you kind of go through the dog days in the summer, and wedefinitely hit some of those. We have now seen a really nice blast of accrualthis fall and we are anticipating that we will be finished enrollment in thefirst half of 2008.

Bret Holley - CIBC World Markets

Okay. And then on SGN-33, what I'm wondering there is, isyour relative level of enthusiasm for NHL versus -- for AML, sorry -- versusMDS, I mean is it fair to say, since you're moving so aggressively forward withPhase IIb Combo or a C trial, that you're I guess more pleased with the resultsthat you have gotten, the early results in AML versus MDS?

Clay Siegall

So I think the thing to say is we're very enthusiastic about33 and AML, and we're particularly enthusiastic with elderly AML who have veryfew treatment options, cannot tolerate high-dose chemotherapy. And where wethink the antibody due to its tolerability and responses that we are seeing isgoing to be a real winner there in elderly AML.

And we think it's the fastest path to market. MDS is alittle bit more complex. It's a little bit more competitive.

We think there is some interesting data that's going to becoming out at ASH for a number of other compounds, and those are things thatcould easily be combinable with 33. And we look forward to that data which willhelp us craft our strategy in MDS that we'll then be able to share with you.

Bret Holley - CIBC World Markets

And I guess my final question is, would you expect additiveor somewhat synergistic activity with ARC in the AML trial? What has yourpreclinical work kind of told you on that front?

Clay Siegall

Our preclinical work says, the two are easily combinable. Webelieve they work by very different mechanisms of action. And we think -- youknow, if you think about how IRC is working, it's directly killing tumorburden.

And we think that what we have seen so far in 33 may lead usto believe that what it's able to do is wipe out those residual cells. So I'mnot sure that we can clearly call it synergistic or simply additive at thispoint, but we think those two will work by different mechanisms to give us asuperior result to either alone.

Bret Holley - CIBC World Markets

Okay. Thank you very much.

Clay Siegall

You're welcome.

Operator

Our next question comes from the line of David Garrett withFortis Securities. Please go ahead.

David Garrett - Fortis Securities

Good afternoon. I just have a question about SGN-33.Acknowledging that we haven't seen the Phase Ia data yet, excuse me, could youjust talk about the rationale for the study that you decided to conduct?

And what I'm really getting at is, you probably have alimited set of data from the Phase Ia. You know, why not do a smaller Phase IItrial that's probably cheaper and much faster to enroll and get data or versusdoing just a full fledged Phase III. Why this Phase IIb trial, if you couldjust give us some background on that? Thanks.

Tom Reynolds

So we are really targeting moving quickly towardregistration in elderly AML. We think that SGN-33 is easily combinable withlow-dose chemotherapy. If there is anything that is standard-of-care in thisdifficult arena, it's low-dose ARC, which is one of the few things that canwork and has been shown to extend survival in patients.

And so we think it's an extremely logical way to go forward,and we think it has less regulatory risk than other pathways that you mightimagine. We also think that doing a smaller study, while it might beinteresting, might not give us definitive data as to whether to move forward,and if so, how.

I think the clinical trials arena is fraught with smallstudies which yield interesting data that are not definitive enough and don'treally move a company forward. We are willing to place a bet on 33 in AML. Wethink it's a good drug for the indication.

David Garrett - Fortis Securities

What kind of separation are you expecting then?

Tom Reynolds

Separation and survival?

David Garrett - Fortis Securities

Yes.

Tom Reynolds

We're thinking that we're going to see a substantiveincrease in survival, and that's what we need to see in the study to movethings forward. One of the things that -- the reason we do this as a Phase IIand not as a Phase III is the size of the study, of the pivotal study, reallyneeds to be based on some data for survival. And it's too early in our Phase Istudy, which is a single-arm study, to really know exactly what that lookslike.

So we've done some modeling. We know that the averagesurvival in the ARC group is somewhere between five to six months. We think areasonable hypothesis is that we could be able to extent that at least twomonths beyond that.

If we were to see something like that, our conversationswith the FDA indicate that things could get very interesting with that movingquickly. Should we not see something that's several months longer, it meansthat we may need to do a second study to confirm the survival benefit.

In addition, there may be some differences in the shape ofthe curve as to whether we actually keep a smaller but real fraction ofpatients disease free for a long period of time. So a lot will depend on thedata from the study, and we're very bullish about how this may come out.

David Garrett - Fortis Securities

And if I could ask a quick follow-up, how many patients willwe see in Germany for SGN-35 in November?

Tom Reynolds

I believe it's 23 patients worth of data.

David Garrett - Fortis Securities

Thanks.

Operator

Our next question comes from the line of Dhesh Govender withHardt & Company. Please go ahead.

Dhesh Govender - Hardt & Company

Yes. Thanks for taking my question. Could you remind us thenon the SGN-35 trial if there is a loading dose and if you're dosing once aweek? As well as a follow-on, what would you expect, in terms of response ratesin this patient population, what would get the oncology community kind ofexcited?

Tom Reynolds

So -- this is Tom again. So just to remind you about thetrial, the trial is dosing every three weeks and patients get two doses, twocycles of three weeks each. Then, they are evaluated for response. If they havea CR, a PR or a stable disease and some evidence of clinical benefit, they canget additional cycles and continue this on for quite some period of time.

We will be showing data on longevity of treatment, whichwe've been very pleased about. So I think that answers one facet of yourquestion. And can you remind me of the second facet?

Dhesh Govender - Hardt & Company

There is no leading dose then?

Tom Reynolds

There is no leading dose required here. And we just gostraight in with the dose and have not seen anything that would make us changethat.

Dhesh Govender - Hardt & Company

And this patient population, in terms of response rates,what would get people excited? You know, it's…

Tom Reynolds

So what we have heard from our KOLs is people will getinterested at a response rate of 20% or better. And -- because the patientpopulation we're targeting are relapsed and refractory Hodgkin's disease.

They have really failed all approved therapies and have noother options. Some patients have transient responses in the 20% to 30% rangeto GEM or other agents, but become refractory and can't move on.

So if we have patients who have failed all those things andwe're seeing a 20% to 30% response rate of things that are durable and we're ingood shape.

Dhesh Govender - Hardt & Company

And then, you will expect to finish enrollment sometime inthe first half of '08?

Tom Reynolds

It depends on how high we go in the dose, but I think thatis a very reasonable expectation. For the dose escalation, we plan to enrollsome additional patients at MTD to further define the response rate at MTD, butI still believe we would have that done by the first half of 2008. I thinkthat's very reasonable.

Dhesh Govender - Hardt & Company

Great. And then final question, Todd. Since you have fiveSGN-40 trials, partner with Genentech, and then also the one, Revlimid, whattype of milestones, and when do they trigger? Is it upon the first patientenrollment, or the actual okay by the IRBs?

Todd Simpson

As I said before, they are typically triggered off the firstpatient treated into the study.

Dhesh Govender - Hardt & Company

Thank you.

Operator

Our next question comes from the line of Douglas Chow, Carisand Company. Please go ahead.

Douglas Chow - Caris and Company

Hi. Thank you. I'm just wondering with the SGN-40 trials,you got several of them, the Phase Ib’s, would you have the number of patientsyou're expecting for the one in combination with bortezomib and standardchemotherapy?

Clay Siegall

Yes, those are all new kind of standard Phase I designswhere we have got anywhere between 30 to 40 patients per study. Part of itdepends on how the dose escalation goes, and then they almost all haveexpansion cohorts at the top dose. It's really better to find the response rateand survival benefit.

Douglas Chow - Caris and Company

Okay. And so the primary endpoint for these will be responserates, or are you just looking --?

Clay Siegall

The primary response -- the primary endpoint for thesestudies is safety and the identification of MTD. We're looking at response rateand we'll continue to follow patients out the way you do in oncology forlooking at how that impacts progression-free survival and survival. But thoseare clearly secondaries.

Douglas Chow - Caris and Company

Okay. Great. Thanks a lot.

Operator

Our next question comes from line of Jason Kantor with RBC.Please go ahead.

Jason Kantor - RBC

Hi. Thank you for taking my call. A question about the CD19program. Can you help us understand how your molecule may be differentiated? Doyou think it is relative to other CD19 programs out there? It's a pretty hottarget and there are some others either in the clinic or approaching theclinic.

Clay Siegall

Right. Well, we've been interested in CD19 for some timenow. We have developed an antibody that has high affinity that we're excitedwith. The antibody that we have has some interesting properties and the drugconjugate has some interesting properties.

We think that, when we look at our drug linker technologythat’s built into this ADC, it is outside of MDR, multidrug resistance, and wethink that's unique. We also have a very stable linker system. So we think thatthe stability of the linker system is going to be important.

We also have a synthetic drug linker system, so from amanufacturing standpoint, it's very robust. And, we have -- our antibody isunique in that it cross-reacts with humans and non-human primates, and that'svery rare for a CD19 antibody.

And so it enables us to really understand this molecule moreand test it in a way that you can't otherwise test it. So there's a variety ofproperties of this agent that we like. It's very active, and we think that itcould become an important molecule going forward.

Jason Kantor - RBC

Yes. Excellent.

Clay Siegall

Go ahead.

Jason Kantor - RBC

I was going to say, are these all the same technologies interms linker and drug that are in your SGN-35 as well?

Clay Siegall

Not necessarily.

Jason Kantor - RBC

Do you want to expand?

Clay Siegall

The SGN-35 product uses what we call VCE that you are awareof, and the SGN-19 product uses MCF. So, it's a slightly different drug linker.

Jason Kantor - RBC

Okay. Then my other question is about partnering strategy onsome of these earlier stage drugs, the CD19, CD70, CD75. You know, it seemsthat you're going to be moving a bunch of these other programs into later-stagedevelopment. It's going to begin to cost.

Are you thinking towards earlier partnering or laterpartnering or no partnering at all for some of these earlier assets?

Clay Siegall

I'm going to let Eric take that.

Eric Dobmeier

Hey, Jason.

Jason Kantor - RBC

Hi.

Eric Dobmeier

It's a good question. There certainly is the potential thatwe could do some partnering deals on our earlier-staged assets. Obviously,there are trade-offs you get less value when something is earlier on before youhave clinical proof of concept. Our focus in partnering is actually to look forpotential ex-U.S. partnerships for 33 and 35.

We have not reported the data yet, but there has been a goodamount of interest in those programs, and that is an area where we couldleverage the resources of a partner either through retaining U.S. rights andhaving them do ex-U.S., rest of world development or some sort ofco-development relationship in the U.S. with the partner bearing the loadex-U.S.

So that is actually where we're focusing our efforts. And inthe short term, I wouldn't rule out an earlier-stage partnership. The good newsis, we have a strong financial position and the resources to keep moving theseprograms forward and building additional value. So we're not pressed to dopartnerships unless the terms are attractive.

Jason Kantor - RBC

Great. Thanks. Thanks for the answers.

Operator

I'm showing no further questions at this time. I would liketo turn it back to Peggy Pinkston for closing remarks.

Peggy Pinkston

Okay. Thank you, operator. That concludes our call. Thankyou all for joining us this afternoon.

Operator

Ladies and gentlemen, that does conclude today's SeattleGenetics third quarter 2007 financial and business update. Thank you for yourparticipation. You may now disconnect.

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