SEAGEN INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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

Seagen is a biotechnology company that develops and commercializes targeted
therapies to treat cancer. We are commercializing ADCETRIS®, or brentuximab
vedotin, for the treatment of certain CD30-expressing lymphomas, PADCEV®, or
enfortumab vedotin-ejfv, for the treatment of certain metastatic urothelial
cancers, TUKYSA®, or tucatinib, for the treatment of certain metastatic
HER2-positive breast cancers, and TIVDAK®, or tisotumab vedotin-tftv, for the
treatment of certain metastatic cervical 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, PADCEV and TIVDAK, are based on our ADC
technology that utilizes the targeting ability of monoclonal antibodies to
deliver cell-killing agents directly to cancer cells.

First quarter 2022 highlights and recent developments

Corporate

•Achieved 27% growth in net product sales for the quarter ended March 31, 2022
compared to the quarter ended March 31, 2021.
•Entered into a collaboration with Sanofi to develop and potentially
commercialize multiple novel ADCs. The agreement is an exclusive collaboration
that will utilize Sanofi's proprietary monoclonal antibody technology and our
proprietary ADC technology for up to three cancer targets. Under the terms of
the collaboration, Seagen and Sanofi will co-fund global development activities
and share equally in any future profits. In the first quarter of 2022, the
first, of up to three potential targets under the collaboration, was designated,
for which Sanofi paid a license fee.
•Announced that a jury found that Daiichi Sankyo willfully infringed our U.S.
Patent No. 10,808,039 by selling in the U.S. its ENHERTU® product (trastuzumab
deruxtecan; DS-8201). We were awarded damages of $41.8 million for past
infringement of the patent. In addition, we intend to request a royalty on
future sales of ENHERTU in the United States through November 5, 2024, as well
as enhanced damages, attorney fees and costs.

PADCEV

•Announced the European Commission approved PADCEV as monotherapy for the
treatment of adult patients with locally advanced or metastatic urothelial
cancer who have previously received a platinum-containing chemotherapy and a
PD-1/L1 inhibitor in April 2022.
•The UK Medicines and Healthcare products Regulatory Agency (MHRA) granted
marketing authorization in Great Britain for previously treated metastatic
urothelial cancer in April 2022.
•Reported initial results in patients with muscle-invasive bladder cancer, or
MIBC, at the American Society of Clinical Oncology Genitourinary Cancers
Symposium, or ASCO GU, in February 2022 demonstrating encouraging activity and
tolerability.

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ADCETRIS

•Announced that the phase 3 ECHELON-1 clinical trial demonstrated a
statistically significant improvement in OS in patients with advanced Hodgkin
lymphoma following treatment with ADCETRIS in combination with chemotherapy.
With approximately six years median follow up, patients receiving ADCETRIS plus
chemotherapy in the frontline setting had a 41 percent reduction in the risk of
death compared to those receiving chemotherapy alone.

TUKYSA

•Treated first patient in the Phase 3 HER2CLIMB-05 trial in the frontline maintenance setting for patients with metastatic HER2-positive breast cancer.

TIVDAK

•Reported initial data from the innovaTV 207 phase 2 trial of TIVDAK in solid
tumors at the Multidisciplinary Head and Neck Cancers Symposium in February
2022. The results demonstrated a manageable safety profile and promising
preliminary antitumor activity in patients with squamous cell carcinoma of the
head and neck.

Pipeline

•The pivotal phase 2 trial of disitamab vedotin began enrolling patients with previously treated HER2-expressing metastatic urothelial cancer in April 2022.

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Our Medicines

Our approved medicines include the following:

                   Product*                         Therapeutic Area                       U.S. Approved Indication
                                                                           

Previously untreated Stage III/IV classical Hodgkin

lymphoma, or cHL, in combination with doxorubicin,

vinblastine and dacarbazine

cHL at high risk of relapse or progression as

                                                    Hodgkin Lymphoma       

post-autologous hematopoietic stem cell transplantation,

or auto-HSCT, consolidation

cHL after failure of auto-HSCT or after failure of at

least two prior multi-agent chemotherapy regimens in

patients who are not auto-HSCT candidates

   [[Image Removed: sgen-20220331_g1.jpg]]                                 

Previously untreated systemic anaplastic large cell

lymphoma, or sALCL, or other CD30-expressing peripheral

T-cell lymphoma, or PTCL, including angioimmunoblastic

T-cell lymphoma and PTCL not otherwise specified, in

combination with cyclophosphamide, doxorubicin and

                                                     T-cell Lymphoma       

prednisone

sALCL after failure of at least one prior multi-agent

chemotherapy regimen

Primary cutaneous anaplastic large cell lymphoma, or

pcALCL, or CD30-expressing mycosis fungoides who have

received prior systemic therapy

Locally advanced or metastatic urothelial cancer for

patients who:

•have previously received a programmed death receptor-1

[[Image Removed: sgen-20220331_g2.jpg]] Urothelial Cancer (PD-1) or programmed death-ligand 1 (PD-L1) inhibitor and

platinum-containing chemotherapy, or

•are ineligible for cisplatin-containing chemotherapy and

have previously received one or more prior lines of

therapy.

In combination with trastuzumab and capecitabine for the

treatment of adult patients with advanced unresectable or

   [[Image Removed: sgen-20220331_g3.jpg]]            Breast Cancer        

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.

   [[Image Removed: sgen-20220331_g4.jpg]]           Cervical Cancer       

Recurrent or metastatic cervical cancer with disease

                                                                           progression on or after chemotherapy.
*ADCETRIS, PADCEV, TUKYSA and TIVDAK are only indicated for use in adults.



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ADCETRIS®

ADCETRIS is an ADC targeting CD30, which is a protein located on the surface of
cells and highly expressed in Hodgkin lymphoma, certain T-cell lymphomas as well
as other cancers. ADCETRIS first received U.S. Food and Drug Administration, or
FDA, approval in 2011 and is now approved in a total of six indications to treat
Hodgkin lymphoma and certain T-cell lymphomas in various settings including as
frontline therapy.

ADCETRIS has received approval in more than 75 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. Takeda has
received regulatory approvals for ADCETRIS as monotherapy or in combination with
other agents in various settings for the treatment of patients with Hodgkin
lymphoma or CD30-positive T-cell lymphomas in Europe and many countries
throughout the rest of the world and is pursuing additional regulatory
approvals.

PADCEV®

PADCEV is an ADC targeting Nectin-4, a protein expressed on the surface of cells
and highly expressed in bladder cancer as well as other cancers. 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 in the locally
advanced or metastatic setting. FDA approval of PADCEV was supported by data
from a single-arm pivotal phase 2 clinical trial called EV-201.

In July 2021, the FDA converted PADCEV's accelerated approval to regular
approval in the U.S., in addition to granting regular approval for a new
indication for adult patients with locally advanced or metastatic urothelial
cancer who are ineligible for cisplatin-containing chemotherapy and have
previously received one or more prior lines of therapy. The conversion to
regular approval was supported by the pivotal phase 3 clinical trial called
EV-301, and the expanded indication was supported by data from the second cohort
in the EV-201 trial. The FDA reviewed the application for regular approval under
the Oncology Center of Excellence's, or OCE's, Real Time Oncology Review, or
RTOR, pilot program.

In April 2022 the European Commission approved PADCEV as monotherapy for the
treatment of adult patients with locally advanced or metastatic urothelial
cancer who have previously received a platinum-containing chemotherapy and a
PD-1/L1 inhibitor. The approval is applicable in the European Union member
states, as well as Iceland, Norway and Liechtenstein.

PADCEV is also approved in Canada, Israel, Japan, Great Britain and Switzerland in previously treated metastatic urothelial cancer.

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. We
record net sales of PADCEV in the U.S. and are responsible for all U.S.
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. Outside the U.S., we have commercialization rights in all other
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.

TUKYSA®

TUKYSA is an oral, small molecule tyrosine kinase inhibitor, or TKI, that is
highly selective for HER2, a growth factor receptor overexpressed in certain
cancers. HER2 mediates cell growth, differentiation and survival. Tumors that
over-express HER2 are generally more aggressive and historically have been
associated with poor overall survival, compared with HER2-negative cancers. 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. FDA approval of TUKYSA was supported by data
from the HER2CLIMB trial.

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The application for approval was reviewed under the FDA's RTOR pilot program. We
also participated in the Project Orbis initiative of the FDA OCE which provides
a framework for concurrent submission and review of oncology products among
international partners. Under this program we have received approval in the
U.S., Canada, Australia, Singapore, and Switzerland. In February 2021, the EC
granted marketing authorization for TUKYSA in combination with trastuzumab and
capecitabine for the treatment of adult patients with HER2-positive locally
advanced or metastatic breast cancer who have received at least two prior
anti-HER2 treatment regimens. This approval is valid in all countries of the
European Union as well as Norway, Liechtenstein, Iceland and Northern Ireland.
In Europe, we have begun marketing TUKYSA in Austria, France, Germany and
Switzerland. Additionally, in February 2021, the UK Medicines and Healthcare
products Regulatory Agency, or MHRA, granted a Great Britain marketing
authorization for TUKYSA.

We are responsible for commercializing TUKYSA in the U.S., Canada and Europe. In
September 2020, we entered into a license and collaboration agreement, or the
TUKYSA Agreement, with Merck & Co., Inc., or Merck, pursuant to which we granted
exclusive rights to Merck to commercialize TUKYSA in Asia, the Middle East and
Latin America and other regions outside of the U.S., Canada and Europe. The
collaboration is intended to accelerate global availability of TUKYSA.

TIVDAK®

TIVDAK is an ADC targeting tissue factor, a protein expressed on the surface of
cells that has increased levels of expression on multiple solid tumors. The FDA
granted accelerated approval of TIVDAK in September 2021 for the treatment of
adult patients with recurrent or metastatic cervical cancer with disease
progression on or after chemotherapy. FDA approval was supported by data from
the innovaTV 204 trial where it was evaluated in patients with recurrent or
metastatic cervical cancer who had received no more than two prior systemic
regimens in the recurrent or metastatic setting, including at least one prior
platinum-based chemotherapy regimen. Continued approval may be contingent upon
verification and description of clinical benefit in confirmatory trials.

TIVDAK is being co-developed with Genmab A/S, or Genmab, under an agreement in
which the companies share all costs and profits for the product on a 50:50
basis. Under a joint commercialization agreement, we and Genmab co-promote
TIVDAK in the U.S. and we record net sales of TIVDAK in the U.S. and are
responsible for leading U.S. distribution activities. The companies will each
maintain 50% of the sales representatives and medical science liaisons, equally
share those and certain other costs associated with commercializing TIVDAK in
the U.S., and equally share in any profits realized in the U.S. Outside the
U.S., we have commercialization rights in the rest of the world except for
Japan, where Genmab has commercialization rights. In Europe, China, and Japan,
we and Genmab will equally share 50% of the costs associated with
commercializing TIVDAK as well as any profits realized in these markets. In
markets outside the U.S. other than Europe, China, and Japan, aside from certain
costs specified in the agreement, we will be solely responsible for all costs
associated with commercializing TIVDAK, and will pay Genmab a royalty based on a
percentage of aggregate net sales.

Clinical Development and Regulatory Status

ADCETRIS (brentuximab vedotin)

Beyond our current labeled indications, we are evaluating ADCETRIS as
monotherapy and in combination with other agents in ongoing trials, including
several potential registration-enabling trials such as the phase 3 ECHELON-3
clinical trial in relapsed or refractory diffuse large B-cell lymphoma. In
addition to our corporate-sponsored trials there are numerous
investigator-sponsored trials of ADCETRIS in the United States. The
investigator-sponsored trials include the use of ADCETRIS in a number of
malignant hematologic indications and in solid tumors.

In February 2022, we announced that the phase 3 ECHELON-1 clinical trial
demonstrated a statistically significant improvement in overall survival, or OS,
(p=0.009) in patients with advanced Hodgkin lymphoma following treatment with
ADCETRIS in combination with chemotherapy. With approximately six years median
follow up, patients receiving ADCETRIS plus doxorubicin, vinblastine, and
dacarbazine (A+AVD) in the frontline setting had a 41 percent reduction in the
risk of death (HR 0.59; [95% CI: 0.396 to 0.879]) compared with patients
receiving doxorubicin, bleomycin, vinblastine, and dacarbazine (ABVD). The
safety profile of ADCETRIS was consistent with previous studies and no new
safety events were observed.

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PADCEV (enfortumab vedotin-ejfv)

In addition to jurisdictions where PADCEV is currently approved, applications
are under review for approval in the previously treated metastatic urothelial
cancer setting in Australia, under the FDA's Project Orbis program, as well as
in Singapore, Brazil and other countries. In collaboration with Astellas we are
conducting or planning to conduct clinical trials across the spectrum of bladder
cancer including ongoing trials in frontline metastatic urothelial cancer and
muscle invasive bladder cancer. We are planning to conduct a trial in non-muscle
invasive bladder cancer. In addition, we are conducting a trial in a range of
other solid tumors.

PADCEV is being investigated in first-line 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 other agents. The trial is evaluating
safety, tolerability and activity in locally advanced and first- and second-line
metastatic urothelial cancer, and was expanded to include muscle invasive
bladder cancer, or MIBC.

In February 2020, based on the positive initial results of the dose-escalation
cohort and the expansion Cohort A of the EV-103 trial, 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 EV-103 trial, along with other
data from the EV-103 trial, could potentially support registration under the
FDA's accelerated approval pathway. The primary outcome measures are objective
response rate and duration of response, or DOR. In October 2021, we completed
enrollment in cohort K.

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 in collaboration with Astellas and
Merck. We, Astellas and Merck are jointly funding EV-302 and the trial is being
conducted by us. EV-302 is an open-label, randomized phase 3 clinical trial
evaluating the combination of PADCEV and pembrolizumab 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. The trial has dual
primary endpoints of progression free survival and OS and is intended to support
global regulatory submissions and potentially serve as a confirmatory trial if
accelerated approval is granted based on EV-103.

In April 2020, we and Astellas entered into an agreement with Merck to evaluate
PADCEV in MIBC. Merck has amended its ongoing phase 3 KEYNOTE-905/EV-303
registrational trial in cisplatin-ineligible patients with MIBC to include an
arm evaluating PADCEV in combination with pembrolizumab. In October 2020, we and
Astellas entered into an agreement with Merck to evaluate PADCEV in combination
with pembrolizumab in a phase 3 trial, called KEYNOTE-B15/EV-304, to be
conducted by Merck in cisplatin-eligible patients with MIBC. This trial was
initiated in the first quarter of 2021.

In January 2022, we enrolled the first patient in a phase 1 trial, called EV-104, evaluating PADCEV in patients with BCG unresponsive non-muscle invasive bladder cancer.

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.

TUKYSA (tucatinib)

We are conducting a broad clinical development program for TUKYSA including ongoing and planned trials in earlier lines of breast cancer and in other HER2-positive cancers. The positive results of the HER2CLIMB trial served as the basis for approval in the U.S., Canada, the European Union as well as other countries. Merck is co-funding a portion of the TUKYSA global development plan.

In December 2021, we presented new data at the San Antonio Breast Cancer
Symposium from exploratory analyses from the pivotal HER2CLIMB trial showing
that improvement in OS was maintained after an additional 15.6 months of
follow-up when TUKYSA was combined with trastuzumab and capecitabine in patients
with HER2-positive metastatic breast cancer who had stable or active brain
metastases. After a median follow-up of 29.6 months, the TUKYSA regimen improved
OS for patients with brain metastases by 9.1 months compared to trastuzumab and
capecitabine alone (21.6 months vs. 12.5 months) (HR: 0.60; [95% CI: 0.44,
0.81]). The benefit extended to patients with active or stable brain metastases.

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 supporting a U.S. cooperative group, the Alliance for Clinical Trials in
Oncology, that is conducting a phase 3 randomized trial, called CompassHER2 RD,
which is evaluating TUKYSA in combination with T-DM1 in the adjuvant setting for
patients with high-risk, HER2-positive breast cancer.

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We are also conducting a phase 2 trial, called HER2CLIMB-04, evaluating TUKYSA in combination with trastuzumab deruxtecan in previously treated locally-advanced or metastatic HER2-positive breast cancer.

We have also initiated a phase 3 trial, called HER2CLIMB-05, evaluating TUKYSA
compared to placebo in combination with trastuzumab and pertuzumab in the
frontline maintenance setting for patients with metastatic HER2-positive breast
cancer.

We are 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. In
September 2021, we completed enrollment in the trial. We believe the trial could
potentially support an application for accelerated approval in the U.S.

We are conducting a phase 2/3 trial, called MOUNTAINEER-02, in combination with
trastuzumab, ramucirumab and paclitaxel in second-line HER2-positive metastatic
gastroesophageal cancer. In addition, we have initiated a phase 3 trial, called
MOUNTAINEER-03, in combination with trastuzumab and mFOLFOX6 in first-line
HER2-positive metastatic colorectal cancer. We have also initiated a phase 1b
trial evaluating TUKYSA in combination with trastuzumab and oxaliplatin based
chemotherapy in first-line HER2-positive unresectable or metastatic colorectal,
gastric, esophageal and gallbladder cancers.

TIVDAK (tisotumab vedotin-tftv)

In collaboration with Genmab, we are developing TIVDAK for metastatic cervical cancer and are evaluating it as a potential therapy in other solid tumors.

In January 2021, we and Genmab initiated a phase 3 clinical trial, called
innovaTV 301, to evaluate TIVDAK compared to chemotherapy in patients with
recurrent or metastatic cervical cancer who have received one or two prior lines
of therapy. innovaTV 301 is intended to support global regulatory applications
for potential approvals in regions where innovaTV 204 does not support approval
and to serve as a confirmatory trial in the U.S.

We are also conducting a phase 2 clinical trial, called innovaTV 205, evaluating
TIVDAK as monotherapy and in combination with certain other anti-cancer agents
for first- and second-line treatment of patients with recurrent or advanced
cervical cancer. In September 2021, interim results were presented at the
European Society for Medical Oncology Annual Congress from two cohorts of the
phase 1b/2 innovaTV 205 trial, evaluating TIVDAK as combination therapy for
recurrent or metastatic cervical cancer. Both combinations showed encouraging,
durable anti-tumor activity and demonstrated a manageable and acceptable safety
profile.

We are conducting a phase 2 clinical trial, called innovaTV 207, for patients
with relapsed, locally advanced or metastatic solid tumors. In February 2022,
initial data from the innovaTV 207 phase 2 trial of TIVDAK in solid tumors was
presented at the Multidisciplinary Head and Neck Cancers Symposium. The results
demonstrated a manageable safety profile and promising preliminary antitumor
activity in patients with squamous cell carcinoma of the head and neck with 16
percent of patients (95% CI: 5.5 to 33.7) achieving the primary endpoint of
confirmed objective response rate per investigator.

Additionally, we are conducting a phase 2 clinical trial, called innovaTV 208, for patients with platinum-resistant ovarian cancer.

Disitamab vedotin

In September 2021, we and RemeGen entered into an exclusive license agreement to
develop and commercialize disitamab vedotin, a novel HER2-targeted ADC, which
has shown anti-tumor activity in several solid tumor types across a spectrum of
HER2 levels, including urothelial, gastric and breast cancer, in all countries
outside of RemeGen's territory of Asia, excluding Japan and Singapore. We have a
broad clinical development program planned including an ongoing phase 2 trial
evaluating disitamab vedotin as monotherapy in previously treated
HER2-expressing metastatic urothelial cancer.

Ladiratuzumab vedotin

We are developing ladiratuzumab vedotin, or LV, 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 September
2020, we and Merck entered into a license and collaboration agreement, or the LV
Agreement, under which the companies will jointly develop and share future costs
and profits worldwide for LV.

Other clinical and early-stage product candidates

We are advancing a pipeline of early-stage clinical candidates as well as
multiple preclinical and research-stage programs that employ our proprietary
technologies. We advanced several product candidates into clinical development
in 2021, and we plan to submit additional Investigational New Drug applications
to the FDA in 2022.

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Antibody-Drug Conjugate technology license agreements

We have active technology 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; and GlaxoSmithKline LLC, or GSK, as well as collaboration agreements
with Astellas and Genmab. Genentech and GSK have received approval for ADC drugs
that utilize our technology, Polivy® (polatuzumab vedotin-piic) and Blenrep®
(belantamab mafodotin-blmf), respectively, in the U.S., European Union and other
countries. Under our ADC license agreements with Genentech and GSK, we are
entitled to receive royalties on net sales of Polivy and Blenrep worldwide.

COVID-19

We are continuing to closely monitor the impact of the evolving effects of the
COVID-19 pandemic on our business. We are continuing to take proactive steps
designed to protect the health and safety of our workforce, patients and
healthcare professionals, to continue our business operations and to advance our
goal of bringing important medicines to patients as rapidly as possible. Earlier
in the pandemic, we instituted a mandatory work-from-home policy for employees
who could perform their jobs offsite, but continued our essential research,
manufacturing, and laboratory activities on site. More recently, we began to
allow additional U.S. office-based employees who have been fully vaccinated to
return to the office on a voluntary and limited basis. We maintain a number of
precautionary measures designed to protect our on-site employees, such as
enhanced facilities cleaning, lower concentrations of staff, contact tracing and
making testing available. After pausing most in-person customer interactions in
healthcare settings earlier in the pandemic, our field-based personnel are now
using a mix of in-person interactions and electronic communications, such as
emails, phone calls and video conferences, to support healthcare professionals
and patients. We believe that the measures we have implemented are appropriate
and are helping to reduce transmission of COVID-19, and we will continue to
monitor conditions and related guidance from governmental authorities and adjust
our activities as appropriate.

Outlook

We recognize product sales revenue from ADCETRIS in the U.S. and Canada, from
PADCEV and TIVDAK in the U.S., and from TUKYSA in the U.S., Europe and Canada.
We expect growth in net product sales in 2022 from 2021 to be primarily driven
by sales growth of PADCEV and, to a lesser extent, TIVDAK and ADCETRIS. While we
anticipate that sales of ADCETRIS will increase modestly in 2022 as compared to
2021, we have experienced continued impacts associated with the COVID-19
pandemic, which appear to have led to a reduction in the rate of Hodgkin
lymphoma diagnoses and may further adversely affect the rate of Hodgkin lymphoma
diagnoses in the future. We have also experienced an increase in gross-to-net
deductions for ADCETRIS since the beginning of the pandemic, which has been
driven by the proportion of ADCETRIS sales subject to discounts through the
federal 340B drug discount program, as well as increases in discount rates. We
believe that the increase in gross-to-net deductions is, in part, due to a shift
in the locations where ADCETRIS is administered. We may further experience
additional increases in gross-to-net deductions for ADCETRIS and the rest of our
portfolio in the future based on market and site-of-care dynamics. Subject to
potentially securing additional labels, we anticipate that the rate of growth of
PADCEV and TUKYSA sales will decelerate in 2022 compared to 2021 as we expect to
continue to more fully penetrate the markets for their currently approved labels
within the U.S.

Our ability to maintain or continue to grow net product sales and to realize the
anticipated benefits of our investments in our products depends on a number of
factors including:

•our and our collaborators' ability to demonstrate to the medical community the efficacy, safety and value of our products and their potential advantages compared to existing and future therapeutics in their approved indications;

•the extent to which we and our collaborators are able to obtain regulatory and
other approvals of our products in additional territories and/or in additional
indications, including any approvals for PADCEV in the frontline metastatic
urothelial cancer setting and any approvals for TUKYSA in earlier lines of
breast cancer and/or other HER2-positive cancers;

•our and our collaborators' ability to successfully launch, market and
commercialize our products in any new markets or new indications, if regulatory
approval is obtained, including Astellas' ability to successfully launch, market
and commercialize PADCEV in the European Union and its other markets;

•competition from other therapies and changing market dynamics, as further
described in "Business-Competition" in Part I of our Annual Report on Form 10-K
for the year ended December 31, 2021; for example, the potential approval of
ENHERTU for second-line HER2-positive metastatic breast cancer is expected to
pose increased competition for TUKYSA;

•the extent to which we are able to successfully work with Astellas to jointly
market and commercialize PADCEV in the U.S., and with Genmab to jointly market
and commercialize TIVDAK in the U.S.;

•our ability to successfully market and commercialize TUKYSA in our territories outside the U.S.;

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•the extent to which coverage and adequate levels of reimbursement for our products are available from governments and other third-party payors;

•the extent to which we and our collaborators are able to obtain required pricing and reimbursement approvals of our products in additional territories, most notably with respect to TUKYSA and PADCEV;

•the impact of current and future healthcare reform measures, including measures
that could result in more rigorous coverage criteria or reduce the price that we
receive for our products;

•the incidence flow of patients eligible for treatment in our products' approved indications;

•our and our collaborators' ability to accurately predict and supply product demand;

•duration of therapy for patients receiving our products;

•our and our collaborators' ability to successfully comply with rigorous
post-marketing requirements, including requirements related to a confirmatory
trial as a result of TIVDAK's accelerated approval by the FDA, and to convert
TIVDAK's accelerated approval to regular approval in the U.S.;

•with respect to TIVDAK, the acceptance of TIVDAK and its required eye care by the medical community and patients; and

•impacts related to the COVID-19 pandemic, including potential further adverse
effects on the rate of Hodgkin lymphoma diagnoses and potential adverse impacts
on diagnosis rates for other cancers.

As a result of these and other factors, our future net product sales for each of
our products can be difficult to accurately predict from period to period. We
cannot assure you that sales of any of our products will continue to grow or
that we can maintain sales of any of our products at or near current levels.

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
healthcare costs to continue to be subject to intense political and societal
pressures on a global basis. For example, in July 2021, the Biden administration
announced an Executive Order that includes initiatives aimed at lowering
prescription drug costs and implementing Canadian drug importation, and in
response to President Biden's Executive Order, in September 2021, the U.S.
Department of Health and Human Services released a Comprehensive Plan for
Addressing High Drug Prices that outlines principles for drug pricing reform and
sets out a variety of potential legislative policies that Congress could pursue
to advance these principles. 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 received from our collaboration agreements, including
royalties, will continue to be an important source of our revenues and cash
flows. These revenues and cash flows 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, 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 the continued development of our
commercial infrastructure in Europe and our plans 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 substantial milestone payment obligations to
certain of our licensors, including RemeGen, as our product candidates progress
through clinical trials towards potential commercialization.

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We are closely evaluating the impacts of the evolving effects of the COVID-19
pandemic on our ability and the ability of our collaborators to effectively
market, sell and distribute our products and to develop our products and product
candidates. Our field-based personnel are using a mix of in-person interactions
and electronic communications, such as emails, phone calls and video
conferences, to support healthcare providers and patients. Many healthcare
professionals are facing additional demands on their time during the ongoing
COVID-19 pandemic. 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, as well as physician
awareness of our products. In this regard, we believe that the need to conduct
some of our activities virtually is negatively impacting our ability to connect
with key customers, including those familiar with competitive products, and our
ability to conduct payor engagements. We face a number of challenges that will
limit our ability to fully resume in-person interactions, including increasing
COVID-19 infection rates due to coronavirus mutations and/or low vaccination
rates in different areas or otherwise, the need to navigate varying restrictions
for entering healthcare facilities and the pandemic's impacts on employee
childcare arrangements. In addition, we may subsequently decide or be forced to
resume a more restrictive remote work model, whether as a result of further
spikes or surges in COVID-19 infection or hospitalization rates or otherwise.
Moreover, 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. Future COVID-19 related restrictions could also present product
distribution challenges. The evolving effects of the COVID-19 pandemic appear to
have negatively affected and may continue to negatively affect our product sales
due to challenges in patient access to healthcare settings, loss of individual
health insurance coverage, and inability to access government healthcare
programs due to backlogs, some or all of which appear to have negatively
affected diagnosis rates, may affect side effect management and course of
treatment and may increase enrollment in our patient support programs. In this
regard, impacts associated with the COVID-19 pandemic appear to have led to a
reduction in the rate of Hodgkin lymphoma diagnoses, may have adversely affected
diagnosis rates of other cancers, and may further adversely affect rates of
cancer diagnoses in the future. 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.

Some of the sites participating in our clinical trials are affected by site
closings, reduced capacity, staffing shortages, or other effects of the COVID-19
pandemic. At some sites, we are experiencing impacts to our ability to monitor
patients, activate sites, screen and enroll patients, complete site monitoring
and manage samples. The extent of the impact on a particular clinical trial
depends on the current stage of activities at a given site, for example study
start up versus post-enrollment, and the number of impacted sites participating
in that trial. Impacts on diagnosis rates associated with the COVID-19 pandemic
may also negatively impact enrollment. While we do not at this time anticipate
the need to revise our publicly reported projected clinical milestone dates as a
result of the effects of the COVID-19 pandemic, there may continue to be adverse
impacts to our clinical study timelines, which, depending upon the duration and
severity of the evolving effects of the COVID-19 pandemic, could ultimately
delay data availability. Due to the suspension of data monitoring activities at
sites that do not currently allow remote monitoring, as well as impacts on the
ability to monitor patients, maintain patient treatment according to the trial
protocols and manage samples, there is also the potential for negative impacts
on data quality. While we are actively utilizing digital monitoring measures and
other mitigations designed to prevent negative data quality impacts, if there
were in fact a negative impact on data quality, we or our collaborators could be
required to repeat, extend the duration of, or increase the size of clinical
trials, which could significantly delay potential commercialization and require
greater expenditures. We expect that similar factors will impact clinical
studies operationalized by our collaborators. In addition, many of our
non-essential on-site research activities are currently significantly reduced as
a result of the COVID-19 pandemic, which may negatively impact the number of
investigational new drug application, or IND, candidates entering our clinical
pipeline in future years.

The extent to which the evolving effects of the COVID-19 pandemic impact our
business will depend on future developments that are highly uncertain, such as
coronavirus variants that may prove to be especially contagious or virulent, the
ultimate duration and severity of the pandemic, 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 vaccine programs and other actions taken to contain and treat
the disease. For more information on the risks and uncertainties associated with
the evolving effects of the COVID-19 pandemic on our business, our ability to
generate sales of and revenues from our approved products, and our clinical
development and regulatory efforts, see "Part II Item 1A-Risk Factors."

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.



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Financial summary

For the three months ended March 31, 2022, our total revenues increased to
$426.5 million, compared to $332.0 million for the same period in 2021. This
increase was primarily driven by $80.5 million or 27% higher net product sales,
due to growth from each of our approved medicines, and to a lesser extent,
higher collaboration and license agreement revenues, and higher royalty
revenues.

For the three months ended March 31, 2022, total costs and expenses increased to
$559.5 million, compared to $454.4 million for the same period in 2021. The
increase was primarily driven by higher research and development expenses, and
to a lesser extent, higher cost of sales, and higher sales, general, and
administrative expenses.

As of March 31, 2022, we had $2.0 billion in cash, cash equivalents and investments and $3.0 billion in total stockholders' equity.

Results of operations

Net product sales

                                               Three months ended March 31,
(dollars in thousands)                      2022                  2021         % Change
ADCETRIS                          $      180,989               $ 162,573           11  %
PADCEV                                   100,207                  69,758           44  %
TUKYSA                                    90,475                  70,257           29  %
TIVDAK                                    11,415                       -              NM
Net product sales                 $      383,086               $ 302,588           27  %
NM: No amount in comparable period or not a meaningful comparison.

Our net product sales increased 27% during the three months ended March 31, 2022, as compared to the comparable period in 2021, driven by growth from each of our marketed products.

PADCEV net product sales grew primarily due to higher penetration in its
approved indications, and to a lesser extent, higher sales in the current period
of drug product to another company for use in its clinical trials in the current
period. TUKYSA net product sales grew due to increased sales volume in our
European markets and higher net product sales in the U.S. due to continued
penetration in its current indication. ADCETRIS net product sales grew primarily
due to higher net selling prices, and to a lesser extent, growth in volumes of
vials sold. We began commercializing TIVDAK in the U.S. following FDA approval
in September 2021.

We expect growth in net product sales in 2022 as compared to 2021 to be primarily driven by sales growth of PADCEV, and to a lesser extent, TIVDAK and ADCETRIS. Refer to "Overview-Outlook" above for additional information.

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, 2021                             $     74,889          $            16,818          $  91,707
Provision related to current period sales                        129,506                       10,864            140,370
Adjustment for prior period sales                                 (1,774)                        (231)            (2,005)
Payments/credits for current period sales                        (93,172)                      (5,995)           (99,167)
Payments/credits for prior period sales                          (26,359)                      (4,151)           (30,510)
Balance as of March 31, 2022                                $     83,090          $            17,305          $ 100,395


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, 2022 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, 2022 and 2021 was for ADCETRIS
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 2022 as compared to 2021, driven by
anticipated growth in our gross product sales.

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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 and amounts from
GlaxoSmithKline earned on net sales of Blenrep beginning in 2020, both of which
utilizes technology that we have licensed to them, as well as royalties on
TUKYSA sales by Merck in its territory, and royalties on disitamab vedotin sales
by RemeGen in its territory.

                                         Three months ended March 31,
(dollars in thousands)                 2022                   2021        % Change
Royalty revenues            $       28,181                 $ 27,219            4  %


Royalty revenues increased slightly for the three months ended March 31, 2022
from the comparable period in 2021, primarily due to higher royalties earned on
net sales of Polivy by Genentech.

We expect that royalty revenues will increase in 2022 as compared to 2021 primarily due to higher royalties from anticipated growth in ADCETRIS sales volume by Takeda, and to a lesser extent, anticipated growth of our other licensees' net product sales.

Collaboration and license agreement revenues

Collaboration and license agreement revenues reflect amounts earned under certain of our license and collaboration agreements. These revenues reflect license fees, payments received by us for technology access and maintenance fees, sales of drug supply to our collaborators, milestone payments, and reimbursement payments for research and development support that we provide to our collaborators.

                                                                                  Three months ended March 31,
(dollars in thousands)                                                      2022              2021            % Change

Collaboration and license agreement revenues                            $  15,193          $ 2,176                     NM

NM: No amount in comparable period or not a meaningful comparison.

Collaboration and license agreement revenues increased for the three months
ended March 31, 2022 compared to the prior period primarily due to an upfront
license payment received from Sanofi during 2022. Growth also was driven by
higher amounts received from Astellas profit sharing, primarily driven by sales
of PADCEV in Japan, and from drug product supplied to a collaborator.

We expect that collaboration and license agreements revenues will decline
slightly in 2022 as compared to 2021. 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 and the timing
of milestones achieved, the amount of drug supplied to our collaborators, and
whether we enter into potential additional collaboration and license agreements.

Collaboration and license 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 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.

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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. Under this collaboration, we and
Astellas are equally co-funding all development and certain commercialization
costs for 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. Gross
profit share payments owed to Astellas in the U.S. under the joint
commercialization agreement are recorded in cost of sales. 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.

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 TIVDAK 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 TIVDAK. Under this collaboration, we and Genmab are
co-funding all development costs for TIVDAK. In the U.S., we and Genmab
co-promote TIVDAK. We record sales of TIVDAK in the U.S. and are responsible for
leading U.S. distribution activities. The companies will each maintain 50% of
the sales representatives and medical science liaisons, equally share those and
certain other costs associated with commercializing TIVDAK in the U.S.,
individually bear the costs of certain other personnel in the U.S., and equally
share in any profits realized in the U.S. Outside the U.S., we have
commercialization rights in the rest of the world except for Japan, where Genmab
has commercialization rights. In Europe, China, and Japan, we and Genmab equally
share 50% of the costs associated with commercializing TIVDAK as well as any
profits realized in these markets. In markets outside the U.S. other than
Europe, China, and Japan, aside from certain costs specified in the agreement,
we are solely responsible for all costs associated with commercializing TIVDAK
and will pay Genmab a royalty based on a percentage of aggregate net sales
ranging from the mid-teens to mid-twenties.

Merck LV collaboration

In 2020, we entered into the LV Agreement with a subsidiary of Merck. We are
pursuing a broad joint development program evaluating LV as monotherapy and in
combination setting, including with Merck's anti-PD-1 therapy KEYTRUDA®
(pembrolizumab) in triple-negative breast cancer, hormone receptor-positive
breast cancer and other LIV-1-expressing solid tumors. Under the terms of the LV
Agreement, we granted Merck a co-exclusive worldwide development and
commercialization license for LV, and agreed to jointly develop and
commercialize LV on a worldwide basis. We received an upfront cash payment, and
we are eligible to receive milestone payments upon the initiation of certain
clinical trials, regulatory approval in certain major markets and achievement of
specified annual global net sales thresholds of LV. Each company is responsible
for 50% of global costs to develop and commercialize LV and will receive 50% of
potential future profits.

We recognize such cost sharing proportionately with the performance of the underlying activities, while recording Merck's reimbursement of our expenses as a reduction of research and development expenses.

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Merck TUKYSA collaboration

In 2020, we entered into the TUKYSA Agreement with a subsidiary of Merck. We
granted exclusive rights to commercialize TUKYSA in Asia, the Middle East and
Latin America and other regions outside of the U.S., Canada and Europe. Under
the terms of the TUKYSA Agreement, Merck is responsible for marketing
applications for approval in its territory, supported by the positive results
from the HER2CLIMB clinical trial. We retained commercial rights in, and will
record sales in, the U.S., Canada and Europe. Merck is also co-funding a portion
of the TUKYSA global development plan, which encompasses several ongoing and
planned trials across HER2-positive cancers. We will continue to lead ongoing
TUKYSA global development operational execution. Merck will solely fund and
conduct country-specific clinical trials necessary to support anticipated
regulatory applications in its territories. We are eligible to receive
progress-dependent milestone payments, and are entitled to receive tiered
royalties on sales of TUKYSA by Merck that begin in the low twenty percent range
and escalate based sales volume by Merck in its territory.

We recognize such cost sharing proportionately with the performance of the
underlying activities, while recording Merck's reimbursement of our expenses as
a reduction of research and development expenses. Sales of TUKYSA drug product
supplied is included in collaboration and license agreement revenues. The
$85.0 million prepayment received for global development cost-sharing was
recorded as a co-development liability in accrued liabilities and other or other
long-term liabilities on our condensed consolidated balance sheet as of
March 31, 2022. As joint development expenses are incurred, we recognize the
portion of Merck's prepayment as a reduction of our research and development
expenses on our condensed consolidated statements of comprehensive loss. As of
March 31, 2022 and December 31, 2021, $48.4 million and $55.3 million was
recorded as the remaining co-development liability, respectively.

RemeGen disitamab vedotin license agreement

Effective in September 2021, we and RemeGen entered into an exclusive worldwide
licensing agreement to develop and commercialize disitamab vedotin, a novel
HER2-targeted ADC. Disitamab vedotin combines the drug-linker technology
originally developed by Seagen with RemeGen's novel HER2 antibody. Disitamab
vedotin received FDA Breakthrough Therapy designation in 2020 for use in
second-line treatment of patients with HER2-expressing, locally advanced or
metastatic urothelial cancer who have previously received platinum-containing
chemotherapy. Also in 2020, RemeGen announced FDA's clearance of an IND
application for a phase II clinical trial in locally advanced or metastatic
urothelial cancer. Disitamab vedotin is conditionally approved for treating
locally advanced metastatic gastric cancer in China, and in July 2021 the
National Medical Products Administration of China also accepted a NDA for
disitamab vedotin in locally advanced or metastatic urothelial cancer.

Under the terms of the agreement, we made a $200.0 million upfront payment to
obtain exclusive license rights to disitamab vedotin for global development and
commercialization, outside of RemeGen's territory. RemeGen retains development
and commercialization rights for Asia, excluding Japan and Singapore. We will
lead global development and RemeGen will fund and operationalize the portion of
global clinical trials attributable to its territory. RemeGen will also be
responsible for all clinical development and regulatory submissions specific to
its territory. We will pay RemeGen up to $195.0 million in potential milestone
payments across multiple indications and products based upon the achievement of
specified development goals, and up to $2.2 billion in potential milestone
payments based on the achievement of specified regulatory and commercialization
goals. RemeGen will be entitled to a tiered, high single digit to mid-teen
percentage royalty based on net sales of disitamab vedotin in our territory.

Other technology 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.

Cost of sales

Cost of sales includes manufacturing and distribution costs of product sold,
gross profit share with Astellas and Genmab pursuant to those respective
collaborations, amortization of acquired technology license costs, royalties
owed on our PADCEV net product sales, and royalties owed on global ADCETRIS,
TUKYSA, and TIVDAK net product sales.

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                                         Three months ended March 31,
(dollars in thousands)                 2022                   2021        % Change

Cost of sales               $       87,626                 $ 64,135           37  %


Cost of sales increased for the three months ended March 31, 2022 from the
comparable period in 2021, driven by higher gross profit sharing owed to our
collaboration partners, and to a lesser extent, higher product costs from sales
volume increases. The gross profit share owed to collaborators totaled
$52.8 million for the three months ended March 31, 2022, as compared to
$32.5 million for the comparable period in 2021.

We expect cost of sales to increase in 2022 as compared to 2021 as a result of
the net product sales growth of our marketed products, contributing to higher
anticipated gross profit sharing with our collaborators, higher manufacturing
costs for products sold, and increased royalties owed on certain net sales of
our products.


Research and development

                                                     Three months ended March 31,
(dollars in thousands)                            2022                  2021         % Change
Research and clinical development       $      229,649               $ 174,005           32  %
Process sciences and manufacturing              68,010                  56,421           21  %
Total research and development          $      297,659               $ 230,426           29  %


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, 2022 from the comparable period in 2021 was due mainly to
higher employee-related costs and clinical trial 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
product candidates 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, 2022 from the comparable period in 2021 primarily reflected higher
manufacturing costs of our product candidates for use in clinical trials.

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 development
milestone payments for in-licensed technology for our products 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,
personnel, facilities, manufacturing, and other indirect costs not directly
charged to development programs, as well as cost reimbursements received from or
payments made to collaborators related to our product candidates.

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                                                                              Three months ended March 31,
(dollars in thousands)                                                          2022                  2021

TUKYSA (tucatinib)                                                       $        43,595          $   29,993
PADCEV (enfortumab vedotin-ejfv)                                                  24,769              16,288
ADCETRIS (brentuximab vedotin)                                                    13,852              17,076
TIVDAK (tisotumab vedotin)                                                         7,932              12,004
Ladiratuzumab vedotin                                                              3,259               4,845
Disitamab vedotin                                                                 10,380                   -
Other clinical stage programs                                                     20,533              21,596
Total third-party costs for clinical stage programs                              124,320             101,802

Other costs, overhead, and net cost-sharing with collaborators                   173,339             128,624
Total research and development                                           $  

297,659 $ 230,426

Third-party costs for PADCEV increased for the three months ended March 31, 2022 as compared to the 2021 period, due primarily to higher clinical trials expenses.

Third-party costs for TUKYSA increased for the three months ended March 31, 2022
as compared to the 2021 period, due primarily to higher manufacturing costs as
well as higher clinical trials expenses.

Third-party costs for ADCETRIS, TIVDAK, and ladiratuzumab vedotin decreased for the three months ended March 31, 2022 as compared to the 2021 period, due primarily to the timing of clinical trials.

We obtained exclusive license rights to disitamab vedotin for global development and commercialization outside of RemeGen's territory in September 2021.

Third-party costs for other clinical stage programs were consistent for the three months ended March 31, 2022 as compared to the 2021.

Other costs, overhead, and net cost-sharing with collaborators increased for the
three months ended March 31, 2022 from the comparable period in 2021, due to
higher employee-related costs and a payment for in-licensed technology. During
the three months ended March 31, 2022 and 2021, net cost-sharing reimbursements
from and payments made to collaborators were $23.3 million and $21.3 million,
respectively.

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 2022 will increase compared to 2021 primarily due to higher costs for the continued development of our approved products and product candidates, offset in part by the $200.0 million RemeGen upfront license payment in 2021.

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 risks 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)                             2022                  2021         % Change
Selling, general and administrative      $      174,225               $ 159,842            9  %


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Selling, general and administrative expenses increased for the three months
ended March 31, 2022 from the comparable period in 2021, reflecting investments
to support our ongoing European TUKYSA launches and the U.S. commercial launch
of TIVDAK.

We anticipate that selling, general and administrative expenses will increase in
2022 as compared to 2021 as we continue our commercial activities in support of
our product launches, and invest in infrastructure to support our continued
growth in the U.S. and Europe.

Investment and other (loss) income , net

                                                                                Three months ended March 31,
(dollars in thousands)                                                   2022              2021             % Change
(Loss) gain on equity securities                                     $  (2,779)         $   259                       NM

Investment and other income, net                                           589              741                   (21) %
Total investment and other (loss) income, net                        $  (2,190)         $ 1,000                  (319) %

NM: No amount in comparable period or not a meaningful comparison.

Investment and other (loss) income , net includes other non-operating income and
loss, such as unrealized holding gains and losses on equity securities, 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 for the three months ended March 31, 2022 was due to unrealized holding losses resulting from a decline in the share price of securities held during the period.

Provision for income taxes

Our provision for income taxes was $1.3 million for the three months ended
March 31, 2022 compared with $0.0 million for the three months ended March 31,
2021. The provision for income taxes in the 2022 period primarily related to
taxable profits in the U.S. as a result of amendments to IRC Section 174, which
took effect January 1, 2022 pursuant to the 2017 Tax Cuts and Jobs Act. We had
existing federal tax carryforwards sufficient to offset any federal liability;
however, there were limitations on the use of existing state tax carryforwards.
Our income tax provision also reflected taxable profits in foreign
jurisdictions.

Liquidity and capital resources

(in thousands)                                March 31, 2022       December 31, 2021
Cash, cash equivalents, and investments      $     1,951,093      $        2,160,036
Working capital                                    2,239,961               2,300,340
Stockholders' equity                               2,998,467               3,065,139


                                    Three months ended March 31,
(in thousands)                          2022                   2021
Cash provided (used) by:
Operating activities          $      (216,812)             $ (125,326)
Investing activities                   26,663                 (78,715)
Financing activities                   26,664                  19,791

The change in net cash from operating activities for the three months ended March 31, 2022 as compared to the comparable period in 2021 was primarily related to an increase in net loss and increases in net working capital.

The change in net cash from investing activities for the three months ended March 31, 2022 as compared to the comparable period in 2021 reflected differences between the proceeds received from sale and maturity of our investments and amounts reinvested and the difference for purchases of property, plant, and equipment.

The change in net cash from financing activities for the three months ended
March 31, 2022 as compared to the comparable period in 2021 was driven by the
higher proceeds from the exercise of stock options and employee stock purchase
plan.

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We primarily have financed our operations through the issuance of our common
stock, collections from commercial sales of our products, amounts received
pursuant to license and collaboration agreements, 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.

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, 2022, we had $2.0 billion held in
cash, cash equivalents and investments.

At our currently planned spending rates, we believe that our existing financial
resources, together with product and royalty revenues, and reimbursements and
profit sharing 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 from the date of this filing.

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, invest in our facilities, and expand
globally, which may require us to raise additional capital. In addition, we may
pursue new operations or continue the expansion of our existing operations,
including with respect to the continued development of our commercial
infrastructure in Europe and our plans to otherwise continue to expand our
operations internationally. Our commitment of resources to the continuing
development, regulatory and commercialization activities for our products, the
continued research, development and manufacturing of our product candidates, our
pursuit of regulatory approvals for and preparing to potentially launch and
commercialize our product candidates, and the anticipated expansion of our
pipeline and operations 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. We have no committed sources of funding and 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, we may be required to scale back
our operations, delay, reduce the scope of, or eliminate development programs
enter into collaboration or license agreements on terms that are not favorable
to us, sell or relinquish rights to certain assets, proprietary technologies or
product candidates or forego strategic opportunities.

Material Cash Requirements

Our material cash requirements in the short- and long-term consist of the
following operational, capital, and manufacturing expenditures, a portion of
which contain contractual or other obligations. We plan to fund our material
cash requirements with our current financial resources together with our
anticipated receipts of accounts receivable, product sales and royalty revenues,
and reimbursements we expect to receive under our existing collaboration and
license agreements.

Operating expenditures. Our primary uses of cash and operating expenses relate
to paying employees and consultants, administering clinical trials, marketing
our products, and providing technology and facility infrastructure to support
our operations. Our research and development expenses for the three months ended
March 31, 2022 were $297.7 million, and we expect to increase our investment in
research and development expenses in 2022 as compared to 2021. Our sales,
general and administrative expenses were $174.2 million for the three months
ended March 31, 2022, and we expect to increase our sales, general, and
administrative expenses to support our business growth in 2022 as compared to
2021. On a long-term basis, we manage future cash requirements relative to our
long-term business plans.

Operating costs also relate to our building leases for our office and laboratory
facilities expiring in 2022 through 2029 that contain rate escalations and
options for us to extend the leases. Our future minimum lease payments as of
March 31, 2022 totaled $16.8 million related to short-term lease liabilities,
and $61.1 million related to long-term lease liabilities. We signed a 20-year
lease in June 2021 for a building complex in Everett, Washington that has not
commenced as of March 31, 2022, and therefore rent payments are not included in
lease liability balances as of March 31, 2022. Refer to Note 3 in the Notes to
Financial Statements in Item 1 for further detail of our lease obligations.

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Capital expenditures. We make investments in our office, laboratory, and
manufacturing facilities to enable continued expansion of our business. These
include leasehold and building improvements at our approximately 1 million
square feet of leased and owned properties, installation of laboratory and
manufacturing equipment, computers, software, and office equipment. Our
purchases for property and equipment for the three months ended March 31, 2022
were $17.4 million, and we anticipate these investments to grow in 2022 as
compared to 2021 to support our anticipated business growth and long-term
facility needs, including a significant multi-year investment in a building
complex being constructed in Everett, Washington, which is expected to provide
us additional manufacturing, laboratory, and office space in the future. We
expect our capital expenditures for this Everett facility to be approximately
$350 million to $400 million through 2024.

Manufacturing costs, and supply agreements. Some of our inventory components and
products require long lead times to manufacture. Therefore, we make substantial
and often long-term investments in our supply chain in order to ensure we have
enough drug product to meet current and future revenue forecasts, as well as
clinical trial needs. Supply agreements primarily include non-cancelable
obligations under our manufacturing, license and collaboration, and technology
agreements. Further, a substantial portion of those non-cancelable obligations
include minimum payments related to manufacturing our product candidates for use
in our clinical trials and for commercial operations in the case of ADCETRIS.
There have been no material changes related to our future minimum contractual
commitments under these arrangements as disclosed in our Annual Report on Form
10-K for the year ended December 31, 2021 filed February 9, 2022.

Royalties, milestones and profit-sharing associated with our licensed technology
and collaboration agreements. Some of our license and collaboration agreements
provide for periodic maintenance fees over specified time periods, profit share
payments, and/or payments by us upon the achievement of development and
regulatory milestones. Some of our licensing agreements also obligate us to pay
royalties based on net sales of products utilizing licensed technology. Such
royalties and profit share payments are dependent on future product sales and
are contingent on events that have not yet occurred. Royalties and profit share
payments totaled $65.7 million for the three months ended March 31, 2022 and are
expected to increase in future periods. Milestone payments generally become due
and payable upon the achievement of certain events. There have been no material
changes related to our future milestone payments potentially owed related to
in-licensed technology as disclosed in our Annual Report on Form 10-K for the
year ended December 31, 2021 filed February 9, 2022.

Critical accounting policies

The preparation of financial statements in accordance with GAAP requires us to
make estimates, assumptions, and judgments that affect the amounts reported in
our financial statements and accompanying notes. We evaluate our estimates on an
ongoing basis. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form our basis for making judgments about the carrying values
of assets and liabilities and the reported amounts of revenues and expenses that
are not readily apparent from other sources. 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, 2022 were consistent with those
in Part II Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2021.

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