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Seattle Genetics Inc. (NASDAQ:SGEN)

Q1 2008 Earnings Call

April 24, 2008 05:00 pm ET

Executives

Clay B. Siegall Ph.D. - Co-Founder, Interim Chairman, Chief Exec. Officer and President

Todd E. Simpson - Chief Financial Officer and Principal Accounting Officer

Eric L. Dobmeier J.D. - Chief Bus. Officer

Thomas C. Reynolds M.D., Ph.D.- Chief Medical Officer

Peggy Pinkston - Director of Corporate Communications

Analysts

Glenn - Needham & Company

David Miller - Biotech Stock Research

Jason Kantor - RBC Capital Markets

David Garrett - Fortis Securities

Operator

Good afternoon ladies and gentlemen and welcome to the First Quarter 2008 Financial Results Conference Call.

(Operator instructions)

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

Peggy Pinkston

Thank you. I would like to welcome all of you to Seattle Genetics’ First Quarter 2008 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.

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 will now turn the call over to Clay.

Clay Siegall

Thanks Peg and thank you all for joining us this afternoon. Today I will give an update on the substantial progress we are making with our program, as well as provide an overview of planned activities. Then Todd will go over the financial details for the first quarter of 2008, after which we will open the line for questions.

So far in 2008, we advanced and expanded our product pipeline through initiation of four new clinical trials with SGN-40, SGN-33, and SGN-35. We now have 10 trials ongoing across our portfolio and two more are planned to start this year. We reported preclinical data at the American Association of Immunologists Annual Meeting earlier this month according to clinical trial with SGN-70 we plan to initiate for autoimmune disease late this year.

We made multiple presentations of pre-clinical data at the American Association for Cancer Research Annual Meeting last week, demonstrating advancements with our ADC technology and SGN-33 program. And we completed a financing in January generating net proceeds of $97.6 million that puts us in a strong position to continue advancing our pipeline. Our clinical programs, each generated encouraging single agent objective responses that demonstrate their therapeutic potential for patients with cancer supporting our aggressive development plan.

In the near term, we look forward to presenting more data on SGN-35 at the American Society of Clinical Oncology Annual Meeting in early June. Our data from this ADC program demonstrates potent anti-tumor activity of SGN-35 as a treatment for Hodgkin Lymphoma and further increases our enthusiasm for our ADC technology’s ability to empower antibodies.

We also expect to report data for multiple clinical programs later this year at appropriate medical conferences including ASH.

I will begin with an overview of SGN-40, a humanized antibody that we are developing under our worldwide collaboration agreement with Genentech. Five of the six planned clinical trials under the collaboration are underway and we expect that the sixth trial will be initiated this quarter.

Our joint clinical development program is designed to assess the potential of SGN-40 for non-Hodgkin’s lymphoma and multiple myeloma, both as a single agent and in combination with standard treatment regimens.

During the first quarter, one of our SGN-40 trial initiations triggered a $4 million milestone payment. This brings the total amount we have received thus far from Genentech under the deal to approximately $100 million including the upfront payment, milestones and reimbursements.

We are executing on a broad SGN-40 clinical program, including a phase II single-agent study in relapse or refractory diffused large B-cell lymphoma and a phase II b randomized, double-blind, placebo-control trial of Retuxan and Ice plus or minus SGN-40 in 220 second line diffused large B-cell lymphoma patients.

The clinical program also includes four phase I b trials, three of which are ongoing to evaluate SGN-40 combinations for non-Hodgkin lymphoma and multiple myeloma. We expect to initiate a phase I b trial of SGN-40 plus Velcade for relapsed or refractory multiple myeloma later this quarter.

In June, final data from our phase I single-agent clinical trial of SGN-40 in relapse to refractory non-Hodgkin lymphoma will be reported in an oral presentation at the International Conference on Malignant Lymphoma being held in Lugana, Switzerland. The presentation will summarize complete findings from the trial including anti-tumor activity and tolerability.

At the Genentech investment community meeting in March, data will show describing a potential gene signature that may help identify lymphoma patients most likely to respond to SGN-40 monotherapy.

Evaluation of this novel tool is on both our single agent and combination trials of SGN-40 for lymphoma, this is an exciting area of research and an example of the way Genentech expertise and resources are enhancing development of this program. Our SGN-40 development plan continues on track and we believe this antibody will play an important future role in the treatment of patients with cancer.

Next is SGN-33 or lintuzumab, a humanized antibody that we are developing for acute myeloid leukemia or AML and myelodysplastic syndrome or MDS. Based on promising data from the phase I a dose-escalation trial, which we presented at ASH last December, we are conducting a phase I b study to further evaluate the single-agent activity of SGN-33 for AML and MDS.

We expect to complete patient accrual in the trial of this year and to report data in the second half of 2008. We are also evaluating SGN-33 in a randomized phase II b study of low-dose cytarabine, plus or minus SGN-33. This trial will accrue approximately 210 AML patients 60 years of age or older.

Treatment with low dose cytarabine alone has shown to result an immediate overall survival of less than six months for older AML patients. On leveraging the tolerability and anti-tumor activity of SGN-33, we hope to extend overall survival in this patient population where the prognosis is poor and treatment options are limited.

A third ongoing clinical trial with SGN-33 is our recently initiated phase I study in combination with Revlimid for advanced MDS. This study of approximately 30 patients is being conducted under a research agreement with Celgene, through which they are supplying Revlimid.

Preclinical data suggests that Revlimid can augment effective function, an important mechanism of action for SGN-33, making this combination particularly compelling. Complimenting our registration strategy for older AML, we are currently developing our plans for SGN-33 in younger AML patients. We believe that SGN-33 has application both combined with chemotherapy to improve relapse for each survival and as a monotherapy to maintain remission after conventional chemotherapy or stem cell transplants.

We are also continuing to investigate SGN-33 in preclinical models. In particular, we reported data during AACR earlier this month, describing the ability of SGN-33 to increase survival in multi-drug resistant models of AML that are resistant to chemotherapy. We are enthusiastic about the potential of SGN-33 and we will keep you updated on our progress during 2008.

I will move on now to SGN-35, our antibody drug conjugate or ADC that is in phase I clinical trial for patients with Hodgkin lymphoma or CD30 positive T-cell lymphoma.

In November 2007, we reported interim phase I data showing measurable reductions in tumor volume in more than 75% of patients, including four objective responses. We will report additional objective responses as well as durability of these responses at ASCO in early June. We believe our data support aggressive advancement of this program and are increasing our investment in its development.

Todd will provide and overview of how this will impact our financial guidance. In particular, we recently contracted with Abbot Labs for manufacture of the antibody component of SGN-35. This manufacturing campaign will provide drug supply for the later stage clinical trials. We are currently refining our clinical development pathway, including registration strategy and expect to detail these plans in the second half of 2008.

To further explore the potential of our ADC technology, we recently initiated a second phase I trial of SGN-35 to assess weekly dosing as compared to the every three week schedule used in our first phase I trial. Study will also evaluate SGN-35 in combination with Gemzar, a drug often used in the treatment of relapsed Hodgkin lymphoma.

Relapsed and refractory Hodgkin lymphoma represents a serious unmet medical need. Although program therapy can achieve cure for long-term emission, a significant number of patients relapse and require additional treatments including stem cell transplant and other chemotherapy regimens.

Our market research indicates that there are several thousand newly relapsed or refractory lymphoma patients in the US each year who would be eligible for treatment with SGN-35, the US prevalent with more than 10,000 patients, with roughly the same number in Europe.

Based on our projections, this translates into worldwide annual peak sale potential for SGN-35 in the relapsed or refractory setting of $300 million to $400 million. We believe that data to be presented at ASCO will provide evidence of the potential of SGN-35 for Hodgkin lymphoma as well as further validation of our ADC technology.

The next product candidate is planned to advance into clinical trials is SGN-70 a humanized antibody targeting the CD70 antigen. At the AAI meeting earlier this month, we reported preclinical data describing an expression of CD70 on activated but not resting T- and B-cell and in autoimmune disease tissues. The data also demonstrated that SGN-70 inhibits T-and B-cell’s functions and selectively depletes CD70-positive activated T-cells. We plan to begin critical trials with this antibody in the second half of 2008.

Driving our future pipeline growth are three ADCs and preclinical development, SGN-75 or CD70-positive hematologic malignancies and solid tumors and anti-CD19 ADC or hematologic malignancies and AGS-5 ADC for solid tumors, which we are developing in collaboration with Agensys, now a subsidiary of Astellas.

The Alogenetic Researchers recently presented data in multiple poster presentations at AACR highlighting our ADC technology, including preclinical data on SGN-75. Our ADC collaborators are also making strong progress. Earlier this month Suregen advanced the CRO 11 ADC into a phase II clinical trial, triggering a milestone payment to us and preclinical findings were presented at AACR by some of our ADC collaborators including a presentation by Progenic on their PSMA-targeted ADC.

Our SGN-35 clinical data bolster our excitement for the potential for ADC to significantly impact the way cancer is treated. And we are committed to enhancing our leadership position in this growing field.

We expect to achieve significant milestones over the remainder of 2008. These include, for SGN-40, we and Genentech will initiate one more clinical trial for a total of six ongoing trials in non-Hodgkin lymphoma and multiple myeloma and we will report final phase I data from our non-Hodgkin lymphoma study in June.

For SGN-33, we expect report data from the phase I simulation trial later this year, while also advancing the randomized phase II b low dose cytarabine study in AML and the phase I Revlimid combination trial in MDS.

For SGN-35, we will report multiple additional objective responses from the ongoing phase I trial at ASCO and provide our development and regulatory strategy later this year.

For SGN-70, we plan to initiate a phase I trial for autoimmune disease and we expect to report additional clinical data on SGN-40, SGN-33, and SGN-35 in the second half of the year, most likely at ASH in December.

Now, I will turn the call over to Todd to discuss the financial results.

Todd Simpson

Thanks Clay. Thanks to everyone for joining in on the call this afternoon. I will start off today by saying that our growth momentum coming out of 2007 continued in 2008. As expected, our first quarter 2008 financial results reflect increases in both our top-line revenues and in our expenses resulting from the expanded activities in our pipeline that Clay described.

Revenues in the first quarter of 2008 were $7.1 million, 65% higher than revenues in the first quarter of 2007. These revenues primarily reflect amounts earned under our SGN-40 collaboration with Genentech, which was signed in January 2007 and has been building momentum since.

During the first quarter of 2008, we also achieved the $4 million milestone triggered by one of the SGN-40 clinical trial initiation, a portion of which is included in our Q1 revenue.

As a reminder, all payments received from Genentech, including reimbursement, the $60 million upfront payment and now $20 million in milestones received so far are recorded into revenue over the six-year development period of the collaboration.

Operating expenses increased in the first quarter of 2008 to $26.1 million compared to $14.6 million in the first quarter of last year. This reflects higher R&D expenses, which were $22.2 million in 2008 compared to $11.8 million in 2007.

The principal drivers of these increases were extended clinical development and manufacturing activity. In particular, SGN-40 manufacturing expenses were up during the quarter reflecting campaigns to support ongoing clinical trials by us and Genentech.

Additionally, clinical development expenses for SGN-40, SGN-33, and SGN-35 increased, reflecting the substantial clinical trial activities now underway, including global phase II clinical trials of both SGN-40 and SGN-33.

And lastly, employee cost also increased, primarily driven by growth in our clinical and development groups. This includes non-cash share based compensation expense for the first quarter of 2008 of $2.2 million compared to $1.4 million in the first quarter of 2007.

As a reminder, SGN-40 collaboration cost, including all of the manufacturing in clinical cost I mentioned are included in our expenses that are reimbursed by Genentech under the collaboration.

Driven by our positive clinical momentum, we are increasing the investment in manufacturing and development activities necessary to move our programs forward rapidly. We recently contracted with Abbot Laboratories for additional manufacturing of the antibody component of SGN-35. This is part of our strategy to prepare for later stage clinical studies and to ensure that drug supply is available for this program. And as Clay said, we look forward to sharing our SGN-35 clinical development pathway including our registration strategy in the second half of 2008.

During 2008 we also expect some additional investment in SGN-40 manufacturing to support the multiple and planned ongoing clinical trial by us in Genentech. Based on these and other planned activities across our product pipeline, we are increasing our financial guidance for 2008 as follows: Operating expenses should now be in the range of $125 million to $140 million, cash used to fund operating activities should now be in the range of $75 million to $85 million and revenues should now be in the range of $30 million to $33 million.

And lastly from a cash stand point, we ended the first quarter of 2008 in our strongest ever financial position with approximately $216 million in cash and investment to fund our development activities.

Factoring in the increased investment in our programs that I mentioned, we expect to end 2008 with more than $140 million in cash and investments. And with that, I will turn the call back over to Clay.

Clay Siegall

Thank you, Todd. Operator, at this point, we would like to open the call for questions.

Question and Answer Session

Operator

(Operator instructions)

Our first question comes from the line of Glenn from Needham & Company.

Glenn - Needham & Company

Hi, good afternoon. Congratulations on progress with all of your programs. I have a question about SGN-33 in the AML program, in the elderly AML trial, when do you think enrolment will complete and how is that going?

Clay Siegall

The elderly AML trial is going very well and we have not given a lot of specifics on that at this point but I will turn it over to Tom Reynolds, our Chief Medical Officer to try to address maybe some of your comments or questions.

Tom Reynolds

I think, the trial that you are talking about is our phase II, randomized, double-blind, placebo-controlled MRC study. Right now, it’s accruing very well, we have a large number of cites open, internationally. Patient enrollment is good and we are on target. Our guidance that we have given is that we would be able to be disclosing data around the end of 2009. It’s an event based trial in terms of data base lock and on blinding.

So part of it depends on how many patients, how long patients survive and that will drive really when the trial is actually unblinded, but currently our projections are the end of 2009.

Glenn - Needham & Company

Thank you very much for answering my question. Just another quick question, I know you are exited about the anti-CD19 ADC, is there anything in particular that excites you about it?

Clay Siegall

Yes, I think our preclinical data with our anti-CD19 ADC is very exciting we have reported some of it, not all of it and I think that based on our preclinical data in model systems, based on pilot toxicology studies and based on the exciting activity we are seeing with SGN-35 that we will be reporting at ASCO, we think our anti-CD19 ADC is a pretty darn good product.

Operator

Our next question comes from the line of David Miller from Biotech Stock Research. Please go ahead.

David Miller - Biotech Stock Research

You talked about a potential gene marker to be used in combination with SGN-40. Can you tell me a little bit about that, including what percentage of the target population might have this genetic marker and a little bit about the mechanisms that you suspect?

Clay Siegall

David, it is actually a gene signature, so it is composed of a set of genes, it is not a single gene marker. It is a set of genes and this has been discussed by Genentech and at this point it has not been reported to any great extent. Tom, do you want to comment further on that?

Tom Reynolds

Genentech has done a lot of work both with cell line and in patient’s samples to try to identify a predictive gene signature with a series of genes that might allow us to do some prospective stratification or enrollment of patients in future studies. They have shared some of the data with us, still developing and our expectation is that we will report that out publicly, probably somewhere toward the end of this year or early next year. So, we are looking forward to seeing more data here and that being able to share it with you publicly.

David Miller - Biotech Stock Research

So, you do not have any idea yet of what percentage of patients this would be of the total population?

Tom Reynolds

We really cannot disclose anything about that.

David Miller - Biotech Stock Research

Okay, I understand, fair enough. The second question I have is actually for Todd, can you talk a little bit about the status or the existence of any cash impairment that you might have from some of the investment of your cash balance?

Todd Simpson

Simple answer is we do not have any impairment issues with our cash. We do have a relatively small portion of the portfolio in a couple of auction rate securities, but these are pretty dramatically different than I think some of the securities and other company’s portfolio that have taken dig right down, these are not subprime backed securities. They are all AAA rated pieces of papers. They are paying interest currently, we are comfortable that while temporarily there is a liquidity issue, there is not a credit or a quality issue and given this relatively small part of our portfolio, we think that this easily is resolved in time for us to have access to that cash.

David Miller - Biotech Stock Research

Okay, thanks for that explanation, I appreciate it. That is it for me, thank you.

Operator

Our next question comes from the line of Jason Kantor from RBC Capital Markets. Please go ahead.

Jason Kantor - RBC Capital Markets

Thanks a lot for taking my question. A couple of things, one, the data which you are going to have at Lugana, what are we going to see incrementally from what we have seen, are we going to see higher doses or just more follow-up. What can we look forward to there?

Clay Siegall

Are you referring to SGN-40?

Jason Kantor - RBC Capital Markets

Unless you have something else at Lugana, you can tell us about that, as well.

Clay Siegall

Yes, we will not have a bunch at the Lugana meeting, but with SGN-40, we are going to be presenting the full phase I, which we have never actually presented on SGN-40, so we will have a complete data and durability data and that is something we have not presented publicly either. Tom, do you want to comment on SGN-40 presentation at Lugana?

Tom Reynolds

I think it is pretty much as Clay said, when we did our initial presentations, we had about 2/3rds of the patients that were going to be enrolled in that study. This will be the full data set and I think the piece that will be new this time is the durability of responses. And so, we are pleased with that and we are pleased to have the opportunity to share that with you then.

Jason Kantor - RBC Capital Markets

Now, you stated that you had available at the time that you showed that to Genentech, when they did the deal or this has matured since then?

Tom Reynolds

Well a lot of the data has matured because of durability, because that is something that matures over time, so we will be presenting that.

Jason Kantor - RBC Capital Markets

Then, with regards to SGN-35, apparently we are seeing some really good results there and everyone, I think, would like to assume that you will see other great results with your other conjugates. Is there anything specific about the target itself and Hodgkin’s disease that may make them particularly sensitive to orstatin or is this kind of what you expect for a lot of your tumor types?

Clay Siegall

Thanks for the question. We do not see any specific aspect of CD30 in target of SGN-35 that uniquely prepares the cell for sensitivity to orstatin versus other cells. So, we think this is more of a way that we can target a receptor on the cell surface and deliver effectively a potent set of toxic agent that disrupts the tubulin and it is an anti-mitotic and so, we think that this is generalizable and we do not think that this is very specific only to CD30.

Jason Kantor - RBC Capital Markets

But is this specific to Hodgkin’s disease, in terms of the killing power of orstatin?

Clay Siegall

No, actually we have done a lot of analysis on the variety of cell types, both hematologic and solid tumors and we find that orstatin on the vast majority of cells are very sensitive to orstatin or cell-killing mediated by orstatin and we do not see that Hodgkin lymphoma stands out in any way and it is more sensitive or less sensitive, it is pretty much in the middle of the pack.

Operator

(Operator Instructions)

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

David Garrett - Fortis Securities

A couple of questions, the first one is for Todd with the increases in the expenses. Is the split between R&D and SG&A is still the same?

Todd Simpson

Yes, it stays about the same. So, it is about 85% R&D, rest SG&A.

David Garrett - Fortis Securities

Okay, great, thanks. And then, you guys are running an extended phase I b for SGN-33 as a monotherapy and I am just curious, considering what you have, I assume hope, is the registration trial ongoing as combination therapy? I am just curious what you think you are going to get out of doing these larger monotherapy trials. Is there any chance that trial could be used as a registration trial?

Clay Siegall

I will start to answer this and turn it over to Tom. The phase I b is certainly not a registration trial. What we are trying to determine is the phase I a was a dose escalating trial and we started at 1.5 milligrams per kilogram and went up to 8 milligrams per kilogram. We went into the Phase I b, because were excited with the number of CRs that we have in Phase I a, but it since it was all on different doses and those escalating, we did not have any substantive amount of patients treated at what we thought was our Phase II dose of 8. So we wanted to treat a substantial amount of patients and in this case it is the total of 50 patients that were on the Phase I b study, so that we could make a determination if it makes sense of Seattle Genetics to consider a single agent approval pathway and until that data reads out, until we really get all of the data, we are really not going to make a comment on it. We are going to let the data dictate to us, whether or not we go forward in that regard.

Now, we did not want to wait, because we thought okay, we had this active drug, we really like the safety profiles, we really like its activity and we thought getting it in a trial in combination with an appropriate chemotherapy in a very dramatic disease, AML, which really needs additional therapy. To us it made sense to just go forward very rapidly there and not wait until we did all the rest of work on the single agent. Ultimately, whether this gets approved as a combination therapy, as a monotherapy or both, I think that all of the above could be important for the drug and even if it just got approved in the future as a combination therapy that it still would offer a huge amount of upside for patients with AML. Tom, I am sure you have some other comments or maybe not?

Tom Reynolds

Clay, it is very well said, I really do not have anything to add.

David Garrett - Fortis Securities

Okay, so I guess just a follow up then, no matter what happens in this trial if you were to go after a monotherapy label, you are going to have to do another study?

Clay Siegall

Absolutely, this is really a Phase I b, it is a screening study to look at the response rate.

Tom Reynolds

But, David I think the thing that is important about these study is, if you look at both the I a and the I b data together, I think we would be able to power a registration study very accurately based on these data, should we choose to move forward with that.

David Garrett - Fortis Securities

Okay, great and then, just one more if I may, I know you said that you are going to update us on next steps for 35 in the second half of the year, I am just curious what is your current thinking on a registration pathway? Is it possible to do a single-arm study or you think that no matter what, you got to have to do a randomized trial?

Clay Siegall

You are actually asking some very good questions. What I could tell you it is that we are having a number of internal meetings now in plotting and planning, so we are working hard on this right now. We are also bringing a lot of KOLs or Key Opinion Leaders outside that are experts in Hodgkin’s lymphoma, that are experts in clinical developments, that are expert in regulatory and we are evaluating whether a single agent or randomized studies need to be done or a combination thereof.

So, we are looking hard at both Hodgkin Lymphoma and CD30 positive T-cell lymphoma, it is like anaplastic large-cell lymphoma. So we think that there are a lot of opportunity for us and a lot of upside in this area and later in the year we will be outlining some specifics. Tom, is there anything you want to add to that?

Tom Reynolds

I think it is fair to say that we very are pleased by the efficacy that we have seen so far and the safety profile that we have seen so far. I think we are going to able to be pretty aggressive on how we move forward. That being said, our strategy has always been working closely with regulatory groups for the FDA here and EMEA over in Europe to ensure that we got a large congruence in terms of what the best thing is for the patients in moving these products forward quickly.

So, I think we are going to have some really interesting things to talk about as we enroll the strategy later this year and so, stay tuned.

Clay Siegall

I think the most likely things that we would be doing more than one study and so, I think we are excited enough about the program that we would be doing some confirmatory studies and I think that is something which you should look forward to hearing later this year.

Operator

We have a follow-up question from the line of Jason Kantor from RBC Capital Markets.

Jason Kantor - RBC Capital Markets

Thanks for taking this follow-up, two quick things. What changed between your last guidance and this guidance to make you decide to spend more? It sounds like you have been progressing along in the path you have set forward for everyone. So what is it that exactly changed in your thinking?

Clay Siegall

I think there are a couple of things that have changed here and maybe I can start and then Todd can also talk from a financial stand point. I think the biggest change is our enhanced investment in SGN-35 and that is a single biggest ticket item there and a lot of that is due to manufacturing. We recently had a SEC filing that came out detailing a manufacturing agreement we have done with Abbot Labs that Todd mentioned in our presentation here this afternoon.

It was, I think, the contract was $7. 3 million plus raw materials, which is another million and a half or so. That right there is the biggest single item. I think there are other items that are really important here and that is also an additional spend we are doing on the SGN-40 program in collaboration with Genentech and while that is reimbursed, that is also added expense to us and it just shows how interested Genentech is on this program that the expenditure continue to rise. So, I think those are the two of the larger events and there is more headcount and we are adding more headcounts to support really our clinical and our manufacturing initiative and doing our analytical work along with our clinical programs.

Our intention is to take some of these products to commercial launch and we are positioning ourselves to do that. We think that we have some great products and we have the internal power to consider that but we do need to fill some positions as we march along towards the registration. So, we have added headcount cost as well built in to this cost increase, this guidance increase that we did not necessary contemplate when we first guided, but due to our excitement with SGN-35, first and foremost, that you will hear about at ASCO, we decided that it makes a lot of sense for us to invest more in the program. Todd you want to add anything to that?

Todd Simpson

I think that is a pretty fair characterization. I think what has changed is positive data and momentum and that goes across SGN-35, as well as SGN-40. There are now a lot of clinical trials that we and Genentech are running that is going through more product supplying. We want to make sure we have an uninterrupted supply of products for all those studies. So, that is included in our expenses that I think as I mentioned before and everyone knows, all of the development cost for that program were funded by Genentech so it does not increase our burn, but it certainly does show up in our expenses.

And then on SGN-35, it is manufacturing , its process scale up with clinical development.

We are excited with this program, we want to position it so that we can really drive forward aggressively and that involves clinical spending, headcount, manufacturing kind of everything from soup to nuts and we want to make sure we do it right.

Jason Kantor - RBC Capital Markets

Okay, one last question then. You talked about refining you registration strategy and that you are going to provide details soon after ASCO for SGN-35, is this something that you have already talked to FDA about and you are just withholding the information, until after there is data to talk about or do you still have to meet with the FDA to get the green light and that is why the guidance is for later this year to get that kind of clarity?

Clay Siegall

Jason it is the later. We are formulated and we regularly with various regulatory agencies, whether it is the agency in the US or Europe we have international studies going on, so I do not want to say that we are not meeting and communicating with the agency, we absolutely are. But, we are not trying to hold any big material thing from you, until after ASCO.

We are still in progress of formulating internally everything we want to do and we will later this year, I am sure we will request meetings with the FDA and then really lay out our pathway for the public and the investor groups and the analysts.

Operator

At this time, I see no further questions in the queue. I would like to hand it back to Ms. Pinkston, please go ahead.

Peggy Pinkston

Thank you operator and thanks everybody for joining us this afternoon. Have a good evening.

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