Seattle Genetics Management Discusses Q2 2013 Results - Earnings Call Transcript

| About: Seattle Genetics, (SGEN)

Seattle Genetics (NASDAQ:SGEN)

Q2 2013 Earnings Call

July 31, 2013 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

Eric L. Dobmeier - Chief Operating Officer and Corporate Secretary

Analysts

Jason Kantor - Crédit Suisse AG, Research Division

Thomas Wei - Jefferies LLC, Research Division

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Matthew Roden - UBS Investment Bank, Research Division

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

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

Howard Liang - Leerink Swann LLC, Research Division

John S. Sonnier - William Blair & Company L.L.C., Research Division

Lisa Zhang - Goldman Sachs Group Inc., Research Division

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Seattle Genetics Second Quarter 2013 Financial Results Conference Call. [Operator Instructions] This conference is being recorded today, July 31, 2013. I would now like to turn the conference over to Peggy Pinkston, Senior Director, Corporate Communications. Please go ahead, ma'am.

Peggy Pinkston

Thank you, operator. I'd like to welcome all of you to Seattle Genetics Second Quarter 2013 Conference Call. With me today are Clay Siegall, President and Chief Executive Officer; Todd Simpson, Chief Financial Officer; Eric Dobmeier, Chief Operating Officer; and Chris Boerner, Senior Vice President, Commercial. Following our prepared remarks today, we will open the line for questions, and if we're unable to get to all of your questions, we will be 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 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.

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

Clay B. Siegall

Thanks, Peg, and good afternoon, everyone. I'm delighted to update you today on the progress we are making with the commercialization and broad clinical development of ADCETRIS and on the advancements with our robust product pipeline and the ADC technology.

Some key highlights include: ADCETRIS is now approved in 35 countries, including most recently in South Korea under our collaboration with Takeda/Millennium. We initiated a clinical trial in AML with SGN-CD33A and ADC using our new proprietary technology. We submitted an IND for another ADC, SGN-LIV1A, positioning the program for a Phase I trial in breast cancer to begin this year.

We exercised our option to co-develop an additional ADC program with Agensys/Astellas ASG-15ME and we entered into a new ADC collaboration with Bayer.

ADCETRIS net sales in the second quarter were $35.7 million and were $69.7 million for the year-to-date. We ended the second quarter in a solid cash position with $338 million in cash and investments compared with $344 million at the end of the first quarter. This modest burn reflects cash inflows from ADCETRIS sales, royalty revenues and collaboration activities.

Today, I'll highlight the progress we and our collaborator, Takeda/Millennium, are making on our broad ADCETRIS clinical development program. Next, Chris will update you on our ADCETRIS commercial activities, and then Todd will discuss our second quarter financial results. Lastly, I'll provide a brief review of our ADC pipeline and collaborator progress before we open for questions.

I'll begin with an update on our activities outside of the U.S. In the first quarter, we received approval and launched ADCETRIS in Canada. We are now focused on securing reimbursement coverage. In parallel, Takeda/Millennium is executing on their ADCETRIS launch by actively pursuing pricing and reimbursement application across the European Union, having achieved coverage in many countries to date. ADCETRIS was also recently approved in South Korea, and Takeda/Millennium continues to pursue regulatory approvals in other countries, including Japan, where a new drug application was submitted earlier this year.

From a label expansion perspective, ADCETRIS is the focus of a broad clinical development program to investigate its use in earlier lines of therapy for Hodgkin's lymphoma and mature T-cell lymphomas and in other CD30-positive diseases, including cutaneous T-cell lymphoma and diffused large B-cell lymphoma.

Our development program is intended to generate clinical data and support label expansion opportunities over the course of the next several years.

Let me first update you on our supplemental BLA that was accepted for filing in May. We have had interactions with the FDA this week on the application, and we anticipate that the 16-cycle limitation on a duration of use will be removed from the ADCETRIS prescribing information. As a result, our label would indicate that ADCETRIS can be used until disease progression or unacceptable toxicity. The FDA did not approve a new labeling claim for ADCETRIS in the retreatment setting. We are planning to discuss this further with the agency to determine what data would be needed to support a retreatment claim.

In parallel, we plan to submit the retreatment data for review by guidelines committees for potential inclusion in compendia. As a reminder, our data indicate a 70% objective response rate among retreated patients with a manageable safety profile.

I'll now move to ADCETRIS in cutaneous T-cell lymphoma. Data from 2 ISTs evaluating ADCETRIS in relapsed CTCL patients were recently submitted to the NCCN Guidelines review committee. Although we believe the data are strong, these are small data sets and we have not yet submitted a peer-reviewed publication, which is often a gating item for compendia.

In parallel, we and Takeda/Millennium are conducting the Phase III ALCANZA trial intended to support registration in relapsed CTCL. This is a global, randomized Phase III study in CD30-expressing CTCL patients to evaluate single-agent ADCETRIS versus physician's choice of methotrexate or bexarotene.

The primary endpoint is objective response rate with duration of at least 4 months. This trial is being conducted under an SPA agreement with the FDA and received scientific advice from the EMA.

We are also evaluating ADCETRIS in multiple types of T- and B-cell non-Hodgkin lymphoma, most notably, diffused large B-cell lymphoma. We have been very encouraged by interim DLBCL data from our ongoing Phase II trial, which showed a 44% response rate and 81% of patients achieving tumor reduction. Our data from this trial continues to mature, including duration of responses. We have added 2 additional arms to the trial that are enrolling relapsed DLBCL patients. One arm is assessing activity and safety of the combination of ADCETRIS and Rituxan. Another arm is evaluating single-agent ADCETRIS in patients whose tumors do not express detectable CD30, using standard immunohistochemistry methods. This will allow us to further explore the interim data that have been reported from this trial, demonstrating objective responses in patients with varying levels of CD30.

Based upon the promising response rate observed in the relapse setting and to accelerate our development pathway, we plan to initiate a Phase II trial this quarter to evaluate ADCETRIS, plus R-CHOP in newly diagnosed DLBCL patients. This trial is designed to assess objective response rate, complete response rate and PFS, as well as the safety of adding ADCETRIS to the frontline standard of care. The trial will be open to high-risk patients, including those who have low or undetectable CD30 by IHC. Our goal is to ensure that we evaluate the potential for ADCETRIS to serve the broader DLBCL patient population. We believe there is a meaningful opportunity for ADCETRIS in this disease.

In the T-cell lymphoma setting, we and Takeda/Millennium are conducting ECHELON-2, a frontline trial in MTCL comparing CHOP to ADCETRIS plus CHP. The trial is being conducted under an SPA with the FDA and received scientific advice from the EMA. The planned enrollment is 300 patients and the primary endpoint is PFS. Data from an ADCETRIS Phase I combination trial in MTCL that were reported at ASH provided a strong rationale for the evaluation of ADCETRIS plus CHP in this setting.

Moving on now to our work with ADCETRIS in Hodgkin lymphoma. Our corporate studies are focused on 2 key areas: post-transplant Hodgkin lymphoma and frontline Hodgkin lymphoma. In the post-transplant setting, our Phase III AETHERA clinical trial is assessing ADCETRIS compared to placebo in 329 Hodgkin lymphoma patients with increased risk factors for disease progression after autologous transplant.

We are evaluating whether ADCETRIS can extend progression-free survival, or PFS, in a consolidation or maintenance-type setting for these patients. AETHERA finished enrollment at September 2012 and all patients are scheduled to complete treatment this quarter. As previously described, the current rate of progression in the trial suggests that reaching the targeted number of events is likely to extend into 2015. We are continuing to work with Takeda/Millennium to evaluate options that can enable unblinding of the data before the end of 2014, while maintaining the integrity of the safety and efficacy evaluations from this trial.

This is an important decision that we intend to work closely with our collaborator and applicable regulatory agencies to develop the appropriate path forward for this trial.

In frontline Hodgkin lymphoma, we are conducting the Phase III ECHELON-1 trial in conjunction with our partner Takeda/Millennium, which is comparing the standard frontline treatment of ABVD to ADCETRIS plus AVD. Our goal is to potentially redefine the frontline regimen by increasing antitumor activity through the addition of ADCETRIS and decreasing pulmonary toxicity by removing bleomycin. Our Phase I data from ADCETRIS, in combination with AVD, has provided compelling support for this approach. ECHELON-1 is being conducted under an SPA with the FDA and received scientific advice from the EMA. The planned enrollment is 1,040 patients with a primary endpoint of PFS.

We are also evaluating single-agent ADCETRIS in frontline Hodgkin lymphoma to a Phase II trial enrolling patients aged 60 or older who are unable to tolerate combination chemotherapy. We expect to report clinical trial results in 2013 from this corporate trial, which will inform our strategy for its potential use in this subpopulation of newly diagnosed Hodgkin patients.

As a final comment, it has been recently noted that pancreatitis was observed in some Hodgkin lymphoma patients treated with ADCETRIS. We've done an extensive review of data from our clinical trials, as well as the FDA error safety database for patients treated with commercial drug, and determined that the reported incidence of pancreatitis in all patients treated with ADCETRIS is approximately for 0.16%, or roughly 1 in 600. Pancreatitis is among the safety findings for multiple oncology drugs, including Gleevec, REVLIMID, Sutent and YERVOY. There is no currently established causal relationship between ADCETRIS and pancreatitis. We do not believe that this relatively low risk of pancreatitis affects our broad development plan or the commercial potential for ADCETRIS.

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. In the second quarter of 2013, ADCETRIS net sales increased 5% to $35.7 million. This increase reflects both the growth of approximately 3% in vials sold and a decrease of about 2% in gross-to-net discounts for the quarter.

The primary growth driver for ADCETRIS in the U.S. in the second quarter was an increase in market share across multiple lines of therapy in HL, as well as in ALCL. Based on our most recent market data, the penetration rates in all of our on-label indications now exceed 70%. These results highlight that ADCETRIS has become the standard of care in its approved settings.

While we do not promote ADCETRIS outside of our labeled indications, we did see in the first half of 2013 an increase in use in several unapproved areas. This includes growth among patients that physicians intend to take to transplant and in first relapse Hodgkin lymphoma patients. Physician interest in another CD30-positive disease areas also remains high, though we do not believe that use outside of HL and ALCL constitutes a significant part of our business today.

With ADCETRIS now entrenched as standard of care in our approved indications, our commercial priorities focus on continuing to drive duration of therapy consistent with our label. We are also actively engaging key opinion leaders to develop advocacy for appropriate duration of use and to leverage those KOLs to educate the broader community.

Turning now to Canada. Physician interest in ADCETRIS continues to be strong. We are working with the pan-Canadian Oncology Drug Review committee on their final recommendations for use of ADCETRIS in HL and ALCL. We are also actively engaging with Canadian provinces on ADCETRIS reimbursement. We continue to expect provincial reimbursement to begin coming online in the second half of this year.

Overall, the commercial team continues to execute exceptionally well and is focused on ensuring that every appropriate patient has access to ADCETRIS and that the product is used consistent with our label.

I will now turn the call over to Todd to review our financial results for the quarter.

Todd E. Simpson

Thanks, Chris, and thanks, everyone, for joining us on the call this afternoon. Our financial performance in the second quarter was strong, and we ended the quarter with more than $338 million in cash and investments. This is a decrease of approximately is $6 million from the end of the first quarter and reflects the positive impact of cash flows from ADCETRIS sales, royalty revenues and collaboration activities during the second quarter.

Total revenues for the second quarter of 2013 were $73.6 million, which included ADCETRIS net sales of $35.7 million. For the year-to-date, total revenues were $130.9 million, including ADCETRIS net sales of $69.7 million. We also recorded royalty revenue of $3.5 million in the second quarter and $5.9 million for the year-to-date in 2013, following ADCETRIS approval in the EU last year. As a reminder, we report royalty revenues 1 quarter in arrears.

Second quarter 2013 revenues also reflect increased collaboration revenues that totaled $34.3 million related to our ADC collaborations and our ADCETRIS collaboration with Millennium. In Q2, we recorded $12 million in revenue related to the initial payment received under our new ADC collaboration with Bayer.

Second quarter revenues also include the earned portion of payments for ADCETRIS product supply to Millennium, which increased during the quarter. Because of these factors, which are not expected to continue beyond 2013, we are increasing 2013 collaboration revenue guidance to $85 million to $95 million.

As Chris mentioned, ADCETRIS gross-to-net discount decreased to approximately 11% in the second quarter compared to approximately 13% in the first quarter of this year. These adjustments are driven by government discounts, primarily the PHS and Medicaid programs. Gross-to-net discounts vary quarter-to-quarter and decreased in the second quarter, primarily due to lower utilization of ADCETRIS by PHS-eligible sites compared to the first quarter of this year.

Gross-to-net discounts in 2012 were approximately 12%, and we continue to expect a modest increase overall in 2013. Cost of sales continued to be less than 10% of net sales, primarily reflecting royalty costs at this time, as we continue to benefit from the sale of ADCETRIS product that was manufactured prior to FDA approval. This benefit is diminishing as that product is utilized.

As previously guided, we expected ADCETRIS cost of sales, as a percentage of net sales in 2013, will increase into the 10% to 12% range, and eventually, into the low to mid-teens.

R&D expenses were $52.3 million in the second quarter of 2013, an increase from $42.8 million in the second quarter of 2012. This reflects spending for ADCETRIS development activities, as well as increased investment in our other ADC programs. It also includes the cost of ADCETRIS drug supply to Millennium for its clinical and commercial use, as well as establishing its own supply chain. We are reimbursed for this material at cost plus markup. And as I mentioned, this reimbursement contributed to an increase in collaboration revenue during the quarter.

Noncash share-based compensation expense for the first half of 2013 was $13.4 million compared to $11.6 million for the first half of 2012. In addition, SG&A expenses were up modestly year-over-year, primarily attributable to ADCETRIS sales and marketing activities.

So we had a strong second quarter financially and operationally. To put this into context, we recorded record high revenues driven by sales, royalties and collaborations. We continue to invest in expanding the ADCETRIS franchise and in advancing several new ADCs into the clinic in 2013.

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

Clay B. Siegall

Thanks, Todd. Next I'd like to provide a brief review of our clinical development stage pipeline. SGN-CD19A is a CD19-targeted ADC that recently entered 2 Phase I trials, 1 for acute lymphoblastic leukemia and 1 for B-cell non-Hodgkin lymphoma. These trials are designed to assess the safety and activity of escalating doses of SGN-CD19A in these aggressive hematologic malignancies.

SGN-LIV1A is another auristatin-based ADC that uses the same drug linker as ADCETRIS. We recently submitted an IND for SGN-LIV1A and a Phase I trial in breast cancer is planned to start by the end of the year.

And a third ADC using a new proprietary technology, SGN-CD33A, is the latest program we have advanced into the clinic. SGN-CD33A targets CD33, a well-characterized antigen for acute myeloid leukemia. It utilizes a highly potent cell-killing agent called a PBD dimer that works by a different mechanism than auristatin, a novel linker system and a proprietary, site-specific conjugation technology we call EC-mAbs. The unique -- the unmet medical need in AML is significant, and we look forward to evaluating SGN-CD33A in this Phase I dose escalation trial.

Turning now to our joint efforts with Agensys/Astellas. We and our partner recently made a decision to discontinue further developments of ASG-5ME. This program was evaluated in Phase I trials for prostate, pancreatic and gastric cancers. While ASG-5ME demonstrated a manageable safety profile and there were signs of single-agent activity in these 3 cancer types, we have decided the data did not support further clinical evaluation of this program. Our collaboration with Agensys/Astellas remains strong as evidenced by our ongoing ASG-22ME Phase I trial, as well as our recent decision to exercise a co-development option for additional -- for an additional ADC, ASG-15ME. This ADC targets a novel antigen that is expressed on bladder and lung cancer. Agensys submitted an IND for ASG-15ME and we expect to initiate a Phase I trial in bladder cancer during 2013.

In total, across our proprietary product pipeline, we are on track to advance 4 new ADC programs into the clinic during 2013.

During the second quarter, there was also progress under our ADC collaborations. We entered into a new deal with Bayer to provide them with access to our technology for use with antibodies to several oncology targets, generating upfront and option exercise fees of up to $20 million. We are also eligible under the deal to receive up to approximately $500 million in milestone payments, as well as royalties on worldwide net sales. And Genentech reported data at ASCO from 2 ADC programs using our technology. This included multiple objective responses in a Phase I clinical trial of an ADC for ovarian cancer and in a Phase I trial of an ADC for prostate cancer. These are in addition to data presented by Genentech at AACR in April from a Phase I trial of another ADC for advanced ovarian cancer utilizing Seattle Genetics' technology.

Milestone payments were also generated by preclinical programs under our ADC collaborations with GlaxoSmithKline and AbbVie. And Genmab announced its submission of an IND for a Phase I trial of an ADC to treat multiple solid tumors. We have the rights to opt in to co-develop this ADC with Genmab at the end of Phase I.

Across all our ADC collaborations, we have generated more than $225 million to date and we have the potential to receive more than $3.5 billion in milestones plus royalties. The momentum by Seattle Genetics and our collaborators illustrates the significant potential that ADCs have in the future of cancer therapy and reinforces our leadership position in the field.

I'm very excited by the progress we are making across the company and about the opportunities for ADCETRIS, our product pipeline and our ADC technology to help cancer patients in need. We look forward to keeping you updated.

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] Our first question comes from the line of Jason Kantor with Crédit Suisse.

Jason Kantor - Crédit Suisse AG, Research Division

The question -- I guess, my first one is on the regulatory side. When exactly does the new language go into the label? And have you seen already that people are limiting themselves based on the label? Are payers limiting how much you can give based on the label? Do you expect that this will actually grow sales? And then what do you need to do, do you think, in order to get retreatment approved?

Clay B. Siegall

As far as the language going into this, the FDA has indicated us that the 16-cycle limitation will be removed from the label. But once it becomes official, it then it would be into the prescribing information. And the second part of your question, Jason?

Jason Kantor - Crédit Suisse AG, Research Division

Well I was interested in understanding if people are limiting the use of the drug currently based on the label, if payers are stopping payment after the 16 cycles? If this really represents a growth opportunity for you in Hodgkins?

Clay B. Siegall

Okay. Chris from Commercial will answer that.

Christopher S. Boerner

Jason, it's a good question. So currently, it's a relatively small number of patients who have actually started to hit that 16-cycle that's currently in the label. We have not seen, for those patients who have gone beyond 16-cycle, significant pushback on the payer side at this point.

Jason Kantor - Crédit Suisse AG, Research Division

Okay. And what do you need to do to get the retreatment on the label? Do you have any kind of guidance there? Any kind of clue?

Clay B. Siegall

We have had interaction with the FDA. There are ongoing interactions. We plan to discuss further with agency what data would be needed to support a retreatment claim. But in the meantime, we plan to submit our retreatment data to compendia guidelines review committees for consideration, and that's where we are.

Operator

And our next question comes from the line of Thomas Wei with Jeffries.

Thomas Wei - Jefferies LLC, Research Division

And just a follow-up on the retreatment question and then one on pancreatitis. So on the retreatment rejection by the FDA, I guess, I'm a little bit confused. Can you say, was it just that you didn't have enough patient exposure? Or is there a specific concern that the FDA wants you to address with a new set of data? And then on pancreatitis, I was curious if you would be able to share with us any additional details you learned around that one particular case of pancreatitis and any factors you that you think might be helpful to mitigating some of the concern that was raised around that?

Clay B. Siegall

Sure. So we'll start with retreatment. We have -- we are in ongoing discussions with the FDA, Thomas. So it would not be appropriate to talk about specific things. Keep in mind that our sample size was not huge. Now we are excited with our data. 70% re-responses in retreatment is higher than what Genentech saw with Rituxan to get retreatment added to the label. Our number of patients was not that high. And as previous -- in previous conference calls, we've been asked questions and it was related to potentially the 16-cycle cap, which seems to be -- which will be out, soon, of our prescribing information. And that was that, "Could patients come on, let's say, get 8 doses or 10 doses and could they come back and get retreated with more? And is that within label because it was within 16 cycles?" And so we've had this debate going on and we know that some doctors certainly have used it in that regard. They have put patients on and then the patients went off and then came back on within the 16 cycles. Having the 16-cycle cap gone to really put this hand -- in the hands of the doctor and the patient, who are saying, "When are you going to get ADCETRIS?" And then, "Do you need to get it again?" And not having this artificial cap, if you will, I think it's really the right way to do it and will end up being used correctly by the doctors and the patients. And we've been on the market for enough time now that the doctors are very comfortable with ADCETRIS. As Chris said, we have a good market penetration. And I actually think that the removal of the 16-cycle limitation could be very important for us to make sure that the patients are getting treated appropriately with ADCETRIS. The second thing you asked about was pancreatitis and are there any specific details or factors. And you can be sure that we look very, very closely at patients and safety is a big concern for us. But we know that many oncology drugs have pancreatitis among its safety findings. And we really don't believe this will have an impact on doctor's use of ADCETRIS. And we're studying this closely, but I have nothing specific from details or factors to say we can predict which patients get this very rare -- approximately 0.16% of patients having some pancreatitis. We just don't have anything specific at this point that we could give you with a factor or some sort of predisposition for it yet. But that doesn't mean we're not continuing to look and trying to do the best we can for safety of patients.

Operator

Our next question comes from the line of Rachel McMinn with Bank of America.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Clay, I just wanted to clarify a couple of other things. On AETHERA, it sounds like you're still kind of going back and forth. I was hoping you could give a little bit more insight, are you wavering at all from the 2014 -- the possibility of getting, or likelihood of getting data before 2015? And then on the compendia comments, it sounded like you were backing away from -- we shouldn't really be expecting CTCL to get through because of the lack of a publication? Am I understanding that correctly?

Clay B. Siegall

So let's do the first one, AETHERA. There's absolutely no wavering. I mean, it's a very exciting study. It is -- we are working closely with our partner, Takeda/Millennium, on this. We're following the data. Obviously, we don't have unblinded data, and -- but we're following the progressions -- the number of progressions. And we also have to work with multiple regulatory agencies, so this is a process, but there's absolutely no wavering on this. And we're excited to try to gain these data and see if we can really help patients in the -- with this consolidation or maintenance type of approach. I'm very bullish on this, but it remains to be seen what the exact data is on this. But absolutely no wavering on what we've said in the past.

Rachel L. McMinn - BofA Merrill Lynch, Research Division

I'm sorry, Clay, I don't mean wavering on the data, I meant on the timing of when it could read out.

Clay B. Siegall

No, no, wavering on the timing that it can read out. It's still looking into at least '15, and we're looking for approaches to try to, during '14, be able to review and see the data. But we don't want to compromise the integrity of the study at all. So we have to be very careful with that. But no wavering on the timeline to try do to do something earlier. If that's what you meant, no wavering at all there. And then as far as compendia and CTCL. To your comments, as we go forward, we've also done a lot of review of what really it takes to get into compendia, into guidelines, if you will. And when you look at most drugs that get into there, there's substantive amount of data. And we have 2 small -- relatively small trials. And we also don't have a peer-reviewed publication, which is often important. So we just wanted to qualify that these things have been important in the past. And just so that there could be fair expectations.

Operator

Our next question comes from Matt Roden with UBS.

Matthew Roden - UBS Investment Bank, Research Division

And I also want to ask a little bit about the plan with AETHERA. Can you be a little bit more specific about what types of actions you can take to move that forward a little bit faster? And I guess, we're talking about potentially a protocol amendment that would enable interim analysis, and I was just curious if you've gotten any sort of expert or regulatory feedback on any of those potential plans?

Clay B. Siegall

Sure. So what we've said previously pretty much is still what it is. We have considered something that would be in the second half of 2014 as an opportunity where we are now past our last prescribed scan for all patients. And so at that point, it's really just waiting for the events, the PFS events. And so we -- it would be an opportunity to not necessarily change any of the scans or things that go on in a trial, so it would be the least objectionable from a early look according to us and speaking with some experts that we bring in on this. I really don't want to comment on whether there's been any specific dialogue with the agency. Please note that we have to talk to -- we want to talk and engage in a discussion with our partner, and we have. We've engaged in many discussions with our partner, Takeda/Millennium, on this topic. I think that both Seattle Genetics and Takeda/Millennium are thinking very much alike here, that we're excited with AETHERA. We don't want to lose the integrity of the trial. That is the paramount thing that we're looking at here. And we -- but we also don't want to let some trial go on ad infinitum. And it is important for us to make sure that we provide a relatively timely feedback on this trial to benefit patients. So there's a balance to be had between patient benefit, time and making sure that trial has strong integrity. So there's -- as Rachel's question was and as yours -- your question is, we are -- clearly would like to at least take this through the second half of '14 to get through all the pre-prescribed scans. But after that, I'm very hopeful that we work out a great solution with our partner and regulators to take a look at this earlier than potentially when the PFS is hit, the pre-prescribed number for PFS. So I'm still excited to go down that path. I think there's a very good chance we will. We haven't fully said yet that we will, but -- because it takes a number of different parties to agree on that. But that's something we're looking at strongly.

Matthew Roden - UBS Investment Bank, Research Division

I really appreciate all the color. Maybe one follow-up, if I may, on the strategy side. Regarding the Bayer collaboration, too, I wonder if you can characterize at all the royalty structure of that deal? And should we expect to see more of these type of deals in what your technology has made accessible to third parties under these types of terms?

Clay B. Siegall

Sure, I'm going to turn that over to Eric Dobmeier, who runs all our business and corporate development work.

Eric L. Dobmeier

Matt, it's Eric. So on the Bayer deal, specifically, we haven't disclosed the exact royalty rates. But generally, our most recent deals have had royalties in the mid- to high-single digits. So as the technologies become more validated, the royalty rates have gone up. And we also disclosed obviously, that it was $20 million in upfront and option exercise fees, as well as over $500 million in milestone. So it's a strong deal for us. It's an expansion upon, or a follow-on to a deal we have with Bayer from a number of years ago, so it's a little bit different flavor of deal. The reason the upfront payment gets recognize all at once is there's not a research term under this deal because they have been working with the technology for so long. So that revenue recognition is a little different. In general, on ADC licensing, we've been doing 1 to 2 deals a year and it's been lucrative for us. We've brought in more than $225 million from those deals and more than $3.5 billion of potential milestones plus royalties. So they've been a good source of nondilutive capital for us. They've validated the technology in the earlier days and they strengthened some of our relationships. So I think you'll continue to see that type of number of deals. There are a number of targets out there that we can't access on our own. There are other reasons to do partnering. But again, our main focus is on our proprietary pipeline and these are deals that we do when they make sense with good partners.

Matthew Roden - UBS Investment Bank, Research Division

And just to clarify on that. I did get a question on this after the press release. I think it might be helpful to remind people the different ADC technologies, linker technologies that you actually have and why the auristatin platform was chosen for this particular collaboration?

Clay B. Siegall

Matt, I'll take that. Our auristatin program is a validated program. ADCETRIS is a drug that exists. It's real. From a manufacturing standpoint, from a trial standpoint, this is something you can really hold onto because -- and there are, I think, now more than something like 18 different ADCs that are in clinical development that utilize ADCETRIS. So the sum total of experience from a manufacturing quality, assays, safety, efficacy is large with ADCETRIS. Our other technologies are -- that we're developing, one that we've talked about, which uses the pyrrolobenzodiazepine dimers, or PBD dimers. We're very excited about it, but it's first entering clinic now. So while the preclinical data is exciting and we're really hoping to make a difference in the life of AML patients, who suffer from just one of the worst cancers out there. It is a brand new technology. And so it kind of makes a lot of sense for Seattle Genetics to explore new technologies sometimes and be the leader in that and have other of our collaborators working with the technologies once we validate them. So I think in that regard, it really makes a lot of sense.

Operator

Our next question is from Adnan Butt with RBC Capital Markets.

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

I'll start with 2 questions. The first, ADCETRIS shows a nice uptick. What's behind the uptick? Is it fair to say that it is pretty much on an incidence trajectory? And if that's the case, then based upon what you've seen in the first half, could you comment on guidance? And then the second question is a pipeline question. I just wanted to ask about your DLBCL strategy. There's a relapse refractory study ongoing and a newly-diagnosed DLBCL study being initiated. Are these all CD30-positive patients? What's the rationale behind combining with Rituxan and when would you expect some readouts from these?

Clay B. Siegall

Wow, that's a lot of questions.

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

That's 2 questions.

Clay B. Siegall

Two with subparts, but I like it. Good challenge. Good challenge. Okay. So let me start on one and then I'll turn it over to Chris for another one. So on the guidance, we're not prepared to change guidance that we have here of 1 30 to 1 40. And I do realize that at, I think 69.7, we're -- and Todd will correct me if I'm wrong, we're, for the first half, if you just multiply that, we're at the top end of guidance. But there are some things in there that we just don't know. We do know that the last quarter, as Todd said, were -- was a good quarter from a gross to net, but that changes sometimes. And sometimes, there are harder quarters and good quarters from gross to net, depending on where the orders come from. So we -- right now, I think, it just totally makes sense for us to just stick where we are and stick with our guidance, and we're continuing to learn about ADCETRIS and learn about the government discount programs and where orders come from and so that make sense for that. Now as far as the -- you asked about ADCETRIS and uptick in incidents and whatever, I'm going to turn it over to Chris to answer that part of the question. And then I'll come back and talk about the DLBCL after Chris speaks.

Christopher S. Boerner

Adnan, thanks for the question. And I think you've alluded to where the growth came from, which is, we -- the majority of the growth that we saw, at least in terms of the vial increase was driven by new patients coming on to therapy. We saw a nice increase in penetration, really, across all of our on-label segments. And we also saw some increase outside of these in -- outside of our labeled indications, mainly still though within Hodgkin lymphoma. In terms of looking forward, given where we are from a penetration standpoint, our main focus and where we think the majority of the growth on label will be, certainly for the remainder of this year, would be around driving duration of therapy. And so that's going to be the main focus, commercially.

Clay B. Siegall

Okay. And on the DLBCL strategy -- it certainly sounds like 3 questions. But on the DLBCL strategy, we have a number of different programs going and our relapse refractory program is going well. We reported a 44% response rate, 81% of patients with tumor reductions. We added 2 arms to that. One arm in combination with Rituxan, which is still widely used in that disease. It made a lot of sense and our KOLs really asked for it. And the second thing was making sure we were looking in patients that had the low or undetectable CD30 to try to find out -- since we knew there were some patients that have been treated with low and undetectable CD30 that did respond and responded well. We want to characterize that in enough patients to really get a handle of it. And going to the newly diagnosed frontline, we're really excited to combine ADCETRIS with R-CHOP. And it's -- we had a lot of KOLs that were very eager to do something there. They thought it just made a lot of sense. We did as well. R-CHOP is standard of care and the potential to try to provide increased therapeutic benefit for DLBCL patients is exciting to us. We know that only roughly 50% of DLBCL patients are cured by frontline therapy. And there gives us a lot of opportunities to get better and have something better for these patients, for the other 50% that are not. So to us, it made a lot of sense to go forward with that and I hope that addresses your question.

Operator

Our next question comes from Cory Kasimov with JPMorgan.

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

Two of them for you. First of all, with your comments on compendia and the burden of proof there, how confident are you that retreatment can get into compendia given the FDA feedback you have at this point? And then the second question I have is on your pipeline and I wanted to ask about CD33A for AML, in particular. I'm wondering if you can provide some details of that Phase I study. I assume it's pretty standard dose escalation trial. But if it generates some compelling data, do you believe this candidate can potentially jump straight into pivotal development given the severity of the unmet medical need there?

Clay B. Siegall

Good question. Thanks, Cory. So I think that compendia is something that's very different than FDA, and they have certain rules that they live to and their guideline committees ascribe to. And there is a burden of proof, and that is something that historically there's been a lot of connection with peer-review publications as part of their burden of proof. And there's no 2 ways about that. I'm sure you all on this phone call know that. It's not hidden anywhere. We really like our data. We think that 70% retreatment response rate is high, and that's why we were very excited about working potentially with the agency. We still think it's something that makes a lot of sense to try to work with compendia on this. One of the hard things is that because ADCETRIS is a marketed product, it's really hard to consider doing a retreatment clinical trial in the United States. Maybe in some territory where ADCETRIS doesn't exist, but then those are hard-to-do trials. So it makes it a little cumbersome, and I think that, that's part of the reason why I think that this makes sense for us to bring this to compendia and have them take a look at really what our full data set is and try to make a determination whether it belongs in guidelines or not. And we're persistent. If nothing else, Seattle Genetics, you know us historically, and we don't take no for an answer our first time and we continue fighting forward and trying to do what's right for patients. And I personally believe that the right thing for patients is to have this either in label or guidelines. And I don't know if I care that much which one it's in, but I believe that it is the right thing. And so we're going to go forward and try to do the right thing by patients, and put it into the hands of doctors to make that call. Now the second part of your question is on AML and our SGN-CD33A drug conjugate. As I've said before, the preclinical data set for this product candidate is amongst the best I've ever seen in my career. I'm really excited about it, but I'm also tempered by it's just preclinical. And so that doesn't mean that it will show the exact data that we've seen preclinical -- pre-clinically in human. So -- with AML. And so I'm very excited. But having said that one, the pathway we went forward with ADCETRIS is, I think, something to note. You asked what the Phase I is. It's a dose escalation trial for sure, so looking at safety and efficacy. But if we see something that we're excited with, especially because this is such a debilitating disease, you bet that we would try to go forward quick. And I don't know what quick means right now, and it depends on how strong the data are and whether you can go and talk to agencies about that. With ADCETRIS, we went and we did a Phase I trial and it had such a high level of efficacy at well-tolerated doses that we did go to the agency, and we're able to secure a SPA agreement to go ahead for pivotal trials in 2 -- and then we not only did Hodgkin lymphoma, where we had a SPA, but we also did ALCL, and we got approval for both. And so I could see us following that pathway with AML, but let's not get too far ahead of ourselves. We're excited to get into trials and really see if we can help patients first. And then hopefully we can and hopefully then, the fun will begin, and we'll see how quickly we can move this along to try to get this into patients and the hands of doctors that treat AML patients.

Operator

The next question is from Howard Liang with Leerink Swann.

Howard Liang - Leerink Swann LLC, Research Division

I guess, I just -- a question on the -- a couple of questions on the pipeline. SGN-CD19A -- CD19 antibody conjugates, can you talk about the status? It looks like there's a couple of big Phase I trials in leukemia and lymphoma. Can we expect data before the end of the studies?

Clay B. Siegall

Yes, there are 2 trials. There's one in lymphoma and there's one in ALL. And -- so we're definitely pursuing them. Accrual's doing well. I'm pleased to say that. And to me, I'm excited with this -- the opportunity here to take this forward. I've always liked CD19 as a target. We're not the only company looking at CD19 as a target, but we like our ADC technology a lot. And I think that there's a very good chance that you'll get to see data that's interim data before the end of the trial, because these trials could be relatively large. We're excited with conferences that we normally have good presentation, a big -- a lot of presentations at conferences such as ASH are good conferences for us. Obviously, the submissions aren't even here yet, they're due soon to ASH. I don't know whether ASH accepts us. But we don't really say anything until fall when we hear from ASH of what specifically gets there. But I'm looking forward to the Seattle Genetics having a strong ASH and perhaps, something on CD19 could be in there.

Howard Liang - Leerink Swann LLC, Research Division

Great. And then just another question on Millennium or Takeda/Millennium. Lots of management changes recently. I know that there were -- was a big fan of the program. Has there been any changes since the management change with -- in terms of your program?

Clay B. Siegall

In terms of our program, there's been really no management changes. And they have had a few changes there, but the rank and file generally that we work with on a daily basis retain -- are the same people. The project management and -- there's quite a lot of physicians that work with us. And so I know because I've spoken personally with some senior management there. They have -- a person who's now new, the head of R&D there. And they have some other senior positions there. ADCETRIS remains a very important critical program for them. They are doing a great job in sales and marketing. And globally, they're doing a great job with getting this approved in many different countries. They are working hard at reimbursements and pricing in a lot of countries right now -- familiar with a lot of what they’re doing. We are intimately familiar with it. We get updated regularly. We speak to them regularly. We have a strong project -- joint project team on this and a joint commercial team on this to talk about different things that we both need to discuss. So I feel that we have not had any hiccup in this program with the change at some of the leadership positions within Millennium.

Operator

Your next question comes from John Sonnier with William Blair.

John S. Sonnier - William Blair & Company L.L.C., Research Division

Clay, you're answering all the R&D questions, and it makes me wonder if you were any closer to a CMO?

Clay B. Siegall

Yes, John, it's a good question. We have a phenomenal clinical group with many, many docs. And we've hired more docs. I mean, we have -- sometimes I do meetings and I get together all the oncologists here and it's a full room. And so I want you to know that while we don't have a formal Chief Medical Officer, we have some very senior doctors like Eric Sievers and Jonathan Drachman, that help to guide and direct what Seattle Genetics does on the clinical front. As far as CMO candidates, you also know me for a long time. I am -- if nothing else, I do exhaustive searches and I'm pretty picky in my selections to try to see who could come into this premier position. And I think you just have to stay tuned for that.

John S. Sonnier - William Blair & Company L.L.C., Research Division

That's fair enough. And I guess I have an R&D question if you will entertain one more. I'm intrigued by the CD30 negative exploration study, I guess, in diffused large B-cell lymphoma. And I'm just wondering what else do you look for? Do you think there are other biological correlates that you look for, baseline characteristics? And I'm really, at the end of the day, wondering if this will provide insight into other tumor types, even in the solid tumor setting, in terms of expression levels and the relevance of certain expression levels.

Clay B. Siegall

It's a very, very good, with big upside, conundrum. Because a year ago, I think, I said even on conference calls, that in DLBCL, there's 25% CD30 expression. And that is based on looking at histology and looking at strong staining in histology. And now here I am a year later, and what we're saying is that 25% strong histology is still there, but there might be a lot of upside. And it may be that the vast majority of DLBCL could be an opportunity to treat ADCETRIS. And I can't rule that out right now and that's because we are looking at data we had in some patients that are -- I don't want to call them negative because I don't believe necessarily they're negative, because we take some finer types of technologies that are not as easily exportable as histology and we get -- we see positive CD30 staining. The question really is can you go to lower amounts of CD30? Can you get to a point where you see less -- or you see responses in lower staining? And with these very potent-targeted agents with this ADCs, how much receptor do you need? And the other thing is CD30 does cycle. So when you get a sample and you get a piece of tissue, it's from that specific minute. And if you look at different temporal natures, it might be different because we know the CD30 does cycle in and out and over weeks, not over minutes or anything. And so it is something where it's really hard or almost impossible to go and take biopsy, multiple biopsies at different times from patients, or look at biopsies from different locations of patients, which may have different CD30 configurations. But we do know that there's a basis to potentially treat all patients that have DLBCL. And in fact, in our frontline trial that we're putting together with -- that will start later this year with ADCETRIS plus R-CHOP in DLBCL patients, it's not going to have a requirement for screening proactively, although retroactively, we're going to take a look at that and try to correlate our data.

Peggy Pinkston

Operator, I think we have time for one more question.

Operator

Our next question comes from Navdeep Singh with Goldman Sachs.

Lisa Zhang - Goldman Sachs Group Inc., Research Division

This is Lisa Zhang in for Navdeep Singh. Just very quickly. For the pancreatitis incidence of 0.16%, can you just clarify the exact number of pancreatitis cases? And the second question is are the 2 Phase III frontline studies in MTCL and HL tracking for readout in 2016 and '17? And do you still believe you have powered these trials appropriately?

Clay B. Siegall

Okay. The specific number of pancreatic cases and the specific number of patients we've treated with ADCETRIS is something we're not planning to disclose. But -- and so moving onto the second question, the frontline Hodgkin lymphoma and ALCL trials, we believe that they've been powered appropriately. We believe the studies are written in a way that we feel are robust that could give us the kind of data that we want to really redefine frontline therapy for Hodgkin lymphoma and frontline therapy for CD30-positive mature T-cell lymphomas looking out over the next number of decades. And we haven't given any formal exact timelines for this, but I think that the times that you're throwing out there, in the '16, '17 timeframe, are probably appropriate.

Operator

I would like to turn the conference back over to management.

Peggy Pinkston

Okay. Thanks, operator. Sorry, we couldn't get to everybody's questions, but we will be available after the conclusion of the call, and have a good evening.

Operator

Ladies and gentlemen, this concludes the Seattle Genetics Second Quarter 2013 Financial Results Conference Call. This conference will be available for replay after 3:30 Pacific Time today through August 2, 2013, at midnight Pacific Time. You may access the replay system at anytime by dialing 1 (800) 406-7325 and entering the access code of 4630720. Thank you for your participation. You may now disconnect.

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