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Seattle Genetics (NASDAQ:SGEN)

Q3 2012 Earnings Call

November 07, 2012 4:30 pm ET

Executives

Peggy Pinkston - Director of Corporate Communications

Clay B. Siegall - Co-Founder, Chairman, Chief Executive Officer and President

Christopher S. Boerner - Senior Vice President of Commercial

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

Thomas C. Reynolds - Chief Medical Officer

Eric L. Dobmeier - Chief Operating Officer

Analysts

Matthew Roden - UBS Investment Bank, Research Division

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Jason Kantor - RBC Capital Markets, LLC, Research Division

Cory William Kasimov - JP Morgan Chase & Co, Research Division

Howard Liang - Leerink Swann LLC, Research Division

Thomas Wei - Jefferies & Company, Inc., Research Division

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

Alan Carr - Needham & Company, LLC, Research Division

David D. Miller - Biotech Stock Research, LLC

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Seattle Genetics Third Quarter 2012 Financial Results Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, November 7, 2012. At this time, I'd like to turn the conference over to Peggy Pinkston, senior Director of Corporate Communications. Please go ahead, ma'am.

Peggy Pinkston

Thanks, Operator. I'd like to welcome all of you to Seattle Genetics Third Quarter 2012 Conference Call. With me today are Clay Siegall, President and Chief Executive Officer; Todd Simpson, Chief Financial Officer Eric Dobmeier, Chief Operating Officer; Todd Reynolds, Chief Medical Officer and Chris Boerner, Senior Vice President Commercial. Our intention is to conclude today's call by no later than 2:30 p.m. Pacific or 5:30 Eastern time. Following our prepared remarks we will open the line for questions if we are unable to get all of your questions, we'll be in the office and available after the conclusion of the call. 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 filed 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 Clay.

Clay B. Siegall

Thanks, Peg and good afternoon, everyone. Over the past few months, we have made steady progress across our key corporate priorities. Our overarching goal is to improve the lives of people with cancer. We're doing this today with ADCETRIS and we plan to do with this in the future through our pipeline of other anti-body drug conjugate or ADC programs. Our commercial team is executing on its plan to provide ADCETRIS to appropriate patients in need and educating the physician community on the use of ADCETRIS. Our clinical development team has continued to deliver on our aggressive plans to broadly evaluate ADCETRIS in additional therapeutic areas and advance our other pipeline programs. And our internal research and collaborative progress continues to underscore our leadership position in ADCs. ADCETRIS net sales in the third quarter were $33.7 million and year-to-date net sales were nearly $103 million. We now project net ADCETRIS sales for 2012 will be in the range of $132 million to $137 million, slightly lower than our original guidance. In the near term, our latest market research suggests that there are opportunities for growth in market share in our labeled indications, including opportunities to drive increased duration of therapy and even greater utilization in the community setting. As Chris will explain in more detail, we have done an exceptional job of ensuring that physicians and patients are broadly aware of ADCETRIS. We believe we are now transitioning primarily to an incidence model of patient flow. This creates a strong base for us to grow from and as Tom will explain, more than 20 internal and investigator-sponsored clinical trials are underway that will generate data for publication and future labels for ADCETRIS. We will provide 2013 guidance in our year end call in February, but at this point, we anticipate on label, U.S. sales of ADCETRIS to be relatively flat in 2013. I want to emphasize that we are more enthusiastic now than ever about ADCETRIS therapeutic and commercial potential through our sales, marketing, clinical and medical affairs efforts. We are advancing towards our vision of ADCETRIS becoming a blockbuster drug and the foundation of therapy for a broad array of the CD30 positive malignancies. Achieving this vision will take time, but we are making strong progress as we execute on our commercial strategy, generate data in new therapeutic areas and new indications and expand globally.

Speaking of expanding globally, I'd like to highlight an important recent milestone for our ADCETRIS program, it's conditional approval in the European Union received by our collaborator Millennium/Takeda. This is a key step in ADCETRIS becoming a global brand and in helping patients in need worldwide. We are pleased that the label in the EU aligns with our of broad label in the United States. The approval triggered milestone payments to us totaling $25 million. Millenium/Takeda are actively pursuing pricing and reimbursement applications in each of the EU member states with the first commercial launches planned in the coming weeks. In addition to the approval in Europe, Millennium/Tekeda are planning regulatory submissions for approval in multiple other countries outside of the EU within the next year. They have also been conducting a broad international name patient program or NPP, which has been effective at providing ADCETRIS to patients around the globe prior to international approvals. An important upcoming event for our company and ADCETRIS as well is the American Society of Hematology our ASH Annual Meeting in December. More than a dozen corporate and investigator abstracts were accepted for presentation at ASH, primarily focused on ADCETRIS and evaluation of its potential in a variety of CD30-positive lymphomas and stages of disease. Some notable data sets include 2 oral presentations on ADCETRIS in newly diagnosed patients, including data from our Phase I trial in front-line Hodgkin lymphoma and from our Phase I trial in front-line mature t-cell lymphomas or MTCL. Both trials showed high complete remission or CR rates when ADCETRIS was combined with components of standard front-line regimens, including a 92% CR rate in Hodgkin lymphoma patients and 88% CR rate in MTCL patients. The data suggest that ADCETRIS can be stately combined with these regimens and reinforce our belief that ADCETRIS will play a role in redefining therapies for newly diagnosed patients. The Phase III trial in front-line Hodgkin lymphoma recently opened under a special protocol assessment or SPA and the Phase III trial in front-line MTCL is on track to start later this year or early in 2013. Importantly, we also recently secured a SPA for the MTCL trial. Also at ASH, there will be 2 presentations: 1 oral and 1 poster from an investigator-sponsored trials with ADCETRIS in cutaneous T-cell lymphoma or CTCL. New patient data from these trials align with previously reported interim data with both studies resulting in greater than 60% overall response rates with manageable safety profiles in relapse CTCL patients. To put this in context, recently approved systemic therapies in CTCL have response rates in the range of 30% to 35%. These data continue to support the potential role of ADCETRIS in this population and bolster our enthusiasm for our ongoing randomized Phase III trial in CTCL that is being conducted under a SPA. The 3 SPAs we have now received for our Phase III trials as well as the previous SPA for our pivotal Hodgkin lymphoma trial, reflect the key part of our regulatory strategy for our ADCETRIS program. We're proud of our relationship with the FDA and has led to the successful granting of 4 SPAs for these key trials. In addition to securing SPAs from the FDA, we have also worked closed with European regulators leading to scientific advice on our Phase III trials. Finally at ASH, there will be interim data from our ongoing trial in CD30-positive non-Hodgkin lymphomas, including additional objective responses in patients with diffused large B cell lymphoma or DLBCL and T-cell lymphoma. The antitumor activity of ADCETRIS in DLBCL is of particular interests where a significant percentage of heavily pre-treated patients in this trial responded and the safety profile was consistent with other trials. This single agent activity is encouraging since most relapse DLBCL patients receive multi-agent chemotherapy. In 2 other investigator abstract at ASH, data demonstrated that 20% to 25% of DLBCL patients expressed CD30. These data are driving our strategy to evaluate future clinical trials of ADCETRIS in CD30-positive DLBCL, which represents a relatively large patient population with unmet medical need. These are just a few of the many data presentations from Seattle Genetics, investigators and collaborators at ASH. We're looking forward to a strong presence at the meeting and believe it will continue to reinforce the broad potential of ADCETRIS and our leadership in ADCs.

At this point, I'll turn the call over to Chris to provide an update on our ADCETRIS commercial activities.

Christopher S. Boerner

Thanks, Clay. Good afternoon, everyone. Today I'm going to provide an overview of our commercial performance for the third quarter, and discuss the factors that will likely affect near-term growth for ADCETRIS. As Clay mentioned, sales of ADCETRIS in Q3 were $33.7 million, approximately 180 new accounts placed orders for ADCETRIS during the quarter. Total accounts ordering ADCETRIS since approval now exceed 1,000. While the absolute number of accounts increased in the quarter compared to last, the average number of orders per account and the average size of each order decreased slightly, resulting in a decrease in quarter-to-quarter sales. Market research performed in Q3 confirmed that overall awareness of ADCETRIS, as well as customer satisfaction with the product, continues to grow. 97% of physicians surveyed last quarter were aware of the product and among those who have utilized the drug, 100% responded that ADCETRIS had met or exceeded their expectations. Turning now to specific performance data and the near-term on-label opportunity for ADCETRIS. Based on a review of a large number of actual HL and ALCL patient charts, overall penetration for ADCETRIS in both relapse systemic ALCL and post-transplant HL is between 50% and 60%. In the pre-transplant HL setting, our market research data suggests that utilization among patients who are ineligible for transplant and have failed at least 2 lines of multiagent chemotherapy is over 45%. As expected, utilization across these settings is highest among academic physicians who were among the earliest adopters of ADCETRIS following approval. We are very pleased with the significant and rapid adoption of ADCETRIS in a relatively short period of time since approval. With respect to duration of therapy, as expected, our market research confirms the current duration of ADCETRIS use in both HL and systemic ALCL is shorter than what we've seen in our pivotal studies, but also highlights that physicians are growing comfortable treating beyond best response. Finally, the reimbursement climate for ADCETRIS continues to be very favorable. We were notified this month that a product-specific billing code or permanent J-code has been granted for ADCETRIS by the Centers for Medicare and Medicaid facilities. The new J-code will be effective on January 1, 2013, and will further simplify the billing and reimbursement process for ADCETRIS. The favorable reimbursement plan should continue to support our efforts on duration, as well as new patient starts in both relapse HL and systemic ALCL. Our commercial efforts remain focused on working with physicians to identify every ADCETRIS appropriate patient and to ensure that these patients are pretty consistent with our label. We continue to focus significant efforts in the community setting where we see the greatest opportunities for incremental growth. We feel these efforts will continue to ensure that ADCETRIS is made available to every appropriate patient in the near term and importantly, will provide a solid foundation for longer-term growth as our clinical development activities generate additional data to support potential new labels in broader patient populations. Tom will provide additional details on these activities shortly. Now, I'll turn the discussion over to Todd.

Todd E. Simpson

All right, thanks, Chris and thanks, everyone for joining us on the call this afternoon. Today, I'll highlight our third quarter financial results, provide some additional color around key business drivers and provide some context for what we expect next year. Revenues for the third quarter of 2012 increased to $49.8 million, which included ADCETRIS net product sales of $33.7 million. Year-to-date revenues increased to $146.9 million, which included $102.8 million in ADCETRIS net product sales. Revenues in 2012 also included collaboration revenues of $14.5 million in the third quarter, and $41.1 million for the year-to-date. ADCETRIS gross-to-net adjustments continue to run at approximately 12%. As explained last quarter, we expect that fluctuations in gross-to-net amounts moving forward will be primarily based on government discounts. Cost of sales continue to be approximately 8% to 9% of net sales. This primarily reflects royalties and distribution cost at this point as we continue to benefit from the use of ADCETRIS product that was manufactured prior to FDA approval. The cost of this product was previously charged to R&D expense. This benefit will diminish as that product is utilized and we expect that over time, ADCETRIS cost of sales as a percentage of net sales will increase into the teens. R&D expenses were essentially flat in 2012 at approximately $41 million in the third quarter, and $123 million for the year-to-date. In 2012, this reflects spending for ADCETRIS' clinical development activities, as well as increased investment in our other ADC programs. R&D expenses in 2011 included ADCETRIS manufacturing cost, however, following FDA approval last August, these costs are now being capitalized as inventory. SG&A expenses decreased for the quarter, but increased for the year-to-date in 2012 as planned. The decrease in the third quarter reflects higher cost in 2011 related to the launch. Non-cash share-based compensation expense for the first 9 months of 2012 was $17.9 million compared to $14 million in the first 9 months of 2011. We ended the third quarter in a strong financial position with approximately $314 million in cash and investments. The fourth quarter of this year will be particularly strong from a cash generation perspective. We expect to receive more than $100 million during the quarter, which includes the $25 million Abbott collaboration payment, $25 million in approval milestone payments from Millennium, anticipated collections from ADCETRIS sales and other collaboration payments. Fourth quarter collaboration revenues will reflect approximately $7.7 million related to the European approval milestones from Millennium and we will begin to amortize the $25 million Abbott payment over the 2-year development term of the expanded collaboration. After funding our operating activities, these cash payments will lead to an increase in our cash position through the end of the year keeping us in a strong financial position to execute on our ambitious plans ahead. Looking forward into next year, from an expense perspective, we will be broadening the scope of the clinical development program for ADCETRIS with our partner Millennium, as well as continuing to invest in our other ADC programs in supporting our commercial efforts. I want to point out though that 2 of the 4 ADCETRIS Phase III trials are being conducted by Millennium. As a result, the cost of those trials will not be reflected in our R&D expense, rather our 50% share of the trial cost will reduce the amount of reimbursement funding that we receive from Millennium, which as you will recall, is a component of collaboration revenue.

With that, I'll now turn the call over to Tom.

Thomas C. Reynolds

Thanks, Todd. Today, I'll outline our plans to build ADCETRIS from its current labeled indications into the foundation of therapy for a broad array of CD30-positive malignancies. We see this evolving in a stepwise fashion as follows. At ASH and throughout 2013, we expect to report data for multiple corporate studies and investigator-sponsored trials or ISTs that will highlight the use of ADCETRIS in earlier lines of therapy and other types of CD30-positive lymphomas. There are currently 11 ISPs ongoing in a variety of settings. These data will support publications and presentations to further illustrate the broad therapeutic potential of ADCETRIS. Then in the first half of 2013, we plan to submit data to the FDA supporting use of ADCETRIS in the retreatment setting, as well as extended treatment beyond 1-year of therapy. Also during 2013, we plan to report data with ADCETRIS in none lymphoma indications, including solid tumors and leukemias, which may enable future indication-specific trials for CD30-positive patients. In late 2013 to early 2014, we can expect data from our AETHERA trial in the post transplant Hodgkin lymphoma patients and then in the 2014 to 2015 time frame, we anticipate data from our ongoing corporate Phase III trial in CTCL patients. And we expect our front-line randomized trials in Hodgkin lymphoma in mature T-cell lymphomas that are designed to redefine treatment for newly diagnosed patients to reach their primary endpoints within the next 4 to 5 years. Let me provide some additional context for each of these steps starting with our plans in retreatment and extended duration. We reported data at ASCO this year from our Phase II retreatment trial. This is a study designed to assess the therapeutic potential of ADCETRIS administration in Hodgkin lymphoma and ALCL patients with relapse after previously responding to ADCETRIS. We've also published data on the activity and tolerability of ADCETRIS among patients who receive greater than 16 cycles of therapy. We plan to submit a supplemental BLA to the FDA in the first half of 2013 supported by both of these data sets. Our goal is to incorporate these clinical findings into our U.S. label, allowing patients and their physicians the flexibility to determine the best course of treatment for their disease. During 2013, we also filed [indiscernible] data with ADCETRIS in non-lymphoma indications. Patients with CD30 expression identified through our 3,000 patients sample screening protocol are eligible to enroll in a Phase II clinical trial for treatment with ADCETRIS. We anticipate interim data from this trial next year, which will inform opportunities for clinical research of ADCETRIS beyond lymphoma. An example of early data are described in an investigator abstract at ASH on 2 patients with aggressive systemic mastocytosis, a proliferation of mast cells leading to severe allergic symptoms, which are poorly controlled the current therapies. Next is AETHERA, which is a Phase III trial evaluating ADCETRIS in Hodgkin lymphoma patients at high risk of residual disease post-autologous transplant. In September, we completed enrollment of 329 patients, half of whom perceived ADCETRIS and the other half placebo. This trial is evaluating whether ADCETRIS can consolidate responses in these high-risk patients and will be informative on the use of ADCETRIS in a maintenance-type setting. In addition, safety findings from this trial are part of our postmarketing requirements under the FDA's accelerated approval of ADCETRIS. The primary endpoint is progression-free survival and we currently project the data will be available late in 2013 or early 2014. Another opportunity for ADCETRIS that we are particularly enthusiastic about is CTCL. Building upon the reported IST data, we and Millennium have initiated a global randomized Phase III study, the ALCANZA trial in relapsed, CD30-positive CTCL patients to evaluate ADCETRIS versus physician's choice of methotrexate or bexarotene. Analysis of the primary endpoint, which is the objective response rate with the duration of at least 4 months will occur in the 2014 to 2015 time frame. And lastly, we are moving ADCETRIS into front-line regimens for Hodgkin lymphoma and MTCL by conducting global registrational studies in both patient populations. Clay highlighted that data from our Phase I front-line trials will be presented at ASH and that both Phase III studies will be conducted under an SPA. In addition, the FDA has agreed that both of these Phase III trials are potentially confirmatory, a positive outcome in either trial served to convert the accelerated approval of ADCETRIS in the U.S. to regular approval in both indication. Another approach in front-line Hodgkin lymphoma is to evaluate ADCETRIS in select subpopulations. To this end, we recently initiated a trial of single-agent ADCETRIS in front-line Hodgkin lymphoma patients aged 60 and over. The trial is being conducted in up to 20 patients who are unable to tolerate combination chemotherapy. In the salvage Hodgkin lymphoma setting, we plan to initiate later this year a Phase I 2 trial evaluating ADCETRIS in combination with bendamustine, for patients who have relapsed following front-line therapy. This corporate study in combination with the work of investigators through ISTs will be informative for the potential role of ADCETRIS prior to transplant. Before I turn the call back over to Clay, I'd like to comment on the recent disclosure that I've decided to leave Seattle Genetics early next year. This was a difficult decision, but a choice that was right for me and my family, given a chronic health issue that has recently emerged with my wife. The past 5 years at Seattle Genetics had been a phenomenal personal and professional experience for me. During my tenure, I've had the privilege of participating and developing 1 of the most important new drugs for lymphoma patients in need and witnessing a Renaissance in oncology as ADCs are changing the way we think about treating cancer. I leave the company with a talented and passionate group of clinical and regulatory professionals and I thank Clay and the rest of the team for this rewarding experience.

Clay B. Siegall

Tom's contributions to Seattle Genetics has been highly significant, notably his leadership of the clinical and regulatory team during the development and through approval of ADCETRIS. While we will miss Tom, we understand that he's making the right choice for his family and he's leaving us with a strong and respected staff with deep expertise in drug development that ensures we are well-positioned going forward. We started a search for his replacement and anticipate a smooth transition to a new Chief Medical Officer.

Next, I'll update you on recent highlights from our internal and collaborator ADC pipelines. In the third quarter, we initiated the Phase IB trial evaluating SGN-75 in combination with everolimus, an mTOR inhibitor approved for the treatment of renal cell cancer. We have submitted, and the FDA has accepted our IND for SGN-CD19A. We are on track to begin 2 Phase I trials, 1 in acute lymphocytic leukemia and 1 in d-cell non-Hodgkin lymphoma within the next several months. And at ASH, we will describe preclinical data through our next ADC that will move into the clinic. SGN-CD33A. This is an ADC targeted to CD33 that we will evaluate in acute myeloid leukemia. It employs our next-generation ADC technology, a new linker, a highly potent class of cytotoxic agent termed a PBD and a novel antibody incorporating our proprietary site-specific conjugation technology involving engineered cysteins, which we call an easy math. We expect to submit an IND for SGN-33 -- CD33A in the first half of 2013. We are very excited to bring our newest technology forward to apply this to a difficult to treat disease. Our ADC collaborators have also made substantial recent progress. In particular, Genentech advanced 2 ADCs into Phase II clinical development. They are evaluating a CD 22 ADC and a CD79B ADC, each in combination with Rituxan for the treatment of non-Hodgkin lymphoma. Phase I data from both these programs will be presented at ASH. Genentech has 6 other ADCs using Seattle Genetics' technology in Phase I clinical trials. Projenics Advanced its PSMA ADC into Phase II clinical development and Abbott initiated a Phase I clinical trial of an ADC for cancer using our technology. Each of these clinical accomplishments triggered a milestone payment to us. We also recently announced that we've expanded our ADC collaboration with Abbott. Under the new deal, we will receive a $25 million upfront payment up to $220 million in milestones per additional target and mid to high single-digit royalties. We have now generated a total of more than $200 million under our ADC collaborations and have the potential to receive up to $3.8 billion in potential future milestones plus royalties. And of 30 ADCs in clinical development, more than half utilize our technology.

Before we open the call to questions, I'd like to summarize our key upcoming milestones. For ADCETRIS, we plan to report a substantial amount of new clinical data at ASH, including from our Phase I front-line Hodgkin lymphoma trial, our Phase I front-line MTCL trial, our Phase II non-Hodgkin lymphoma trial and 2 ISTs in CTCL. We expect to initiate a Phase III trial in front-line MTCL later this year or early in 2013. We expect a regulatory decision from Health Canada in early 2013. We expect to initiate a Phase I 2 trial of ADCETRIS plus bendamustine in first relapse Hodgkin lymphoma patients later this year and we are on track to advance SGN CD19A in 2 Phase I trials for B-cell malignancies and ALL within the next few months. At this point, we will open the line for Q&A. [Operator Instructions] Operator, please open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Matt Roden with UBS.

Matthew Roden - UBS Investment Bank, Research Division

I want to start by congratulating Tom for your contributions to the company as you move onto the next chapter. I have 1 question on the guidance and another question on the pipeline. If you look at the guidance, the top end of the guidance here, it seems to imply sequentially flat sales in the fourth quarter while the low end implies a pretty good sequential step down. And I was just wondering if you could give us a sense for what's going fundamentally that you draw that kind of step down in sales sequentially and then I have follow up on the pipeline..

Clay B. Siegall

We are trying to make sure that we provide the kind of guidance that will actually fall into. This is really the first full year of guidance. So early in the year, we provided guidance and we were close to it, and so we feel good about that, but we also wanted to guide for the full year 2012 with something that was a little bit more exact. As we said early in the year, we were guiding for flat sales and that's really where we're still at.

Matthew Roden - UBS Investment Bank, Research Division

Okay and then with respect to the opportunity in front-line Hodgkin’s, if you look at the ASH abstracts posted describes complete response rates in the 92% to 95% range for ADCETRIS in front-line. Can you guys just sort of put in context the patient population studied there in terms of prognosis, stage of disease and really just help us think about how this relates to the Phase III population, which is actually a fairly agnostic at this stage as far as I can tell.

Clay B. Siegall

Tom, would you take that?

Thomas C. Reynolds

Sure. So Matt, what we studied in Phase I are largely stage 3 and 4 patients with some stage 2bs. So it's largely a stage 3, 4 with a smattering of 2bs. The Phase III study is pure-play stage 3 and 4. So they should be relatively similar and based on the small numbers that we've got, we're not seeing a disproportionate number of responses based on stage. We've only had a handful of patients who have not achieved CR and those data will be updated at ASH. So I think it is something really to focus on, we're very excited about it. We think not only the improvement and efficacy base compared to what the historical database looks like, but also the removal of bleo and the lack of toxicity of this regiment, really is going to make it, we think, very attractive for front-line use when the final Phase III data come out.

Operator

Our next question comes from the line of with Adnan Butt with RBC Capital Markets.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

I guess, the first question as the adjustment in guidance, is that simply the experience that you have to date in terms of looking at the market or is it something more specific such as duration, penetration or the actual outlook on label indication.

Clay B. Siegall

I'll start this and then turn it over to Chris for a few comments. First of all, and this goes back to Matt's question as well, for it is really the same question in a sense. ADCETRIS is really a great drug. It is helping a lot of patients. It's ultimately going to be a global brand we think, a $1 billion plus brand, but that is going to take time to get there. We have a enormous presence compared to what we previously have had for sure at ASH and it's showing at the broad application, to front-line, to NHL, to cutaneous lymphomas, and a variety of other indications and we are investing in this long-term potential. That's really what's critical and we're looking to make ADCETRIS the foundation of treatment for many different diseases that express CD30. That's what we're about and so there's some specifics that we can give you about our guidance and about the market opportunity and Chris, would you like to make some comments?

Christopher S. Boerner

Sure, happy to. Let me just address a couple of things. So first this year and then on the comments made on next year. So first, as Clay mentioned, based on all of the data that we have to date, as well as order patterns and feedback directly from customers, it's pretty clear that sales have shifted largely to be dependent upon incident or newly relapsed HL and ALCL patients. We also know from the work that we've done over the last 3 or 4 months is that our penetration in these patients is significant upwards of 60% in the largest segment, which is relapse Hodgkin lymphoma and so as you move to that incident patient population in any given quarter, you're subject to when those patients come on therapy and that can lead to some natural fluctuations in sales growth quarter-over-quarter. So I think the guidance this year reflects the potentially, you may see some of those fluctuations. As we look going forward, we do expect to see continued incremental growth in market share, as well as in potentially duration, but I think we have to keep a few things in mind. The first is that as I mentioned, market share as of early last quarter and the largest of the segment is over 60%. So that growth will likely be incremental, and as the business shifts to these incident patients, we're subject to the timing as I mentioned as those patients come on therapy and then finally, we'll continue to see patients who initiated therapy in previous quarters come off of therapy so that any new growth in patients has to compensate for that. And we think that the net effect of this will be relatively flat sales, but again, we'll provide additional guidance as we get into next year.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Do I dare a follow-up, Clay? In terms of label expansion, I think you mentioned retreatment, what about compendia, CTCL et cetera?

Clay B. Siegall

Tom, would you like to comment?

Thomas C. Reynolds

Yes. So, we are definitely aggressively pursuing the retreatment and extended duration with the FDA. We think our data our strong. They're clearly as good, if not better than when Rituxan added retreatment to its label. So we think we've got a good precedent there. It really will give some flexibility for caregivers and for patients to select the right mode to use ADCETRIS for appropriate patients. In terms of some of the off label stuff that you're talking about like CTCL, we're extremely pleased with the data coming out of our ISTs and we're following that up with a registrational study. We think the data set will be pretty good-sized and that we should anticipate manuscripts from these 2 ISTs coming out some time in 2013. Now we're not in a position to decide what guidelines and compendia groups do, but the compellingness of the data, the size of the data sets and the rigor with which these were done suggest that they might evaluate it for incorporation in the guidelines and we think those publications could occur next year. So that's about all we can say at this point and that we are extremely excited by the data and what it bodes well for our Phase III registrational study in CTCL.

Operator

Our next question comes from the line of Jason Kantor of Credit Suisse.

Jason Kantor - RBC Capital Markets, LLC, Research Division

I just wanted to clarify your sort of, I don't know, pseudo-guidance for 2013. You said you thought it would be flat. Are you suggesting that it will be flat on a year-over-year basis, flat from the current quarterly level we're seeing now or flat from the Q4 level that we can all begin to model now that we have the year-end guidance?

Clay B. Siegall

Yes. We wanted to give a little foreshadowing for our February call and flat sales are on-label U.S. sales, so please keep that in mind.

Jason Kantor - RBC Capital Markets, LLC, Research Division

Do you have any sense of what percentage of your current sales are not on-label U.S. sales?

Clay B. Siegall

We are certainly aware of some off-label use of ADCETRIS. We certainly do not promote anything outside of our label. We, at this point, do not believe or are not guiding that any non-promoted use constitute a significant portion of our ADCETRIS sales. Certainly, our ASH data is strong and you've heard from Tom on that and that may generate some interest amongst physicians and there's clearly a appreciation that hematology oncologists are gaining for CD30 as a target. It's the appreciation that has grown over a long time. The CD20 as a target for Rituxan and I think that, that appreciation is starting to really build. And our clinical program really goes across so many different malignancies that express CD30. We think we have a lot of chance to move forward in ways that get label. So at this point, we're not going to make any specific comment about the percentage of any sales off labels.

Jason Kantor - RBC Capital Markets, LLC, Research Division

You talk about the DLBCL data and the opportunities being one that's very exciting to you guys. Could you kind of give us a better sense of what is 20% to 25% of the DLBCL population? What does that mean in terms of a market opportunity for you? How addressable are those patients? Where do you think this would fit in, in terms of where in the line of therapy you think ADCETRIS would be appropriate?

Clay B. Siegall

Sure, Jason. Eric, do you want to take that?

Eric L. Dobmeier

So in terms of patient numbers and then I'll hand it over to Tom to talk about how the drug could be used. DLBCL is the most common type of aggressive lymphoma and roughly based on some new data at ASH about CD30 expression and DLBCL, but there's 2 abstracts actually that suggest the expression is somewhere between 20% to 25% of DLBCL patients express CD30. So applying that to the patient population, it's somewhere around 4,000 or 5,000 patients a year with DLBCL have CD30 on their tumors, and I'll hand it over to Tom to talk more about how the drug could be used.

Thomas C. Reynolds

So, Jason, we've been really pleased with what we're seeing in population that's currently under study. Where most of these patients are post transplant. They don't have many opportunities. There's not a good standard of care. And we're seeing a substantive response rate and we will be updating that, as well as we're watching the evolution of the durability. So this is looking quite exciting at this point. I think as we look forward on given the competition in the late-stage DLBCL patients, our eyes are turning toward evaluating front-line opportunity. We believe that given the data that we've presented with ADCETRIS in combination with CHP that, that's quite a tolerable regimen and we plan to explore inclusion of Rituxan in an ADCETRIS regimen, as well in the near term. This we think could enable us to contemplate the registrational study hitting ADCETRIS plus R-CHP against the standard R-CHOP. Now, we still have a lot of work to do about exactly which patients to target that are in highest need and could most benefit from this new front-line setting, but I think it's something we're seriously contemplating given the activity we've seen in this population, which doesn't have good alternatives at this point.

Operator

Our next question comes from the line of Cory Kasimov, JPMorgan.

Cory William Kasimov - JP Morgan Chase & Co, Research Division

Two questions for you. So first of all, can you tell us -- or give us a sense of what the sequential change was in underlying patient adds in 3Q net of the price increase you took in July? And then my second question is on the front-line Phase III study in Hodgkin's with the AVD. On the clinicaltrials.gov, it suggests the primary completion date there is 2017. Is there going to be an interim look ahead of that, and is there anything that you can share with us around the empowering assumptions in the study for the primary PFS endpoint?

Clay B. Siegall

As far as the sequential change in the numbers of patients we're adding, as your first question, we really don't go through that and we're not going to give specific patient numbers on that. And Chris, do you have anything you want to add to that?

Christopher S. Boerner

No, what I will say is that while we're not giving specific patient numbers, we were happy to see in Q3 that we did see broader use in terms of the number of accounts that are either using ADCETRIS for the first time or reinitiating the use of ADCETRIS. And again, as I mentioned previously, the underlying dynamics for Q3 have been the number of new patients who initiated therapy in the quarter relative to those patients who initiated earlier in the year or late last year and are coming off therapy due to natural course of their disease. And I think it's that underlying dynamics -- what you saw in the decrease in average order size for the quarter and that's really what's going on there.

Clay B. Siegall

And then your second question in front-line plus ABD, where it says in clinicaltrials.gov, it says 2017, that's approximately within the 4 to 5 years that we guide it even on this call. And so I'm not sure what the question is that some -- correct statement.

Cory William Kasimov - JP Morgan Chase & Co, Research Division

Is there going to be any sort of interim look that you want to see ahead of that?

Clay B. Siegall

There is not an interim look built into the trial.

Operator

Our next question comes from the line of Howard Liang of Leerink Swann.

Howard Liang - Leerink Swann LLC, Research Division

Just on the -- I think you've given the penetration estimates of 50% to 60% in the post-transplant setting I think 45% transplant eligible setting. What is preventing the share to increase more to, let's say, why not 100%?

Christopher S. Boerner

It's not unexpected question. So we do continue to see incremental growth in market share across all lines of segments. So I think that's an important point. But as I mentioned earlier, you have to keep in mind that the largest segment of that as it translates into revenue is a segment in which you have upwards of 50% penetration right now. So while you do expect to see growth, how that translates into actual sales is, as we said, likely going to be incremental sales. In terms of what sort of is the barrier to the increase in utilization in the post-transplant setting, I think I highlighted a couple of things. One is that a lot of the patients who are out there are still scattered across community accounts and we've got to go out and help physicians to identify those patients. The good news is we start from a great base. There's broad awareness of the drug, broad understanding of the drug, and for those physicians who've utilized it, they've had great experiences. So that's one thing. The second thing is, keep in mind that in a lot of these smaller community accounts, there's been nothing approved in this space in 30 years. So there is a natural hunkering down to what they've used previously and we're going to have do get in and educate physicians on that. But again, that's more isolated to community accounts and that's really where our focus is. But those are really the 2 major areas where we would see potential hindrances but they're certainly overcomeable.

Howard Liang - Leerink Swann LLC, Research Division

And for your CD30-positive non-Hodgkin lymphoma trial, I think that you targeted something like 75 to 80 patients. Of that, how many will be diffused large B-cell lymphoma patients and how many patients will receive data on that ASH?

Thomas C. Reynolds

More than half of the patients are B-cell lymphoma patients with the majority of them being in the DLBCL space. We are doing very well with accrual and you will see a substantive update in data. We're really excited about what we're seeing. So we hope you are too.

Operator

Our next question comes from the line of Thomas Wei with Jefferies & Company.

Thomas Wei - Jefferies & Company, Inc., Research Division

On the actual commercial sales, I guess I was wondering if you could say what the average duration of therapy is and what the penetration is like among those academic centers where you had mentioned things are tracking higher. And then just on to B-cell lymphoma, because I don't understand why you're not going to develop relapse refractory as an indication. I'm not sure how many of these other competing therapies you're talking about are having 40% to 50% response rates.

Clay B. Siegall

Okay. Thomas, there's 2 questions there. First of all on duration, the duration data is generally still early because we rely on patients who've completed all those therapy. And so we're not there yet with as much data as we like to have. We hope to be able to provide more information in the coming quarters. I can share a few things. Duration is a little lower than what we've seen in our pivotal studies. We've mentioned this before. This does suggest we have continued opportunities to work with doctors here. And the duration numbers that we've seen thus far and the qualitative interviews with physicians suggest that our customers potentially in the community setting, are responding to our promotional efforts and they're willing to treat that in a more consistent way with our label. As we've noted previously, the changing duration therapy behavior can be challenging and thus, we in the commercial setting continue to put significant effort there. Now as far as DLBCL and your question, we did not say that I don't think we said that relapse refractory as an indication was something we were not going to go after. I think that is on the table still for going after. Tom, do you want to add anything to that?

Thomas C. Reynolds

It's Tom. If I was confusing about that, my apologies. We are very interested in front-line. We are contemplating how to move forward in the relapse refractory space in DLBCL. We know it's competitive. We know there's currently no really good well-accepted standard of care that would facilitate a regulatory study. So we're trying to consider how to navigate that. We're doing quite a bit of work with key opinion leaders to better understand their perspectives and how we can develop this drug. What they've uniformly told us that if we can show sustained durable responses that are 30% or better in this population, it's something they're quite interested in. And clearly, that's what we showed in the abstract and we'll be updating that further at ASH. So we remain very excited about this. We're really trying to optimize our development strategy across this multiple indications. So stay tuned for that.

Operator

And our next question comes from the line of Rachel McMinn of Bank of America Merrill Lynch.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

I wanted to follow up on the guidance a little bit and then also on discontinuation if I could. I guess, the low end of the guidance actually implies further sequential declines. So are we to take away that it's nothing to do with new starts, it's still more of the potential discontinuations from the bullets that you had earlier in the year working through, if that's what we are going to see in 4Q. And then just, Clay, on the discontinuations, do you have a sense even that you're not talking about retail duration, why patients are discontinuing? Is it primarily just to get a great response to stop therapy prematurely?

Clay B. Siegall

We'll address both of those questions. Let's start with the discontinuation first. Tom, would you like to talk a little bit more about what we see in patients?

Thomas C. Reynolds

Yes. So what we've heard from the field, I'll start and maybe turn it over to Chris for his perspective, is that often, physicians here are used to treating to best response or best response plus 2. A lot of patients get a best response, they get a CR or a very strong PR and that's the culture in chemo. And so we're working to change that but that is clearly an issue. There are some people, some patients who have adverse events. We've been surprised looking at some of the chart audit data about how few of those were seen in the real world. So that actually feels very good. And then for some of these patients that are on a bit longer, there's a preference thing. They've been on for 6 months or so and they want to go and do other things in their life and go off therapy. So I think those are some of the major drivers. Chris, do you have some additional color?

Christopher S. Boerner

Yes. I think Tom's hit it right in terms of the reaping that we're seeing based on the chart reviews we've done for discontinuations. We're encouraged the number of physicians who are treating just the best response is a little lower than we had anticipated. They're showing a willingness to move beyond that, which is great. We still have our work cut out for us in changing duration of therapy mindset in this space as we've talked about previously. But we're seeing some positive signs there. With respect to the discontinuations, I think you've characterized it correctly that we continue to see patients who initiated therapy earlier in the year start to come off therapy. And so the trick to grow the brand commercially on-label is to make sure that you're continuing to bring new patients on at a higher rate than those patients who are coming off, and the positive sign there is that penetration in our on-label segments is really quite good.

Clay B. Siegall

And the second part of the question was about the guidance, and we're really -- I mean as we've been guiding, we're guiding to relatively flat sales for ADCETRIS and we've really gone out there and had a great launch. We feel great about this product, but we wanted to be as accurate as we can with our guidance.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

So Clay, just a follow-up then. With all of these factors influencing the launch and things maybe being a little bit different than where your mind is at, at the beginning in the year, is there any change in your view of the size of the Hodgkin's lymphoma market beyond just as indication, but as you go in to maintenance and other types of things using that in some of your initial projections and that $1 billion number, do you have any loss of conviction in that number or kind of change your view?

Clay B. Siegall

We really don't have a change of view globally about ADCETRIS. We -- in fact, if anything, our view is more exciting, more and more exciting with ADCETRIS than ever. This is a great product. It really works in patients. It's not incremental. Doctors love using it. The rate of doctors who are favorable to it is 97%. There's are some higher than that. I mean, it's a very high level. We're really excited with it. It's been 3 decades since there's been a Hodgkin lymphoma drug. There wasn't a lot of great data out there for us to draw on in the past. We're really in uncharted territory for determining and figuring out how many patients there are and how many in the pool there are. And so, we're trying to be as exact as possible. We see many, many uses for this drug. We already know that at least 4 other lymphomas we have strong activity, and we're not improved in those 4 lymphomas at the present time, but we have plans to try to very much broaden the label that we have in lots of different ways. So we are very excited, yes.

Operator

Our next question comes from the line of Mara Goldstein of Cantor Fitzgerald.

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

I guess, I'm just trying to get as well, with many, a little bit better sense of where the reduction in guidance is stemming from a quantitative basis. How much is related to a penetration issue versus a duration of therapy. And just to also confirm, the commentary that you gave on the number and of orders, the size of orders, that's an absolute decline as opposed to just a deceleration, if you can just confirm that for me.

Clay B. Siegall

I'll start and turn it over to Chris. I think that there is some market penetration we can work on. If we had a drug for a very large indication, colon cancer, lung cancer, and we told you we were nearing 60% market penetration in our first year, we would be getting a lot of applause for that. This is a smaller market opportunity. We think we can grow it past 60%. We think that's very good. The launch was very successful from that front in the first year. So we are working hard to do that and we think there's room there. As far as the duration, we think that docs went to the paradigm that they were used to using, as Tom explained, and we're working with them on it because our data and the durability of our responses in our trials were based on a certain amount of duration of doses. And docs have to understand that, that's the data that we can stand behind. Those data are one our reps can talk about and stand behind and that's what in our label. And if they go away from that, there could be implication. So we have to just share with them what our data is and what we believe is the appropriate use of this and not fixing it to any paradigms of the past. So we believe that both, and thank you for the question, but both in the market penetration and the duration, we believe there's room to increase that. The second part of the question, Chris?

Christopher S. Boerner

Mara, can you repeat the second part of your question, because I'm not certain we got it here.

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

Sure. You had just mentioned the decline in those number of orders and size, and I just wanted to confirm whether that was absolute or was it just a deceleration in the rate of orders and size of orders.

Christopher S. Boerner

It's just quarter-to-quarter on average. The average size of the order and the average number of orders decreased quarter-over-quarter, which is what's accounting for the decrease in sales. I will say one positive around that though is that those accounts that discontinued the use of the prior or reduced the amount of use are also, in many cases, accounts that have used the drug and used a lot of the drug previously. So we're not concerned about the underlying dynamics of excitement for the drug, enthusiasm for the responses they're getting, all of the indicators on that are very positive and we think that what happened to those specific accounts was an issue with respect to patient volume this quarter.

Operator

Our next question comes from the line of Alan Carr with Needham & Company.

Alan Carr - Needham & Company, LLC, Research Division

A couple of them. One, are you aware of other investigator-initiated studies that are looking at CD30 prevalence cross, other indications like DLBCL that's going to be at ASH. And then, I do think this has been explicitly asked, but is incidence of the labeled indications were you expecting or a little less?

Clay B. Siegall

As far as ISTs and other indications, I believe that was your first question at ASH, Tom, do you like to comment on these different potential indications that we could -- we reflected in IST?

Thomas C. Reynolds

Yes. So we're clearly looking at CTCL. Obviously, we've got really strong data there. The non-Hodgkin lymphomas, both the T-cell lymphomas and the B-cell lymphomas look good and there's an investigator presentation on mass, systemic mass cytosis, which is encouraging and driven out of our study, screening study. What I think you'll see in the new year is more a result out of the screening study and how this translate into activity in clinical subpopulations of solid tumors, leukemias and other disease states. In addition, we're pursuing a number of ISTs in graft versus host disease, where CD30-positive T-cells may play a role in those aggressive diseases. And so we're just starting that out. So there should be a panel for your data emerging over the next 12 to 18 months that really help us understand the role of ADCETRIS in other CD30 diseases.

Alan Carr - Needham & Company, LLC, Research Division

Just to clarify a little bit, one of the DLBCL studies, as you indicated before in the call, 20% to 25% are CD30-positive. Are there other studies like that? I know you have a 3,000-patient won in non-lymphoma tumors, but are you aware of other investigators out there that are also looking for CD30 prevalence across cancers?

Thomas C. Reynolds

So there's other work that our partner Millennium is working on with other institutions to identify additional populations. I can't really speak to that but at some point, they would be putting those data out. So we've got a pretty broad effort and we continue to receive IST proposals very frequently from investigators either to look for CD30 or if it's known like in post-transplant lymphoproliferative disorder, that's an area that people are wanting to study because those are known to be CD30-positive. This is going to be, as Clay mentioned, like Rituxan and CD20. Once there's a drug that targets that molecule, people are going out and looking for where it is and trying to figure out ways they can use ADCETRIS because I think it's a great drug.

Alan Carr - Needham & Company, LLC, Research Division

And then regarding the incidence question, is it at the level that you expected to be or less?

Thomas C. Reynolds

For DLBCL, absolutely...

Alan Carr - Needham & Company, LLC, Research Division

For on-label indications.

Clay B. Siegall

Let me answer this. So the incidence is exactly where we thought it would be. Let me even restate more from Rachel's question. When we talk about the future of this product and how we're excited with it and we're confident with the future of the product and the market opportunities that we think this could be $1 billion plus brand, we're talking about based on the incidence models of -- in these future plans that we have for the different diseases and front-line, et cetera, not based on any prevalence model. So prevalence is something that is a little harder to figure out in some of these diseases. So we think that with Hodgkin lymphoma now, as we said on the call and in our prepared remarks, we're really going more and more toward where we have this incident base that we can rely on that comes in, so we can understand what our sales will be and we could go ahead and work on things like duration and market penetration and increase on-label sales. Over time, we believe we'll get additional labels. We'll get additional uses like retreatment and extended duration. We're working hard to get cutaneous lymphoma and we have tryouts like AETHERA and other trials that will come -- will get them blinded over the next few years, all in front of our front-line. But it's really incident that we believe that this will become a multibillion-dollar brand.

Operator

Our final question comes from the line of David Miller with Biotech Stock Research.

David D. Miller - Biotech Stock Research, LLC

First question is, can you talk a little bit about how insurers are viewing retreatment? Are they covering it kind of under the implied relapsed refractory label or are they not covering it at patients maybe have kind of have used the number of doses up that's suggested on the label?

Clay B. Siegall

It's a very interesting question and it's an appropriate question. And certainly, under our label, which allows for up to 16 cycles, there are ways that docs could come and use the drug and then use it again in patients. But I'll let Chris comment on a little bit more of the color of what the docs can do and why a label is important for us.

Christopher S. Boerner

Just to be clear, we're currently not promoting to retreatment and that's important. That's one of the reasons that we wanted to get this on-label potentially next year and Tom's team is working closely with the FDA to do so. In terms of what payors are saying now, there have been very few, just to put this in context, patients who've gotten to 16 cycles as commercial patients and have gone on to pursuing their extended therapy or a come up therapy and come up for retreatment. That said, the cases we know of, particularly around retreatment, have gone through with limited, if any pushback from payors. Keep in mind, this is a relatively small patient pool that we're talking about here. And in general, as long as physicians are willing to make a case for those patients we've seen it go through. But again that's not a certainty and it's something that we want to make sure that we can get on-label so that we can take all of the uncertainty out of those types of cases.

David D. Miller - Biotech Stock Research, LLC

All right. And then I just want to reask the question that was asked earlier. You said, you expect that 2013 U.S. revenues would be flat, and I just want to clarify that, that means that it would be flat with your new 2012 guidance of $132 million to $137 million?

Clay B. Siegall

Keep in mind, what we said was on-label U.S. sales and flat to the guidance we just gave.

David D. Miller - Biotech Stock Research, LLC

Okay. And then last one is, you didn't happen to mention the Agensys prostate and pancreatic cancer, so I was just wondering where the update is on that.

Clay B. Siegall

Phase I trials ongoing in a variety of different indications, and we will update those trials as appropriate as data come rolling in, absolutely, but they're still active.

Operator

At this time, I'd like to turn the conference back to Ms. Pinkston for any closing remarks.

Peggy Pinkston

Okay. Thanks, operator and thanks, everybody, for joining us this afternoon. Have a good evening.

Operator

Ladies and gentlemen, if you would like to listen to the replay of today's conference, please dial 1 (800) 406-7325 or (303)-590-3030, using the access code of 4570300, followed by the pound key. This does conclude the Seattle Genetics Third Quarter 2012 Financial Results Conference Call. Thank you for your participation. You may now disconnect.

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