This Quarterly Report on Form 10-Q, including the following discussion of our
financial condition and results of operations, contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
are based on our management's beliefs and assumptions and on information
currently available to our management. All statements other than statements of
historical facts are "forward-looking statements" for purposes of these
provisions, including those relating to future events or our future financial
performance and financial guidance. In some cases, you can identify
forward-looking statements by terminology such as "may," "might," "will,"
"should," "expect," "plan," "anticipate," "project," "believe," "estimate,"
"predict," "potential," "intend" or "continue," the negative of terms like these
or other comparable terminology, and other words or terms of similar meaning in
connection with any discussion of future operating or financial performance.
These statements are only predictions. All forward-looking statements included
in this Quarterly Report on Form 10-Q are based on information available to us
on the date hereof, and we assume no obligation to update any such
forward-looking statements except as required by law. Any or all of our
forward-looking statements in this document may turn out to be wrong. Actual
events or results may differ materially. Our forward-looking statements can be
affected by inaccurate assumptions we might make or by known or unknown risks,
uncertainties and other factors. We discuss many of these risks, uncertainties
and other factors in this Quarterly Report on Form 10-Q in greater detail under
the heading "Part II Item 1A-Risk Factors." We caution investors that our
business and financial performance are subject to substantial risks and
uncertainties.
Overview
Seattle Genetics is a biotechnology company that develops and commercializes
therapies targeting cancer. We are commercializing ADCETRIS®, or brentuximab
vedotin, for the treatment of certain CD30-expressing lymphomas, PADCEVTM, or
enfortumab vedotin-ejfv, for the treatment of certain metastatic urothelial
cancers, and TUKYSA™, or tucatinib, for treatment of certain metastatic
HER2-positive breast cancers. We are also advancing a pipeline of novel
therapies for solid tumors and blood-related cancers designed to address unmet
medical needs and improve treatment outcomes for patients. Many of our programs,
including ADCETRIS and PADCEV, are based on our antibody-drug conjugate, or ADC,
technology that utilizes the targeting ability of monoclonal antibodies to
deliver cell-killing agents directly to cancer cells.
ADCETRIS® (brentuximab vedotin)
ADCETRIS is commercially available in more than 70 countries worldwide. We
commercialize ADCETRIS in the U.S. and its territories and in Canada, and we
collaborate with Takeda Pharmaceutical Company Limited, or Takeda, to develop
and commercialize ADCETRIS on a global basis. Under this collaboration, Takeda
has commercial rights in the rest of the world and pays us a royalty. ADCETRIS
is approved by the U.S. Food and Drug Administration, or FDA, in six
indications. In Hodgkin lymphoma, ADCETRIS is approved as monotherapy for
patients whose disease has relapsed and as consolidation therapy following prior
treatment, and in combination with chemotherapy for the treatment of patients
with previously untreated disease. In T-cell lymphomas, ADCETRIS is approved as
monotherapy for patients with relapsed or refractory systemic anaplastic large
cell lymphoma, or sALCL, or certain types of cutaneous T-cell lymphoma, and in
combination with chemotherapy for patients with previously untreated
CD30-expressing peripheral T-cell lymphoma, or PTCL.
Beyond our current labeled indications, we are evaluating ADCETRIS in several
clinical trials. These include a potentially registration-enabling trial
evaluating treatment with ADCETRIS in Hodgkin lymphoma and PTCL patients who are
unfit for combination chemotherapy, and a potentially registration-enabling
trial evaluating retreatment with ADCETRIS in Hodgkin and T-cell lymphoma
patients who progress after a prior response, including in the frontline
setting. In addition, we are evaluating ADCETRIS in combination with nivolumab
for Hodgkin and non-Hodgkin lymphoma under a clinical collaboration with
Bristol-Myers Squibb Company, or BMS. Nivolumab is a programmed death-1, or
PD-1, immune checkpoint inhibitor. In April 2020, we and BMS agreed to co-fund
an additional cohort in an ongoing trial that will evaluate the combination of
ADCETRIS, nivolumab and chemotherapy as first-line therapy in stage I and II
Hodgkin lymphoma.
PADCEV™ (enfortumab vedotin-ejfv)
Our second marketed product PADCEV was granted accelerated approval by the FDA
in December 2019 for the treatment of adult patients with locally advanced or
metastatic urothelial cancer who have previously received a PD-1 or PD-L1
inhibitor and a platinum-containing chemotherapy before (neoadjuvant) or after
(adjuvant) surgery or in a locally advanced or metastatic setting. It is the
first FDA approved treatment for these patients. PADCEV was approved under the
FDA's Accelerated Approval Program based on tumor response rate. Continued
approval may be contingent upon verification and description of clinical benefit
in a confirmatory trial. A global, randomized phase 3 clinical trial, called
EV-301, which is a required confirmatory trial, is ongoing and is also intended
to support global registrations. We completed enrollment in the trial in January
2020.

                                       16

--------------------------------------------------------------------------------

Table of Contents




PADCEV is being co-developed and jointly commercialized with Astellas Pharma,
Inc., or Astellas. In the U.S., we and Astellas are jointly promoting PADCEV. In
the U.S., we record net sales of PADCEV and are responsible for all distribution
activities. We and Astellas each bear the costs of our own sales organizations
in the U.S., equally share certain other costs associated with commercializing
PADCEV in the U.S., and equally share in any profits realized in the U.S.
FDA approval of PADCEV was supported by data from a single-arm pivotal phase 2
clinical trial called EV-201. The trial enrolled 125 patients with locally
advanced or metastatic urothelial cancer who received prior treatment with a
PD-1 or PD-L1 inhibitor and a platinum-based chemotherapy. We have completed
enrollment in the EV-201 trial for the second cohort of patients who previously
received a PD-1 or PD-L1 inhibitor, but who were not candidates for treatment
with a platinum agent, which we believe could potentially serve as the basis for
a second indication.
PADCEV is also being investigated in frontline metastatic urothelial cancer and
earlier stages of bladder cancer. We and Astellas are conducting a phase 1b/2
clinical trial, called EV-103, that is a multi-cohort, open-label trial of
PADCEV alone or in combination with the anti-PD-1 therapy pembrolizumab and/or
chemotherapy. The trial is evaluating safety, tolerability and activity in
locally advanced and first- and second-line metastatic urothelial cancer, and
was recently expanded to include muscle invasive bladder cancer, or MIBC. In
February 2020, updated results from the trial in patients with previously
untreated locally advanced or metastatic urothelial cancer who were ineligible
for treatment with cisplatin-based chemotherapy were presented at the 2020
Genitourinary Cancers Symposium. The results in 45 patients demonstrated a
confirmed objective response rate, or ORR, of 73.3 percent with a median
follow-up of 11.5 months. Median duration of response has not yet been reached
and 55 percent of responses were ongoing at the time of analysis with 53.7
percent of responses lasting at least 12 months. The median progression-free
survival was 12.3 months and the 12-month OS rate was 81.6 percent; median OS
has not been reached. In the study, 58 percent of patients had a
treatment-related adverse event greater than or equal to Grade 3: increase in
lipase (18 percent), rash (13 percent), hyperglycemia (7 percent) and peripheral
neuropathy (4 percent); these rates were similar to those observed with PADCEV
monotherapy. Eighteen percent of patients had treatment-related immune-mediated
adverse events of clinical interest greater than or equal to Grade 3 that
required the use of systemic steroids.
In February 2020, the FDA granted Breakthrough Therapy designation for PADCEV in
combination with pembrolizumab for the treatment of patients with unresectable
locally advanced or metastatic urothelial cancer who are unable to receive
cisplatin-based chemotherapy in the first-line setting. In April 2020, we
announced that based on discussions with the FDA, data from the randomized
cohort K in the phase 1b/2 EV-103 trial, along with other data from the EV-103
trial, could potentially support registration under accelerated approval
regulations in the U.S. The primary outcome measures are objective response rate
and duration of response.
In addition to the potential accelerated approval pathway based on the EV-103
trial, we are conducting a global, registrational phase 3 trial, called EV-302,
in frontline metastatic urothelial cancer that is being conducted under a
clinical collaboration agreement between us, Astellas and Merck. Under the terms
of the agreement, we, Astellas and Merck are jointly funding EV-302 and the
trial is being led by us. EV-302 is an open-label, randomized phase 3 clinical
trial evaluating the combination of PADCEV and pembrolizumab with or without
chemotherapy versus chemotherapy alone in patients with previously untreated
locally advanced or metastatic urothelial cancer. The trial includes metastatic
urothelial cancer patients who are either eligible or ineligible for
cisplatin-based chemotherapy and is expected to enroll 1,095 patients. In April
2020, the first patient was dosed in the trial. The trial has dual primary
endpoints of progression-free survival and overall survival and is intended to
support global registrations and potentially serve as a confirmatory trial if
accelerated approval is granted based on EV-103.
In April 2020, we entered into an agreement with Merck to evaluate PADCEV in
MIBC. Merck plans to amend their ongoing phase 3 registrational trial in
cisplatin-ineligible patients with MIBC to include an arm evaluating PADCEV in
combination with pembrolizumab.
In January 2020, we and Astellas also initiated a phase 2 clinical trial, called
EV-202, to evaluate PADCEV monotherapy in solid tumors that have high-levels of
Nectin-4 expression, including non-small cell lung, head and neck,
gastric/esophageal and breast cancers. In March 2020, the first patient was
dosed in the trial.

                                       17

--------------------------------------------------------------------------------

Table of Contents




TUKYSA™ (tucatinib)
In April 2020, TUKYSA received approval from the FDA in combination with
trastuzumab and capecitabine for the treatment of adult patients with advanced
unresectable or metastatic HER2-positive breast cancer, including patients
with brain metastases, who have received one or more prior anti-HER2-based
regimens in the metastatic setting. TUKYSA is an oral, small molecule tyrosine
kinase inhibitor, or TKI, that is highly selective for HER2, a growth factor
receptor overexpressed in many cancers. The FDA reviewed the application for
approval under the Oncology Center of Excellence's, or OCE's, Real Time Oncology
Review, or RTOR, pilot program. We are also participating in the Project Orbis
initiative of the FDA OCE which provides a framework for concurrent submission
and review of oncology products among international partners. Countries
currently included in this initiative are Australia, Canada, Singapore,
Switzerland and the U.S. In addition to the U.S., applications for approval were
submitted to the other participating countries. In January 2020, we submitted a
Marketing Authorization Application, or MAA, to the European Medicines Agency,
or EMA, and the submission was validated, which confirms it is sufficiently
complete to begin the formal review process.
FDA approval of TUKYSA was supported by data from the HER2CLIMB-01 trial.
HER2CLIMB-01 is a randomized trial evaluating TUKYSA in combination with
trastuzumab and capecitabine versus trastuzumab and capecitabine alone in
patients with HER2-positive unresectable locally advanced or metastatic breast
cancer, including patients with brain metastases. Patients had to have
previously received, either separately or in combination,
trastuzumab, pertuzumab, and ado-trastuzumab emtansine, or T-DM1. In December
2019, positive results from the HER2CLIMB-01 trial were published in the New
England Journal of Medicine and TUKYSA was granted Breakthrough Therapy
designation by the FDA.
We are conducting a broad clinical development program of TUKYSA including
ongoing and planned trials in earlier lines of breast cancer and in other
HER2-positive cancers. In October 2019, we initiated a phase 3 randomized trial,
called HER2CLIMB-02, evaluating TUKYSA versus placebo, each in combination with
T-DM1 for patients with unresectable locally advanced or metastatic
HER2-positive breast cancer, including those with brain metastases, who have had
prior treatment with a taxane and trastuzumab.
We are also conducting a phase 2 trial, called MOUNTAINEER, evaluating TUKYSA in
combination with trastuzumab in patients with HER2-positive, RAS wild-type
metastatic colorectal cancer after treatment with first- and second-line
standard-of-care therapies. Initial results from 23 patients were presented at
the ESMO 2019 Congress that demonstrated encouraging antitumor activity. We have
expanded enrollment in MOUNTAINEER to 110 patients to potentially support an
application for accelerated approval in the U.S.
Other clinical product candidates
In collaboration with Genmab A/S, or Genmab, we are developing tisotumab
vedotin, which is an ADC targeting tissue factor. We and Genmab are conducting a
pivotal phase 2 trial, called innovaTV 204, evaluating single-agent tisotumab
vedotin for patients with recurrent and/or metastatic cervical cancer who have
relapsed or progressed after standard of care treatment. The trial is intended
to support a potential regulatory submission under the FDA's accelerated
approval pathway. In March 2019, we completed enrollment in the innovaTV 204
trial and we anticipate reporting topline data from the trial late in the second
or into the third quarter of 2020. We are also conducting a phase 2 clinical
trial called innovaTV 207 for patients with relapsed, locally advanced or
metastatic solid tumors and a phase 2 clinical trial called innovaTV 208 for
patients with platinum-resistant ovarian cancer. In addition, we are conducting
a phase 2 trial of tisotumab vedotin in combination with certain other
anti-cancer agents in earlier lines of recurrent or advanced cervical cancer.
Our earlier-stage pipeline includes ladiratuzumab vedotin, an ADC targeting
LIV-1, which is currently being evaluated in phase 1 and phase 2 clinical trials
both as monotherapy and in combination with other agents for patients with
metastatic breast cancer and select solid tumors with high LIV-1 expression. In
addition, we are advancing multiple preclinical and research-stage programs that
employ our proprietary technologies. We advanced several product candidates into
clinical development in 2019 and we plan to submit several investigational new
drug applications, or INDs, to the FDA in 2020.

                                       18

--------------------------------------------------------------------------------

Table of Contents




Antibody-Drug Conjugate technology license agreements
We have active license agreements for our ADC technology with a number of
biotechnology and pharmaceutical companies, including AbbVie Biotechnology Ltd.,
or AbbVie; Genentech, Inc., a member of the Roche Group, or Genentech;
GlaxoSmithKline LLC, or GSK; and Progenics Pharmaceuticals Inc, as well as
collaboration agreements with Astellas and Genmab. Genentech and GSK have ADCs
using our technology in late-stage clinical trials. In June 2019, Genentech
received accelerated approval from the FDA and, in January 2020, received
conditional marketing authorization from the European Commission for Polivy®
(polatuzumab vedotin-piic), an ADC that uses our technology, to treat patients
with relapsed or refractory diffuse large B-cell lymphoma. Under our ADC license
agreement with Genentech, the accelerated approval of Polivy triggered a
milestone payment to us and we also receive royalties on net sales of Polivy
worldwide. In January 2020, the FDA granted priority review for GSK's Biologics
License Application, or BLA, and in February 2020 the EMA validated GSK's MAA
for belantamab mafodotin, an additional ADC that uses our technology, for the
treatment of patients with relapsed or refractory multiple myeloma, whose prior
therapy included an immunomodulatory agent, a proteasome inhibitor, and an
anti-CD38 antibody. Additionally, GSK initiated a phase 3 clinical trial of
belantamab mafodotin in the fourth quarter of 2019.
COVID-19
We are continuing to closely monitor the impact of the COVID-19 global pandemic
on our business and are taking proactive efforts designed to protect the health
and safety of our workforce, patients and healthcare professionals, and to
continue our business operations and advance our goal of bringing important
medicines to patients as rapidly as possible.
We have implemented measures designed to protect the health and safety of our
workforce, including a mandatory work-from-home policy for employees who can
perform their jobs offsite. We are continuing our essential research and
laboratory activities on site, and we are taking a number of additional
precautionary measures to protect employees on site. In the conduct of our
business activities, we are also taking actions designed to protect the safety
of patients and healthcare professionals. Among other actions, our field-based
personnel have paused in-person customer interactions in healthcare settings and
are using electronic communications to support healthcare professionals and
patients. We believe that the measures we are implementing are appropriate and
are helping to reduce transmission of COVID-19, and we will continue to monitor
and comply with guidance from governmental authorities and adjust our activities
as appropriate.
Outlook
While ADCETRIS product sales have grown over time, and our future plans assume
that sales of ADCETRIS will increase, we expect lower sales growth for ADCETRIS
in 2020 as compared to growth in 2019. We expect that our ability to continue to
grow our ADCETRIS sales, if at all, will depend primarily on our ability to
establish or demonstrate to the medical community the value of ADCETRIS and its
potential advantages compared to existing and future therapeutics in its
approved indications, including in the frontline Hodgkin lymphoma indication,
and the extent to which physicians make prescribing decisions with respect to
ADCETRIS. Other important factors affecting ADCETRIS sales include the extent to
which Takeda obtains further regulatory approvals of ADCETRIS in its
territories, the incidence flow of patients eligible for treatment in ADCETRIS'
approved indications, the extent to which coverage and adequate levels of
reimbursement for ADCETRIS are available from governments and other third-party
payors, the impact of any healthcare reform measures that may be adopted in the
future, including measures that could potentially result in more rigorous
coverage criteria and additional downward pressure on the price that we receive
for ADCETRIS, increasing competition from competing therapies including
pembrolizumab in multiple indications, including in the relapsed or refractory
classical Hodgkin lymphoma indication, negative impacts resulting from the
COVID-19 pandemic and the potential future approval of ADCETRIS in any
additional indications. For these reasons, we cannot assure you that ADCETRIS
sales will continue to grow or that we can maintain sales of ADCETRIS at or near
current levels. In addition, as a result of these and other factors, our future
ADCETRIS product sales can be difficult to accurately predict from period to
period.

                                       19

--------------------------------------------------------------------------------

Table of Contents




Our ability to realize the anticipated benefits from our investment in PADCEV is
subject to a number of risks and uncertainties, including our and Astellas'
ability to successfully jointly launch, market and commercialize PADCEV in the
U.S. in its approved indication, the extent to which we and Astellas are able to
obtain regulatory approvals of PADCEV in additional indications, including in
the frontline metastatic urothelial cancer setting, and in territories outside
the U.S., our ability and Astellas' ability to successfully comply with rigorous
post-marketing requirements, including the successful completion of the required
confirmatory post-marketing study that we and Astellas are subject to as a
result of an accelerated approval by the FDA, the acceptance of PADCEV by the
medical community and patients, the extent to which physicians make prescribing
decisions with respect to PADCEV, the incidence flow of patients eligible for
treatment in PADCEV's approved indication, the duration of therapy for patients
receiving PADCEV, the extent to which coverage and adequate levels of
reimbursement for PADCEV are available from governments and other third-party
payors, the impact of any healthcare reform measures that may be adopted in the
future, including measures that could potentially result in more rigorous
coverage criteria and additional downward pressure on the price that we receive
for PADCEV, potential competition from competing therapies, the impact of
conducting launch activities virtually during the COVID-19 pandemic and other
negative impacts resulting from the COVID-19 pandemic. In addition, due to the
lack of significant historical sales data and these factors, PADCEV sales are
currently difficult to predict from period to period.
Our ability to realize the anticipated benefits of our investment in TUKYSA is
subject to a number of risks and uncertainties, including our ability to
successfully launch, market and commercialize TUKYSA in the U.S. in its approved
indication, the extent to which we are able to obtain regulatory and other
required governmental and pricing approvals of TUKYSA in additional territories,
including Europe and the countries participating in the FDA Oncology Center of
Excellence's, or OCE's, Project Orbis initiative, other than the U.S., the
extent to which we are able to obtain regulatory approvals of TUKYSA in
additional indications, including earlier lines of breast cancer and other
HER2-positive cancers, the acceptance of TUKYSA by the medical community and
patients, competition from other therapies, our ability to accurately predict
and supply product demand, the extent to which coverage and reimbursement will
be available from governments and other third-party payors, our capacity to
effectively commercialize a product outside of the U.S., the impact of
conducting launch activities virtually during the COVID-19 pandemic and other
negative impacts resulting from the COVID-19 pandemic. In addition, due to the
lack of any historical sales data and these factors, TUKYSA sales will be
difficult to predict from period to period.
The biopharmaceutical industry and the markets in which we operate are intensely
competitive. Many of our competitors are working to develop or have
commercialized products similar to those we market or are developing. Drug
prices are under significant scrutiny and we expect drug pricing and other
health care costs to continue to be subject to intense political and societal
pressures on a global basis. In addition to pricing actions and other measures
being taken worldwide designed to reduce healthcare costs and limit the overall
level of government expenditures, our sales and operations could also be
affected by other risks of doing business internationally.
We expect that amounts earned from our collaboration agreements, including
royalties, will continue to be an important source of our revenues and cash
flows. These revenues will be impacted by future development funding and the
achievement of development, clinical and commercial success by our collaborators
under our existing collaboration and license agreements, including our ADCETRIS
collaboration with Takeda and our PADCEV collaboration with Astellas, as well as
by entering into potential new collaboration and license agreements.
Our ongoing research, development, manufacturing and commercial activities will
require substantial amounts of capital and may not ultimately be successful. We
expect that we will incur substantial expenses, and we will require significant
financial resources and additional personnel in order to advance the development
of, to pursue, obtain and maintain regulatory approvals for, and to
commercialize our products and product candidates, and expand our pipeline. In
addition, we may pursue new operations or continue the expansion of our existing
operations, including with respect to our plans to build a commercial
infrastructure in Europe and to otherwise continue to expand our operations
internationally. As a result, we may need to raise additional capital, and our
operating expenses may fluctuate as a result of such activities. We may also
incur milestone payment obligations to certain of our licensors as our product
candidates progress through clinical trials towards potential commercialization.

                                       20

--------------------------------------------------------------------------------

Table of Contents




We are closely evaluating the impact of the COVID-19 pandemic on our ability and
the ability of our collaborators to effectively market, sell and distribute our
products. Our field-based personnel have paused in-person customer interactions
in healthcare settings and are instead using electronic communication, such as
emails, phone calls and video conferences. Many health care professionals that
we normally call on are working a greater proportion of their working schedule
from home and are facing additional demands on their time during the COVID-19
pandemic. We are experiencing increased competition for virtual appointments
with health care professionals. We expect the different quality of electronic
interactions as compared with in-person interactions, as well as the reduced
quantity of interactions during the COVID-19 pandemic, to reduce the
effectiveness of our sales personnel, as well as those of our collaborators,
which could negatively affect our product sales and those of our collaborators
across all of our products, as well as physician awareness of our products. In
particular, our ability to effectively launch TUKYSA and to continue to launch
PADCEV may be limited by the need to conduct these activities virtually. We have
not launched a product using this approach in the past and cannot predict the
effects that this approach will have on demand for TUKYSA or PADCEV in the short
or long term. However, we expect that the need to conduct these activities
virtually will negatively impact our ability to connect with key customers,
including those familiar with competitive products, and our ability to conduct
payor engagements. Additionally, as customers and governmental authorities relax
their guidance on social distancing, we face additional challenges that will
limit our ability to fully resume in-person interactions, including the
potential for additional outbreaks, limited access to personal protective
equipment, the need to navigate varying restrictions for entering healthcare
facilities and employee childcare obligations during school closures. In
addition, COVID-19 related restrictions could also present product distribution
challenges as we activate new distribution channels for TUKYSA for the first
time. We also expect that the conversion of medical conferences to a virtual
format may reduce our ability to effectively disseminate scientific information
about our products, which may result in decreased physician awareness of our
products, their approved indications and their efficacy and safety. It is also
possible that COVID-19 may negatively affect our product sales due to patient
challenges in accessing healthcare settings, significant increases in
unemployment and the resulting loss of individual health insurance coverage, and
inability to access government healthcare programs due to backlogs or inability
for government agencies to process additional applications, all of which could
potentially affect diagnosis rates, side effect management, and course of
treatment and increase enrollment in our patient support programs. The long-term
effects of the COVID-19 pandemic are also unknown and it is possible that
following the pandemic, healthcare institutions could alter their policies with
respect to in person visits by pharmaceutical company representatives. The
extent to which the COVID-19 pandemic impacts our business, our ability to
generate sales of and revenues from our approved products, and our clinical
development and regulatory efforts will depend on future developments that are
highly uncertain and cannot be predicted with confidence, such as the ultimate
geographic spread of the disease, the duration of the outbreak, government
actions, such as travel restrictions, quarantines and social distancing
requirements in the U.S. and in other countries, business closures or business
disruptions and the effectiveness of actions taken in the U.S. and in other
countries to contain and treat the disease.
Because of the above and other factors, our results of operations may vary
substantially from year to year and from quarter to quarter and, as a result, we
believe that period to period comparisons of our operating results may not be
meaningful and should not be relied upon as being indicative of our future
performance.

Financial summary
For the three months ended March 31, 2020, our total revenues increased to
$234.5 million, compared to $195.2 million for the same period in 2019. This
growth was driven by the U.S. launch of PADCEV beginning in late December 2019,
higher ADCETRIS net product sales, and higher royalty revenues, offset in part
by lower collaboration and license agreement revenues.
For the three months ended March 31, 2020, total costs and expenses increased to
$346.9 million, compared to $248.8 million for the same period in 2019. This
reflected higher sales, general and administrative cost related to staffing, to
support our commercialized products, as well as higher research and development
expenses from continued investment in our early- and late-stage pipeline. For
the three months ended March 31, 2020, net loss was unfavorably impacted by a
loss of $59.1 million from the change in the fair value of our equity
securities. For the three months ended March 31, 2019, net loss was favorably
impacted by a gain of $38.1 million from the change in the fair value of our
equity securities.
As of March 31, 2020, we had $799.6 million in cash, cash equivalents and
investments and $1.8 billion in total stockholders' equity.


                                       21

--------------------------------------------------------------------------------


  Table of Contents


Results of operations
Net product sales
We sell ADCETRIS in the U.S. and Canada, and sell PADCEV in the U.S.
                                        Three months ended March 31,
(dollars in thousands)                 2020                2019      % Change
ADCETRIS                      $       164,053           $ 135,001        22 %
PADCEV                                 34,461                   -       N/A
Net product sales             $       198,514           $ 135,001        47 %

N/A: No amount in comparable period or not a meaningful comparison.




ADCETRIS net product sales increased for the three months ended March 31, 2020
from the comparable period in 2019, primarily due to higher sales volumes during
2020 and, to a lesser extent, from the effect of price increases. Higher
ADCETRIS sales volume was primarily driven by continued growth in the previously
untreated Hodgkin lymphoma and PTCL indications, as well as its other approved
indications. PADCEV was approved for patients with locally advanced or
metastatic urothelial cancer and was launched in late December 2019. We began
commercializing TUKYSA following FDA approval in April 2020.
While we expect growth in net product sales in 2020 from 2019, primarily driven
by the recent launches of PADCEV and TUKYSA, as well as continued growth in
ADCETRIS net product sales, we also expect lower net product sales growth for
ADCETRIS in 2020 as compared to growth in 2019.
Gross-to-net deductions, net of related payments and credits, were as follows:
                                                                   Distribution fees,
                                                  Rebates and        product returns
(in thousands)                                    chargebacks           and other            Total
Balance as of December 31, 2019                  $     38,116     $           7,538       $   45,654
Provision related to current period sales              73,005                 5,414           78,419
Adjustment for prior period sales                         340                     -              340
Payments/credits for current period sales             (52,489 )              (1,844 )        (54,333 )
Payments/credits for prior period sales               (21,517 )              (1,850 )        (23,367 )
Balance as of March 31, 2020                     $     37,455     $           9,258       $   46,713


Government-mandated rebates and chargebacks are the most significant component
of our total gross-to-net deductions and the discount percentage has been
increasing. These discount percentages increased during the three months ended
March 31, 2020 as a result of price increases for ADCETRIS that we instituted
that exceeded the rate of inflation. The most significant portion of our
gross-to-net accrual balances as of March 31, 2020 and 2019 was for Medicaid
rebates. We expect future gross-to-net deductions to fluctuate based on the
volume of purchases eligible for government mandated discounts and rebates, as
well as changes in the discount percentage which is impacted by potential future
price increases, the rate of inflation, and other factors. We expect
gross-to-net deductions to increase in 2020 as compared to 2019, driven by
anticipated growth in our gross product sales.

Royalty revenues
Royalty revenues primarily reflect royalties earned under the ADCETRIS
collaboration with Takeda. These royalties include commercial sales-based
milestones and sales royalties. Sales royalties are based on a percentage of
Takeda's net sales of ADCETRIS, with rates that range from the mid-teens to the
mid-twenties based on annual net sales tiers. Takeda bears third-party royalty
costs owed on its sales of ADCETRIS. This amount is included in royalty
revenues. Royalty revenues also reflect, to a lesser extent, amounts from
Genentech earned on net sales of Polivy beginning in 2019.
                                  Three months ended March 31,
(dollars in thousands)            2020              2019       % Change
Royalty revenues         $     20,360             $ 15,620        30 %


Royalty revenues increased for the three months ended March 31, 2020 from the
comparable period in 2019, primarily due to growth in Takeda net sales of
ADCETRIS in its territories, as well as Roche net sales of Polivy, which began
in the second quarter of 2019.

                                       22

--------------------------------------------------------------------------------

Table of Contents




We expect that royalty revenues will decrease in 2020 as compared to 2019,
primarily due to the impact of the $40.0 million sales-based milestone earned in
2019, partially offset by higher anticipated royalties for ADCETRIS and Polivy.
Collaboration and license agreement revenues
Collaboration and license agreement revenues reflect amounts earned under
product, ADC and co-development collaborations. These revenues reflect the
earned portion of payments received by us for technology access and maintenance
fees, milestone payments and reimbursement payments for research and development
support that we provide to our collaborators.
Collaboration and license agreement revenues by collaborator were as follows:
                                                              Three months ended March 31,
(dollars in thousands)                                      2020           2019        % Change
Takeda                                                  $    10,315     $ 43,379         (76 )%
Other                                                         5,325

1,199 344 % Total collaboration and license agreement revenues $ 15,640 $ 44,578 (65 )%




Collaboration revenues from Takeda fluctuate based on changes in reimbursement
funding under the ADCETRIS collaboration, which are impacted by the activities
each party is performing under the collaboration agreement at a given time.
Additionally, we receive reimbursement for the cost of drug product supplied to
Takeda for its use, the timing of which fluctuates based on Takeda's product
supply needs. Collaboration revenues from Takeda can also fluctuate based on the
achievement of milestones by Takeda. Collaboration revenues from Takeda for the
three months ended March 31, 2020 decreased compared to the comparable period in
2019, primarily as a result of regulatory milestones achieved by Takeda in 2019
totaling $30.0 million, the completion of the Takeda performance period in
November 2019, offset in part by an increase in drug product supplied to Takeda.
Other collaboration revenues increased for the three months ended March 31, 2020
as compared to the comparable period in 2019 primarily due to recognition of a
regulatory milestone achieved by Genentech in the 2020 period.
We expect our collaboration and license agreement revenues in 2020 to decrease
compared to 2019, driven by the completion of the Takeda performance period in
2019, as well as timing of milestones achieved by our collaborators. Our
collaboration and license agreement revenues are impacted by the term and
duration of those agreements and by progress-dependent milestones, annual
maintenance fees, and reimbursement of materials and support services.
Collaboration and license agreement revenues may vary substantially from year to
year and quarter to quarter depending on the progress made by our collaborators
with their product candidates, the level of support we provide to our
collaborators, specifically to Takeda under our ADCETRIS collaboration, the
timing of milestones achieved and our ability to enter into potential additional
collaboration and license agreements.

Collaboration agreements
Takeda ADCETRIS collaboration
We have an agreement with Takeda for the global co-development of ADCETRIS and
the commercialization of ADCETRIS by Takeda in its territory. We have commercial
rights for ADCETRIS in the U.S. and its territories and in Canada. Takeda has
commercial rights in the rest of the world. Under the collaboration, we and
Takeda can each conduct development activities and equally co-fund the cost of
certain mutually agreed development activities. We recognize payments from
Takeda, including progress-dependent development and regulatory milestone
payments, reimbursement for drug supplied, and net development cost
reimbursement payments, as collaboration and license agreement revenues upon
transfer of control of the goods or services over the development period. When
the performance of development activities under the collaboration results in us
making a reimbursement payment to Takeda, that payment reduces collaboration and
license agreement revenues. We also recognize royalty revenues based on a
percentage of Takeda's net sales of ADCETRIS in its territories, ranging from
the mid-teens to the mid-twenties based on annual net sales tiers, as well as
sales-based milestones. Takeda bears a portion of third-party royalty costs owed
on its sales of ADCETRIS, which is included in royalty revenues. Costs
associated with co-development activities are included in research and
development expense.

                                       23

--------------------------------------------------------------------------------

Table of Contents




As of March 31, 2020, we had achieved milestone payments totaling $157.5 million
related to regulatory and commercial progress by Takeda. As of March 31, 2020,
total future potential milestone payments to us under this collaboration could
total $77.0 million. Of that amount, up to approximately $7.0 million relates to
the achievement of development milestones, up to $70.0 million relates to the
achievement of regulatory milestones. In addition, we recognize royalty
revenues, where royalties are based on a percentage of Takeda's net sales of
ADCETRIS in its licensed territories, with percentages ranging from the
mid-teens to the mid-twenties based on annual net sales tiers, and sales-based
milestones. Takeda bears a portion of third-party royalty costs owed on its
sales of ADCETRIS, which is included in royalty revenues.
Astellas PADCEV collaboration
We have a collaboration agreement with Agensys, Inc., which subsequently became
an affiliate of Astellas, to jointly research, develop and commercialize ADCs
for the treatment of several types of cancer. The collaboration encompasses
combinations of our ADC technology with fully-human antibodies developed by
Astellas to proprietary cancer targets. Under this collaboration, we and
Astellas are co-funding all development costs for PADCEV. We rely on Astellas to
supply PADCEV for commercial sales and for our clinical trials, and Astellas
oversees the manufacturing supply chain for PADCEV. Costs associated with
co-development activities are included in research and development expense.
In 2018, we and Astellas entered into a joint commercialization agreement to
govern the global commercialization of PADCEV:
•       In the U.S., we and Astellas jointly promote PADCEV. We record sales of

PADCEV in the U.S. and are responsible for all U.S. distribution

activities. The companies each bear the costs of their own sales

organizations in the U.S., equally share certain other costs associated

with commercializing PADCEV in the U.S., and equally share in any profits

realized in the U.S.

• Outside the U.S., we have commercialization rights in all countries in

North and South America, and Astellas has commercialization rights in the
        rest of the world, including Europe, Asia, Australia and Africa. The

agreement is intended to provide that we and Astellas will effectively

equally share in costs incurred and any profits realized in all of these

markets. Cost and profit sharing in Canada, the United Kingdom, Germany,

France, Spain and Italy will be based on product sales and costs of
        commercialization. In the remaining markets, the commercializing party
        will bear costs and will pay the other party a royalty rate applied to
        net sales of the product based on a rate intended to approximate an equal
        profit share for both parties.


Astellas or its affiliates are responsible for manufacturing PADCEV for
development and commercial use. However, we are responsible for packaging and
labeling in countries in which we sell PADCEV. In addition, if the parties
determine that a second source is required, we will be responsible for
establishing such second source whether internally or through a third party.
Genmab tisotumab vedotin collaboration
We have an agreement with Genmab to develop and commercialize ADCs for the
treatment of several types of cancer, under which we previously exercised a
co-development option for tisotumab vedotin. We and Genmab will share all future
costs and profits for development and commercialization of tisotumab vedotin on
an equal basis. Costs associated with co-development activities are included in
research and development expense. We will be responsible for tisotumab vedotin
commercialization activities in the U.S., Canada, and Mexico. Genmab will be
responsible for commercialization activities in all other territories. We are
currently in discussions with Genmab regarding the detailed terms on which we
will work together to commercialize tisotumab vedotin under this agreement.
Other collaboration and license agreements
We have other collaboration and license agreements for our ADC technology with a
number of biotechnology and pharmaceutical companies. We typically receive
upfront cash payments and progress- and sales-dependent milestones for the
achievement by our licensees of certain events, and annual maintenance fees and
support fees for research and development services and materials provided under
the agreements. These amounts are recognized as revenue over the performance
obligation period if the license is determined not to be distinct from other
goods and services provided, or, if there is no performance obligation, upon
transfer of control of the goods or services to the customer.


                                       24

--------------------------------------------------------------------------------

Table of Contents




Cost of sales
Cost of sales includes manufacturing and distribution costs of product sold,
gross profit share with Astellas pursuant to our collaboration, amortization of
technology license costs, royalties owed on certain net product sales, as well
as royalties owed to our third-party licensors related to Takeda's sales of
ADCETRIS.
                                 Three months ended March 31,
(dollars in thousands)           2020              2019      % Change
Cost of sales            $     29,421            $ 10,300       186 %


Cost of sales increased for the three months ended March 31, 2020 from the
comparable period in 2019 primarily due to the $16.4 million gross profit share
with Astellas driven by PADCEV net product sales in the current period, as well
as higher ADCETRIS sales volumes. We and Astellas launched PADCEV in the U.S. in
December 2019.
We expect cost of sales to increase in 2020 as compared to 2019 as a result of
the expansion of our commercial-stage drugs. This includes cost of product sales
for PADCEV and the gross profit share with Astellas under our
collaboration. Growth will also be driven by the cost of product sales for
TUKYSA and the amortization of acquired in-process research and development
costs, which commenced in April 2020 following the approval and launch of TUKYSA
in the US. The increase in cost of sales will also reflect expected growth in
ADCETRIS net product sales. Product costs of sales includes a low-single digit
royalty on ADCETRIS sales, a mid-single digit royalty on PADCEV sales, and a low
double-digit royalty on TUKYSA sales related to licensed technology applicable
to the drug. Cost of sales for PADCEV and TUKYSA in 2020 will be partially
reduced by the use of product inventory that was manufactured prior to FDA
approval, and previously charged to research and development expense.

Research and development
                                                                 Three months ended March 31,
(dollars in thousands)                                        2020             2019        % Change
Research and clinical development                        $    133,229      $  106,937          25 %
Process sciences and manufacturing                             61,970          51,328          21 %
Total research and development                           $    195,199      $  158,265          23 %
Certain prior year balances have been reclassified within research and development expenses to
conform to current year presentation.


Research and clinical development expenses include personnel, occupancy and
laboratory expenses, technology access fees, preclinical translational biology
and in vitro and in vivo studies, IND-enabling pharmacology and toxicology
studies, and external clinical trial costs including costs for clinical sites,
clinical research organizations, contractors and regulatory activities
associated with conducting human clinical trials. The increase for the three
months ended March 31, 2020 from the comparable periods in 2019 primarily
reflected increases in employee-related costs and external development costs
mainly to support our early- and late-stage pipeline of product candidates.
Process sciences and manufacturing expenses include personnel and occupancy
expenses, manufacturing costs for the scale-up and pre-approval manufacturing of
drug product used in research and our clinical trials, and costs for drug
product supplied to our collaborators. Process sciences and manufacturing
expenses also include quality control and assurance activities, and storage and
shipment of our product candidates. The increase for the three months ended
March 31, 2020 from the comparable periods in 2019 primarily reflected increases
in employee-related costs and external development costs primarily to support
our early- and late-stage pipeline of product candidates, as well as higher
costs for drug product supplied to Takeda.
We utilize our employee and infrastructure resources across multiple research
and development projects. We track human resource efforts expended on many of
our programs for purposes of billing our collaborators for time incurred at
agreed upon rates and for resource planning. We do not account for actual costs
on a project basis as it relates to our infrastructure, facility, employee and
other indirect costs; however, we do separately track significant third-party
costs including clinical trial costs, manufacturing costs and other contracted
service costs on a project basis. To that end, the following table shows
third-party costs incurred for research, contract manufacturing of our product
candidates and clinical and regulatory services, as well as pre-commercial
milestone payments for in-licensed technology for ADCETRIS, PADCEV, and certain
of our clinical-stage product candidates. The table also presents other costs
and overhead consisting of third-party costs for our preclinical stage programs,
as well as personnel, facilities, manufacturing, and other indirect costs not
directly charged to development programs.

                                       25

--------------------------------------------------------------------------------

Table of Contents




                                                       Three months ended March 31,       Five years ended
(dollars in thousands)                                      2020             2019          March 31, 2020
ADCETRIS (brentuximab vedotin)                        $        11,201     $   6,981     $          287,090
TUKYSA (tucatinib)                                             22,526        20,413                147,542
PADCEV (enfortumab vedotin-ejfv)                               11,001         6,451                100,845
Tisotumab vedotin                                               5,831         7,580                 64,529
Ladiratuzumab vedotin                                           4,421         5,559                 77,245
Other clinical stage programs                                   4,490         7,337                262,804
Total third-party costs for clinical stage programs            59,470        54,321                940,055
Other costs and overhead                                      135,729       103,944              1,606,969
Total research and development                        $       195,199     $

158,265 $ 2,547,024




Third-party costs for ADCETRIS increased for the three months ended March 31,
2020 from the comparable period in 2019, primarily due to higher costs for drug
product supplied to Takeda, offset in part by a reduction in clinical trial
activities. The cost of drug product supplied to Takeda is charged to research
and development expense. We are reimbursed for the drug product, which is
included in collaboration and license agreement revenues.
Third-party costs for TUKYSA increased for the three months ended March 31,
2020, as compared to the comparable periods in 2019, primarily due to higher
clinical trial and manufacturing expenses.
Third-party costs for PADCEV increased for the three months ended March 31,
2020, as compared to the comparable periods in 2019, due to higher clinical
trial expenses and manufacturing expenses.
Third-party costs for tisotumab vedotin decreased for the three months ended
March 31, 2020, as compared to the comparable periods in 2019, due to lower
manufacturing expenses.
Third-party costs for ladiratuzumab vedotin decreased for the three months ended
March 31, 2020, as compared to the comparable periods in 2019, primarily due to
lower research and clinical development expenses.
Other costs and overhead include third-party costs of our preclinical programs
and costs associated with personnel and facilities. These costs increased for
the three months ended March 31, 2020 from the comparable periods in 2019, due
primarily to higher employee-related expenses from headcount growth.
In order to advance our product candidates toward commercialization, the product
candidates are tested in numerous preclinical safety, toxicology and efficacy
studies. We then conduct clinical trials for those product candidates that take
several years or more to complete. The length of time varies substantially based
upon the type, complexity, novelty and intended use of a product candidate. We
will also need to conduct additional clinical trials in order to expand labeled
indications of use for our commercial products. The outcome of our clinical
trials is uncertain. The cost of clinical trials may vary significantly as a
result of a variety of factors, including the number of patients enrolled,
patient site costs, quantity and source of drug supply required, safety and
efficacy of the product candidate, and extent of regulatory efforts, among
others.
We anticipate that our total research and development expenses in 2020 will
increase compared to 2019 primarily due to higher costs for the continued
development of our approved products and product candidates.
The risks and uncertainties associated with our research and development
projects are discussed more fully in "Part II Item 1A-Risk Factors." As a result
of these risk and uncertainties, we are unable to determine with any degree of
certainty the duration and completion costs of our research and development
projects, anticipated completion dates, or when and to what extent we will
receive cash inflows from the commercialization and sale of our products in any
additional approved indications or of any of our product candidates.

Selling, general and administrative


                                               Three months ended March 31,
(dollars in thousands)                         2020              2019       % Change
Selling, general and administrative   $     122,249            $ 80,271        52 %



                                       26

--------------------------------------------------------------------------------

Table of Contents




Selling, general and administrative expenses increased for the three months
ended March 31, 2020 from the comparable periods in 2019 primarily due increased
field sales personnel for our recently commercialized products, and higher
infrastructure costs to support our continued growth.
We anticipate that selling, general and administrative expenses will increase in
2020 as compared to 2019 as we support the launches of PADCEV and TUKYSA, and
invest in infrastructure to support our continued growth.

Investment and other income (loss), net


                                                     Three months ended March 31,
(dollars in thousands)                               2020           2019      % Change
Gain (loss) on equity securities                $    (59,079 )    $ 38,125      (255 )%
Investment and other income, net                       3,032         2,183        39  %
Total investment and other income (loss), net   $    (56,047 )    $ 40,308

(239 )%




Investment and other income (loss), net includes other non-operating income and
loss, such as unrealized holding gains and losses on equity securities (which
primarily include common stock holdings in Immunomedics), realized gains and
losses on equity and debt securities, and amounts earned on our investments in
U.S. Treasury securities.
The loss on equity securities in three months ended March 31, 2020 was driven by
a $59.1 million decline in the fair value of our equity securities. In April
2020, we sold our Immunomedics common stock holdings for $174.7 million, and,
accordingly, will recognize the associated realized gain in our condensed
consolidated statements of comprehensive loss for the three months ended June
30, 2020.
Investment income reflects amounts earned on our investments in U.S. Treasury
securities. Investment income increased for the three months ended March 31,
2020 compared to the comparable period in 2019 due to a higher effective yield
of our portfolio and higher investment balances as a result of the net proceeds
from our July 2019 equity offering.

Liquidity and capital resources
(in thousands)                             March 31, 2020      December 31,

2019


Cash, cash equivalents, and investments   $        799,594    $           868,338
Working capital                                    903,228                917,284
Stockholders' equity                             1,765,618              1,876,287


                               Three months ended March 31,
(in thousands)                   2020                 2019
Cash provided (used) by:
Operating activities       $      (69,059 )     $      (57,227 )
Investing activities               21,818               36,485
Financing activities               21,786               26,826


The change in net cash from operating activities was primarily due to the change
in our net loss, working capital fluctuations and changes in our non-cash
expenses, all of which are highly variable. The change in net cash from
investing activities reflected differences between the proceeds received from
sale and maturity of our investments, proceeds from sales of securities, and
amounts reinvested. The change in net cash from financing activities was driven
by differences in proceeds from stock option exercises and our employee stock
purchase plan.
We primarily have financed our operations through the issuance of our common
stock, collections from commercial sales of our products, amounts received
pursuant to product collaborations and our ADC collaborations, and royalty
revenues. To a lesser degree, we also have financed our operations through
investment income. These financing and revenue sources have allowed us to
maintain adequate levels of cash and investments.

                                       27

--------------------------------------------------------------------------------

Table of Contents




Our cash, cash equivalents, and investments are held in a variety of
non-interest bearing bank accounts and interest-bearing instruments subject to
investment guidelines allowing for holdings in U.S. government and agency
securities, corporate securities, taxable municipal bonds, commercial paper and
money market accounts. Our investment portfolio is structured to provide for
investment maturities and access to cash to fund our anticipated working capital
needs. However, if our liquidity needs should be accelerated for any reason in
the near term, or investments do not pay at maturity, we may be required to sell
investment securities in our portfolio prior to their scheduled maturities,
which may result in a loss. As of March 31, 2020, we had $799.1 million held in
cash, cash equivalents and investments scheduled to mature within the next
twelve months.
At our currently planned spending rates, we believe that our existing financial
resources together with product sales, royalty revenues from Takeda's sales of
ADCETRIS, and the milestone payments and reimbursements we expect to receive
under our existing collaboration and license agreements, will be sufficient to
fund our operations for at least the next twelve months.
We expect to make additional capital outlays and to increase operating
expenditures over the next several years as we hire additional employees, and
support our development, commercialization, and planned global expansion, which
may require us to raise additional capital. Further, we actively evaluate
various strategic transactions on an ongoing basis, including licensing or
otherwise acquiring complementary products, technologies or businesses, and we
may require significant additional capital in order to complete or otherwise
provide funding for such transactions. We may seek additional capital through
some or all of the following methods: corporate collaborations, licensing
arrangements, and public or private debt or equity financings. In this regard,
our ability to raise additional funds may be adversely impacted by deteriorating
global economic conditions and the recent disruptions to and volatility in the
credit and financial markets in the United States and worldwide resulting from
the ongoing COVID-19 pandemic. We do not know whether additional capital will be
available when needed, or that, if available, we will obtain financing on terms
favorable to us or our stockholders. If we are unable to raise additional funds
when we need them, our business and operations may be adversely affected.
Commitments
Our future minimum contractual commitments were reported in our Annual Report on
Form 10-K for the year ended December 31, 2019. Our future minimum contractual
commitments have not changed materially from the amounts previously reported.
Critical accounting policies
The preparation of financial statements in accordance with generally accepted
accounting principles requires us to make estimates, assumptions, and judgments
that affect the amounts reported in the financial statements and accompanying
notes. We evaluate our estimates on an ongoing basis. We base our estimates on
historical experience and other assumptions that we believe to be reasonable
under the circumstances. Actual results may differ from those estimates. Our
critical accounting policies, those with the more significant judgments and
estimates, used in the preparation of our financial statements for the three
months ended March 31, 2020 were consistent with those in Part II Item 7 of our
Annual Report on Form 10-K for the year ended December 31, 2019.
Recent accounting pronouncements
Refer to "Part I Item 1 Note 1--Summary of significant accounting policies" for
a discussion on recent accounting pronouncements.
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market risk disclosures as set forth
in Part II Item 7A of our Annual Report on Form 10-K for the year ended
December 31, 2019.

                                       28

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses