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 antibody drug conjugate, or ADC, technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells.
Third quarter 2022 highlights and recent developments
Business Highlights
•Reported increases across all components of revenue for the third quarter and year-to-date in 2022 as compared to the prior year periods, including 17% and 22% growth in net product sales for the periods, respectively. •Entered into a corporate transaction for an innovative bispecific technology candidate that is directed toward a target not readily addressable by an ADC, adding to our portfolio of targeted drug therapies.
•Extended the geographic reach of TIVDAK with a new partnership for the
development and commercialization in mainland
•Presented positive results for PADCEV and TUKYSA pivotal clinical trials that supported supplemental applications to theU.S. Food and Drug Administration , or FDA, for potential label expansion. We also submitted a supplemental application for ADCETRIS based on data demonstrating an overall survival benefit in advanced Hodgkin lymphoma for inclusion in the label.
•Opened an Investigational New Drug, or IND, application for an immuno-oncology product candidate.
•Published annual Corporate Responsibility Report.
Details on these and other accomplishments are as follows:
Corporate Development
•InSeptember 2022 , we entered into an agreement with LAVA Therapeutics to develop and commercialize LAVA-1223, a preclinical gamma delta bispecific T-cell engager for EGFR-expressing solid tumors. We received an exclusive global license for LAVA-1223 and the opportunity to exclusively negotiate rights to apply LAVA's proprietary Gammabody™ platform on up to two additional tumor targets, for an upfront payment of$50.0 million and potential milestones and royalties.
• In
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Product and Pipeline Highlights
PADCEV
•InSeptember 2022 , we, Astellas and Merck announced the presentation of data from the phase 1b/2 EV-103 clinical trial (also known as KEYNOTE-869) Cohort K evaluating PADCEV in combination with Merck's anti-PD-1 therapy KEYTRUDA as first-line treatment in patients with unresectable locally advanced or metastatic urothelial cancer who are ineligible to receive cisplatin-based chemotherapy at theEuropean Society for Medical Oncology Congress . The results for the combination demonstrated an encouraging overall response rate of 64.5% and a manageable safety profile. The median duration of response was not reached. The results served as the basis for a supplemental Biologics License Application, or sBLA, submitted to the FDA, inOctober 2022 under theFDA's Accelerated Approval Program.
TUKYSA
•In
•InJuly 2022 , the FDA granted TUKYSA Breakthrough Therapy designation for use in combination with trastuzumab for the treatment of adult patients with unresectable or metastatic HER2-positive colorectal cancer who have previously received fluoropyrimidine-, oxaliplatin-, and irinotecan-containing chemotherapy. The designation is based on results of the MOUNTAINEER trial. •InSeptember 2022 , the FDA accepted for Priority Review the supplemental New Drug Application, or sNDA, seeking accelerated approval for TUKYSA in combination with trastuzumab for adult patients with HER2-positive colorectal cancer who have received at least one prior treatment regimen for unresectable or metastatic disease. The sNDA submission is based on the results of the pivotal phase 2 MOUNTAINEER trial, and the FDA target action date under the Prescription Drug User Fee Act, or PDUFA, isJanuary 19, 2023 .
ADCETRIS
•InSeptember 2022 , longer-term follow-up data from the phase 3 ECHELON-1 clinical trial demonstrating that ADCETRIS in combination with chemotherapy resulted in a 41% reduction in risk of death versus standard of care in patients with previously untreated advanced Hodgkin lymphoma were submitted in an sBLA to the FDA for inclusion in the label. •InSeptember 2022 , based on the overall survival benefit of ADCETRIS in combination with chemotherapy that was demonstrated in the ECHELON-1 trial, the National Comprehensive Cancer Network®, or NCCN, Clinical Practice Guidelines in Oncology, or NCCN Guidelines®, for Hodgkin lymphoma were updated elevating the ADCETRIS combination to Category 1, Preferred treatment option for adults with previously untreated Stage III or IV Hodgkin lymphoma with no known neuropathy. Category 1, Preferred is the highest recommendation by NCCN, indicating that based upon high-level evidence, there is uniform NCCN consensus that the intervention is appropriate.
Earlier-Stage Programs
•InNovember 2022 , we plan to present initial phase 1 clinical data on SGN-B6A, a novel ADC in development for solid tumors as well as preclinical research from several other early-stage programs, including SGN-BB228, an Anticalin®-based bispecific antibody, at theSociety for Immunotherapy of Cancer 37th Annual Meeting. Recently, we opened an IND for SGN-BB228 to enable a phase 1 clinical trial.
Corporate Responsibility Report
•InOctober 2022 , we published our second annual Corporate Responsibility Report providing an update on our environmental, social, and governance, or ESG, efforts, achievements and future commitments. Notable accomplishments in the report include: •Increasing our focus on diversity, equity and inclusion by launching allyship training and implementing self-reporting for LGBTQIA+ populations in our engagement surveys. Our global workforce is comprised of 58% women as ofDecember 31, 2021 , and we aim to increase women in leadership roles as well as improve the percentage of underrepresented people inU.S. roles.
•Implementing initiatives in our clinical trials aimed at improving diversity to better reflect real-world patient populations and advance inclusion.
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•Enhancing our environmental practices at our
•Enhancing our governance and compliance programs across areas such as ethics and compliance, data privacy, and information security, with the aim of supporting our growth and the expansion of our operations into international markets. 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-20220930_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-20220930_g2.jpg]] Urothelial Cancer (or PD-1) or a programmed death-ligand 1 (or 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-20220930_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-20220930_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. 18
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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 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 theU.S. and its territories and inCanada , and we collaborate with 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 inEurope 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 inDecember 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. InJuly 2021 , the FDA converted PADCEV's accelerated approval to regular approval in theU.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 theOncology Center of Excellence's , or OCE's, Real Time Oncology Review, or RTOR, pilot program. InApril 2022 , theEuropean Commission , or EC, 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 theEuropean Union member states, as well asIceland ,Norway andLiechtenstein .
PADCEV is also approved in other countries including
PADCEV is being co-developed and jointly commercialized with Astellas Pharma, Inc., or Astellas. In theU.S. , we and Astellas are jointly promoting PADCEV. We record net sales of PADCEV in theU.S. and are responsible for allU.S. distribution activities. We and Astellas each bear the costs of our own sales organizations in theU.S. , equally share certain other costs associated with commercializing PADCEV in theU.S. , and equally share in any profits realized in theU.S. Outside theU.S. , we have commercialization rights in all other countries inNorth and South America , and Astellas has commercialization rights in the rest of the world, includingEurope ,Asia ,Australia andAfrica . 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 inCanada , theUnited Kingdom ,Germany ,France ,Spain andItaly 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 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. InApril 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. 19
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The application for approval was reviewed under theFDA's RTOR pilot program. We also participated in theProject 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 theU.S. ,Canada ,Australia ,Singapore , andSwitzerland . InFebruary 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 theEuropean Union as well asNorway ,Liechtenstein ,Iceland andNorthern Ireland . InEurope , we have begun marketing TUKYSA inAustria ,France ,Germany andSwitzerland . Additionally, inFebruary 2021 , theUK Medicines and Healthcare products Regulatory Agency granted aGreat Britain marketing authorization for TUKYSA. We are responsible for commercializing TUKYSA in theU.S. ,Canada andEurope . InSeptember 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 inAsia , theMiddle East andLatin America and other regions outside of theU.S. ,Canada andEurope . 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 inSeptember 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 theU.S. and we record net sales of TIVDAK in theU.S. and are responsible for leadingU.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 theU.S. , and equally share in any profits realized in theU.S. Outside theU.S. , we have commercialization rights in the rest of the world except forJapan , where Genmab has commercialization rights. InEurope ,China , andJapan , 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 theU.S. other thanEurope ,China , andJapan , 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. InSeptember 2022 , we announced an exclusive collaboration and license agreement with Zai Lab for the development and commercialization of TIVDAK in mainlandChina ,Hong Kong ,Macau , andTaiwan . Under the terms of the agreement, we received an upfront fee of$30 million inOctober 2022 , and are entitled to receive potential development, regulatory, and commercial milestone payments, and tiered royalties on net sales of TIVDAK in the Zai Lab territory. Based on our existing collaboration with Genmab, the upfront payment, milestone payments, and royalties will be shared on a 50:50 basis with Genmab.
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 potentially 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 inthe United States . The investigator-sponsored trials include the use of ADCETRIS in a number of malignant hematologic indications and in solid tumors. 20
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InFebruary 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 previously untreated 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. InJuly 2022 , these results were published in theNew England Journal of Medicine . InSeptember 2022 , based on these data, we submitted an sBLA to the FDA for review. Also inSeptember 2022 , based on the overall survival benefit of ADCETRIS in combination with chemotherapy that was demonstrated in the ECHELON-1 trial, the NCCN Guidelines were updated elevating the ADCETRIS combination to Category 1, Preferred treatment option for adults with previously untreated Stage III or IV Hodgkin lymphoma with no known neuropathy. Category 1, Preferred is the highest recommendation by NCCN, indicating that based upon high-level evidence, there is uniform NCCN consensus that the intervention is appropriate. InJune 2022 , we announced results from a phase 3Children's Oncology Group study trial evaluating ADCETRIS in children and young adults with high-risk, previously untreated classical Hodgkin lymphoma. The trial showed ADCETRIS in combination with standard of care showed a clinically meaningful and statistically significant 59% reduction in the risk of disease progression or relapse, second malignancy or death and achieved superior event-free survival compared to the current standard of care. Based on these data, we submitted an sBLA to the FDA for review. The sBLA was granted Priority Review with a PDUFA target action date ofNovember 16, 2022 .
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 inAustralia , under theFDA's Project Orbis program, as well as inSingapore ,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. InFebruary 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 Merck's anti-PD-1 therapy 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. InApril 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 theFDA's accelerated approval pathway. The primary endpoint is confirmed objective response rate. InOctober 2021 , we completed enrollment in Cohort K. 21
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InJuly 2022 , we and Astellas announced positive topline results from the phase 1b/2 EV-103 clinical trial Cohort K evaluating PADCEV in combination with pembrolizumab as first-line treatment in patients with unresectable locally advanced or metastatic urothelial cancer who are ineligible to receive cisplatin-based chemotherapy. InSeptember 2022 , the data were presented at theEuropean Society for Medical Oncology Congress . In patients treated with PADCEV and pembrolizumab, results demonstrated a 64.5% confirmed objective response rate, or ORR, (95% CI: 52.7 to 75.1) per blinded independent central review, or BICR, the primary endpoint of Cohort K, with 10.5% of patients experiencing a complete response and 53.9% of patients experiencing a partial response. The median duration of response, or DOR, per BICR was not reached (95% CI: 10.25 months to NR). All-grade treatment-related adverse events, or TRAEs, of special interest for PADCEV in combination with pembrolizumab were skin reactions (67.1%), peripheral neuropathy (60.5%), ocular disorders (dry eye, blurred vision, and corneal disorders) (26.3%), hyperglycemia (14.5%), and infusion-related reactions (3.9%). Pembrolizumab adverse events of special interest were consistent with previously observed safety data from monotherapy with the exception of severe skin reactions. Cohort K also included a monotherapy arm in which patients were treated with PADCEV alone (n=73), though this study was not designed to support a formal comparison between the two arms. Results showed a 45.2% confirmed ORR (95% CI: 33.5 to 57.3) per RECIST v1.1 by BICR, with 4.1% of patients experiencing a complete response and 41.1% of patients experiencing a partial response. The median DOR was 13.2 months (95% CI: 6.14 to 15.97) per RECIST v1.1 by BICR. All-grade TRAEs of special interest for PADCEV were peripheral neuropathy (54.8%), skin reactions (45.2%), ocular disorders (dry eye, blurred vision, and corneal disorders) (28.8%), hyperglycemia (11.0%), and infusion-related reactions (5.5%). Additional secondary endpoints in the EV-103 Cohort K trial included progression-free survival, or PFS, and overall survival, or OS. Among patients treated with PADCEV and pembrolizumab, median PFS was not reached (95% CI: 8.31 months to NR). Median OS was 22.3 months (95% CI: 19.09 to NR). Among patients treated with PADCEV, median PFS was 8.0 months (95% CI: 6.05 to 10.35) and median OS was 21.7 months (95% CI: 15.21 to NR). TRAEs of any grade that occurred in more than 20% of patients treated with PADCEV alone or in combination with pembrolizumab were fatigue, peripheral sensory neuropathy, alopecia, rash maculo-papular, pruritus, dysgeusia, weight decreased, diarrhea, decreased appetite, nausea, and dry eye. Overall, the results are generally consistent with previously reported efficacy and safety results of EV-103 dose escalation and expansion Cohort A. InOctober 2022 , an sBLA based on the data was submitted under theFDA's Accelerated Approval Program. 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. InApril 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. InOctober 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
InJanuary 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. Astellas is conducting the trial and has obtained topline results in some cohorts. We and Astellas will be reviewing the results and discussing future direction.
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
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InDecember 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. InOctober 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. InJune 2022 , we completed enrollment in the HER2CLIMB-02 trial. We are supporting aU.S. cooperative group, theAlliance 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.
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. InJuly 2022 , we presented positive results from the pivotal phase 2 MOUNTAINEER trial investigating TUKYSA in combination with trastuzumab in patients with previously treated HER2-positive metastatic colorectal cancer at theEuropean Society for Medical Oncology World Congress on Gastrointestinal Cancer . The combination of TUKYSA and trastuzumab was generally well-tolerated with durable responses in patients assigned to receive the combination demonstrating a 38.1% confirmed response rate after a median duration of follow-up of 20.7 months. In these patients, the median DOR was 12.4 months. Median progression-free survival was 8.2 months, and median overall survival was 24.1 months. The most common (greater than or equal to 20%) treatment-emergent adverse events, or TEAEs, in patients assigned to receive tucatinib and trastuzumab were diarrhea (Grade 1 or 2: 60.5%, Grade 3: 3.5%), fatigue (Grade 1 or 2: 41.9%, Grade 3: 2.3%), nausea (Grade 1 or 2: 34.9%) and infusion-related reaction (Grade 1 or 2: 20.9%). We believe the trial could potentially support an application for accelerated approval in theU.S. InJuly 2022 , an sNDA was submitted to the FDA under the Accelerated Approval Program. The sNDA was granted Priority Review with a PDUFA target action date ofJanuary 19, 2023 . InJuly 2022 , the FDA granted TUKYSA Breakthrough Therapy designation for use in combination with trastuzumab for the treatment of adult patients with unresectable or metastatic HER2-positive colorectal cancer who have previously received fluoropyrimidine-, oxaliplatin-, and irinotecan-containing chemotherapy. The designation is based on results of the MOUNTAINEER trial. 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.
InJanuary 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 theU.S. 23
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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. InSeptember 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. Additionally, inJune 2022 , we announced interim data from the innovaTV 205 trial, which included data evaluating TIVDAK in combination with pembrolizumab in patients with recurrent or metastatic cervical cancer who have not received prior systemic therapy. This combination cohort enrolled 33 patients with recurrent or metastatic cervical cancer who had not received any prior systemic therapy. At the time of data cutoff, the confirmed objective response rate among 32 evaluable patients was 41% with 16% of patients achieving complete responses and 25% of patients achieving partial responses. Median DOR was not reached with median follow-up of 18.8 months. Median progression-free survival was 5.3 months. In this cohort, the most common TEAEs were alopecia (61%), diarrhea (55%), epistaxis (49%), conjunctivitis (45%), and nausea (46%). We are conducting a phase 2 clinical trial, called innovaTV 207, for patients with relapsed, locally advanced or metastatic solid tumors. InFebruary 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.
Disitamab vedotin
InSeptember 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 ofAsia , excludingJapan andSingapore . 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. InSeptember 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 since the beginning of 2021, and we plan to submit additional IND applications to the FDA in the remainder of 2022 and 2023. InSeptember 2022 , we entered into an agreement with LAVA Therapeutics to develop and commercialize LAVA-1223, a preclinical gamma delta bispecific T-cell engager for EGFR-expressing solid tumors. We received an exclusive global license for LAVA-1223 and the opportunity to exclusively negotiate rights to apply LAVA's proprietary Gammabody™ platform on up to two additional tumor targets. We paid LAVA a$50 million upfront fee inOctober 2022 and have also agreed to pay LAVA up to approximately$650 million in potential development, regulatory and commercial milestones, as well as royalties ranging from the single digits to the mid-teens on future sales of any licensed products.
Antibody-Drug Conjugate technology license agreements
We have active technology license agreements for our ADC technology with a number of biotechnology and pharmaceutical companies, includingAbbVie Biotechnology Ltd. , or AbbVie;Genentech, Inc. , a member of the Roche Group, orGenentech ; andGlaxoSmithKline 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 theU.S. ,European Union and other countries. Under our ADC license agreements withGenentech and GSK, we are entitled to receive royalties on net sales of Polivy and Blenrep worldwide. 24
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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. We have since allowed additionalU.S. office-based employees who have been fully vaccinated to return to the office. 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 theU.S. andCanada , from PADCEV and TIVDAK in theU.S. , and from TUKYSA in theU.S. ,Europe andCanada . We expect growth in net product sales of our portfolio to be primarily supported by sales volume growth. Recently, we have experienced a favorable effect on gross-to-net deductions in the U.S. market associated with high inflation, but it is not possible to predict how inflation will develop going forward and affect gross-to-net deductions in future periods. In addition, we experienced a reduction in the rate of frontline Hodgkin lymphoma diagnoses earlier in the COVID-19 pandemic; however, recently, we have seen diagnosis rates increase towards pre-pandemic levels. We cannot predict how the rate of Hodgkin lymphoma diagnoses will trend in the future. 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 theU.S. Additionally, while growth in PADCEV sales has been primarily driven by use of checkpoint inhibitors as frontline maintenance therapy, uptake of checkpoint inhibitors in that setting has flattened, which has been limiting PADCEV's near-term growth in its current indications. 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 accelerated approval from the FDA based on the results of the EV-103 trial or any other 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 such as the MOUNTAINEER treatment setting; •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 theEuropean 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 endedDecember 31, 2021 ; for example, the approval of ENHERTU for second-line HER2-positive metastatic breast cancer has resulted and is expected to continue to result in increased competition for TUKYSA; •the extent to which we are able to successfully work with Astellas to jointly market and commercialize PADCEV in theU.S. , and with Genmab to jointly market and commercialize TIVDAK in theU.S. ;
•our ability to successfully market and commercialize TUKYSA in our territories
outside the
•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;
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•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 theU.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, inJuly 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 toPresident Biden's Executive Order, inSeptember 2021 , theU.S. Department of Health and Human Services , or HHS, 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 thatCongress could pursue to advance these principles. Further, onAugust 16, 2022 ,President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which, among other things, (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare, and subjects drug manufacturers to civil monetary penalties and a potential excise tax for offering a price that is not equal to or less than the negotiated "maximum fair price" under the law, and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. 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 inEurope 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. 26
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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 continue to face 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 the potential for increasing COVID-19 infection rates, COVID-19 variants, low vaccination rates or low booster uptake in different areas, and the need to navigate varying restrictions for entering healthcare facilities. 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. 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 theU.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. 27
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Financial summary
For the nine months endedSeptember 30, 2022 , our total revenues increased to$1.4 billion , compared to$1.1 billion for the same period in 2021. This increase was primarily driven by$227 million or 22% 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 nine months endedSeptember 30, 2022 , total costs and expenses increased to$1.9 billion , compared to$1.7 billion for the same period in 2021. The increase was due mainly to higher sales, general, and administrative expenses, and to a lesser extent, higher cost of sales, and higher research and development expenses.
As of
Results of operations Net product sales Three months ended September 30, Nine months ended September 30, (dollars in thousands) 2022 2021 % Change 2022 2021 % Change ADCETRIS$ 218,521 $ 184,791 18 %$ 601,449 $ 529,275 14 % PADCEV 105,330 95,031 11 % 329,114 247,194 33 % TUKYSA 87,771 86,571 1 % 267,235 239,850 11 % TIVDAK 16,467 66 NM 45,091 66 NM Net product sales$ 428,089 $ 366,459 17 %$ 1,242,889 $ 1,016,385 22 % NM: No amount in comparable period or not a meaningful comparison. Our net product sales increased during the three and nine months endedSeptember 30, 2022 as compared to the comparable periods in 2021, driven by growth from each of our marketed products. ADCETRIS net product sales grew due to higher volumes of vials sold driven by higher diagnosis rates of Hodgkin lymphoma as well as incremental market share gains in frontline Hodgkin lymphoma, and higher net selling prices driven by favorable pricing dynamics in the 2022 periods. PADCEV net product sales grew primarily due to higher sales volume as a result of additional eligible patients in second line post checkpoint maintenance during the 2022 periods. TUKYSA net product sales grew due to increased sales volume in our European markets following its commercial launches commencing in 2021 and higher net selling prices in theU.S. , offset in part by lower net selling prices and negative impact of foreign exchange in our European markets. We began commercializing TIVDAK in theU.S. following FDA approval inSeptember 2021 .
We expect growth in net product sales in 2022 as compared to 2021 to be primarily driven by higher sales of each of our approved products. 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 440,416 35,146 475,562 Adjustment for prior period sales (9,898) (1,201) (11,099) Payments/credits for current period sales (367,900) (26,919) (394,819) Payments/credits for prior period sales (43,732) (4,034) (47,766) Balance as of September 30, 2022$ 93,775 $ 19,810$ 113,585 Government-mandated rebates and chargebacks are the most significant component of our total gross-to-net deductions and the discount changes over time. The most significant portion of our gross-to-net accrual balances as ofSeptember 30, 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. 28
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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 fromGenentech 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 September 30, Nine months ended September 30, (dollars in thousands) 2022 2021 % Change 2022 2021 % Change Royalty revenues$ 43,904 $ 41,028 7 %$ 111,194 $ 104,542 6 % Royalty revenues increased slightly for the three and nine months endedSeptember 30, 2022 from the comparable periods in 2021, due mainly to higher net product sales by our licensees in their territories. Takeda's net sales growth of ADCETRIS in local currencies during the 2022 periods was offset by recent strengthening of theU.S. dollar in 2022 as compared to certain foreign currencies.
We expect that royalty revenues will increase in 2022 as compared to 2021 primarily due to higher royalties from anticipated growth of licensees' net product sales, including growth in ADCETRIS sales volume by Takeda.
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 September 30, Nine months ended September 30, (dollars in thousands) 2022 2021 % Change 2022 2021 % Change Collaboration and license agreement revenues$ 38,307 $ 16,573 131 %$ 80,179 $ 23,593 240 % Collaboration and license agreement revenues increased for the three months endedSeptember 30, 2022 compared to the prior period, due primarily to the Zai Lab upfront license payment of$30.0 million inSeptember 2022 , offset in part by a milestone payment received from GSK during the three months endedSeptember 30, 2021 . The increase in collaboration and license agreement revenues for the nine months endedSeptember 30, 2022 compared to the prior period was also due to a milestone payment received from AbbVie and an upfront payment received from Sanofi during the 2022 period. 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. 29
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Astellas PADCEV collaboration
We have a collaboration agreement withAgensys, 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 theU.S. , we and Astellas jointly promote PADCEV. We record sales of PADCEV in theU.S. and are responsible for allU.S. distribution activities. The companies each bear the costs of their own sales organizations in theU.S. , equally share certain other costs associated with commercializing PADCEV in theU.S. , and equally share in any profits realized in theU.S. Gross profit share payments owed to Astellas in theU.S. under the joint commercialization agreement are recorded in cost of sales. Outside theU.S. , we have commercialization rights in all countries inNorth and South America , and Astellas has commercialization rights in the rest of the world, includingEurope ,Asia ,Australia andAfrica .
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.
TIVDAK collaborations
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 theU.S. , we and Genmab co-promote TIVDAK. We record sales of TIVDAK in theU.S. and are responsible for leadingU.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 theU.S. , individually bear the costs of certain other personnel in theU.S. , and equally share in any profits realized in theU.S. Outside theU.S. , we have commercialization rights in the rest of the world except forJapan , where Genmab has commercialization rights. InEurope ,China , andJapan , 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 theU.S. other thanEurope ,China , andJapan , 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. InSeptember 2022 , we announced an exclusive collaboration and license agreement with Zai Lab for the development and commercialization of TIVDAK in mainlandChina ,Hong Kong ,Macau , andTaiwan . Under the terms of the agreement, we received an upfront payment of$30.0 million inOctober 2022 , and are entitled to receive potential future development, regulatory, and commercial milestone payments, and tiered royalties on net sales of TIVDAK in the Zai Lab territory. Based on our existing collaboration with Genmab, the upfront payment, milestone payments, and royalties will be shared on a 50:50 basis with Genmab.
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 inAsia , theMiddle East andLatin America and other regions outside of theU.S. ,Canada andEurope . 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, theU.S. ,Canada andEurope . 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 on 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 ofSeptember 30, 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 ofSeptember 30, 2022 andDecember 31, 2021 ,$26.1 million and$55.3 million was recorded as the remaining co-development liability, respectively.
RemeGen disitamab vedotin license agreement
Effective inSeptember 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 us 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 announcedFDA'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 inChina , and inJuly 2021 theNational Medical Products Administration of China also accepted an 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 forAsia , excludingJapan andSingapore . 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$2.2 billion in potential milestone payments based on the achievement of specified regulatory and commercialization goals. RemeGen will be entitled to a tiered, high single digit to mid-teen percentage royalty based on net sales of disitamab vedotin in our territory.
Other technology collaboration and license agreements
We have other collaboration and license agreements for our ADC technology with a number of biotechnology and pharmaceutical companies. We typically receive upfront cash payments and progress- and sales-dependent milestones for the achievement by our licensees of certain events, and annual maintenance fees and support fees for research and development services and materials provided under the agreements. These amounts are recognized as revenue over the performance obligation period if the license is determined not to be distinct from other goods and services provided, or, if there is no performance obligation, upon transfer of control of the goods or services to the customer.
Cost of sales
Cost of sales includes manufacturing and distribution costs of product sold, gross profit share with Astellas and Genmab pursuant to those respective collaborations, amortization of acquired technology license costs, royalties owed on our PADCEV net product sales, and royalties owed on global ADCETRIS, TUKYSA, and TIVDAK net product sales. 31
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Table of Contents Three months ended September 30, Nine months ended September 30, (dollars in thousands) 2022 2021 % Change 2022 2021 % Change Cost of sales$ 108,122 $ 82,650 31 %$ 301,848 $ 224,875 34 % Cost of sales increased for the three and nine months endedSeptember 30, 2022 from the comparable periods in 2021, driven by higher sales of our medicines resulting in 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$71.0 million and$189.4 million for the three and nine months endedSeptember 30, 2022 , respectively, as compared to$44.7 million and$115.8 million for the comparable periods in 2021. Included in the gross profit share owed to Genmab during the three and nine months endedSeptember 30, 2022 was$14.6 million related to the Zai Lab upfront licensing payment. We expect cost of sales to increase in 2022 as compared to 2021 as a result of the net product sales growth of our marketed products, contributing to higher anticipated gross profit sharing with our collaborators and higher manufacturing costs for products sold. Research and development Three months ended September 30, Nine months ended September 30, (dollars in thousands) 2022 2021 % Change 2022 2021 % Change Research and clinical development$ 304,263 $ 393,809 (23) %$ 766,591 $ 732,682 5 % Process sciences and manufacturing 80,342 65,283 23 % 219,927 191,696 15 % Total research and development$ 384,605 $ 459,092 (16) %$ 986,518 $ 924,378 7 % 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. Research and clinical development expenses for the three and nine months endedSeptember 30, 2021 , were impacted by the$200.0 million RemeGen upfront license payment made in 2021. Other research and clinical development costs grew during the three and nine months endedSeptember 30, 2022 from the comparable periods in 2021, driven by higher employee-related costs and clinical trial costs to support our early- and late-stage pipeline of product candidates, as well as the$50.0 million upfront payment to LAVA Therapeutics. 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 increases for the three and nine months endedSeptember 30, 2022 from the comparable period in 2021 primarily reflected higher employee-related costs and the timing of 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, 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. 32
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Table of Contents Three months ended September 30, Nine months ended September 30, (dollars in thousands) 2022 2021 2022 2021 TUKYSA (tucatinib)$ 61,090 $
44,645
22,911 22,287 65,517 57,787 ADCETRIS (brentuximab vedotin) 22,249 15,138 61,116 49,051 TIVDAK (tisotumab vedotin) 12,773 12,129 31,463 33,517 Ladiratuzumab vedotin 3,463 4,238 11,206 16,038 Disitamab vedotin 9,616 - 27,495 - Other clinical stage programs 17,017 13,727 62,042 48,658 Total third-party costs for clinical stage programs 149,119 112,164 412,472 311,930 Other costs, overhead, and net cost-sharing with collaborators 235,486 346,928 574,046 612,448 Total research and development$ 384,605 $
459,092
Third-party costs for TUKYSA increased for the three and nine months ended
Third-party costs for PADCEV increased for the three and nine months ended
Third-party costs for ADCETRIS increased for the three and nine months ended
Third-party costs for TIVDAK increased for the three months endedSeptember 30, 2022 as compared to the 2021 period, and decreased for the nine months endedSeptember 30, 2022 as compared to the 2021 period, due to the timing of clinical trials expenses. Third-party costs for ladiratuzumab vedotin decreased for the three and nine months endedSeptember 30, 2022 as compared to the 2021 periods, due primarily to lower clinical trials expenses.
Third-party expenses for disitamab vedotin increased for the three and nine
months ended
Third-party costs for other clinical stage programs increased for the three and
nine months ended
Other costs, overhead, and net cost-sharing reimbursements from or payments made to collaborators decreased for the three and nine months endedSeptember 30, 2022 from the comparable periods in 2021, due to the$200.0 million RemeGen upfront license payment in the 2021 periods, offset in part by higher employee-related costs and the$50.0 million upfront license payment made to LAVA Therapeutics. During the three months endedSeptember 30, 2022 and 2021, net cost-sharing reimbursements from collaborators were$32.8 million and$22.6 million , respectively. During the nine months endedSeptember 30, 2022 and 2021, net cost-sharing reimbursements from collaborators were$77.1 million and$62.9 million , respectively. In order to advance our product candidates toward commercialization, the product candidates are tested in numerous preclinical safety, toxicology and efficacy studies. We then conduct clinical trials for those product candidates that take several years or more to complete. The length of time varies substantially based upon the type, complexity, novelty and intended use of a product candidate. We will also need to conduct additional clinical trials in order to expand labeled indications of use for our commercial products. The outcome of our clinical trials is uncertain. The cost of clinical trials may vary significantly as a result of a variety of factors, including the number of patients enrolled, patient site costs, quantity and source of drug supply required, safety and efficacy of the product candidate, and extent of regulatory efforts, among others.
We anticipate that our total research and development expenses in 2022 will
increase compared to 2021 primarily due to higher costs for the continued
development of our approved products and product candidates, offset in part by
the
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The risks and uncertainties associated with our research and development projects are discussed more fully in "Part II Item 1A-Risk Factors." As a result of these risks and uncertainties, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects, anticipated completion dates, or when and to what extent we will receive cash inflows from the commercialization and sale of our products in any additional approved indications or of any of our product candidates.
Selling, general and administrative
Three months ended September 30, Nine months ended September 30, (dollars in thousands) 2022 2021 % Change 2022 2021 % Change Selling, general and administrative$ 210,378 $ 180,281 17 %$ 604,862 $ 505,253 20 % Selling, general and administrative expenses increased for the three and nine months endedSeptember 30, 2022 from the comparable periods in 2021, reflecting higher legal expenses primarily associated with the Daiichi Sankyo legal proceedings, and higher investments to support our ongoing European TUKYSA launches and theU.S. commercial launch of TIVDAK. We anticipate that selling, general and administrative expenses will increase in 2022 as compared to 2021 due to higher legal expenses and as we continue our commercial activities in support of our product launches, and invest in infrastructure to support our continued growth in theU.S. andEurope .
Investment and other income, net
Three months ended September 30, Nine months ended September 30, (dollars in thousands) 2022 2021 % Change 2022 2021 % Change (Loss) gain on equity securities$ (2,669) $ 4,966 (154) %$ (9,747) $ 9,895
(199) %
Investment and other income, net 6,947 262 2,552 % 10,226 1,360 652
%
Total investment and other income, net$ 4,278 $ 5,228 (18) %$ 479 $ 11,255 (96) % Investment and other 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 inU.S. Treasury securities. The loss on equity securities for the three and nine months endedSeptember 30, 2022 was due to unrealized holding losses resulting from a decline in the share price of securities held during the respective periods. Investment and other income, net increased for the three and nine months endedSeptember 30, 2022 due to higher yields on our debt securities investments for the 2022 periods.
Provision for income taxes
Our provision for income taxes was$2.3 million and$3.6 million for the three and nine months endedSeptember 30, 2022 , respectively, compared with$1.1 million for the three and nine months endedSeptember 30, 2021 . The provision for income taxes in the 2022 periods primarily related to taxable profits in theU.S. as a result of amendments to IRC Section 174, which took effectJanuary 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 partially offset by a foreign valuation allowance release.
Liquidity and capital resources
(in thousands) September 30, 2022 December 31, 2021 Cash, cash equivalents, and investments $ 1,763,702$ 2,160,036 Working capital 2,033,621 2,300,340 Stockholders' equity 2,821,811 3,065,139 34
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Table of Contents Nine months ended September 30, (in thousands) 2022 2021 Cash provided (used) by: Operating activities$ (374,311) $ (215,624) Investing activities 264,727 287,902 Financing activities 60,013 55,432
The change in net cash from operating activities for the nine months ended
The change in net cash from investing activities for the nine months endedSeptember 30, 2022 as compared to the comparable period in 2021 reflected differences between the amounts used for purchases of securities and proceeds from maturities of securities, and the difference for purchases of property, plant, and equipment.
The change in net cash from financing activities for the nine months ended
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 inU.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 ofSeptember 30, 2022 , we had$1.8 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 inEurope 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. 35
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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 nine months endedSeptember 30, 2022 were$986.5 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$604.9 million for the nine months endedSeptember 30, 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 2023 through 2029 that contain rate escalations and options for us to extend the leases. Our future minimum lease payments as ofSeptember 30, 2022 totaled$16.6 million related to short-term lease liabilities, and$53.1 million related to long-term lease liabilities. We signed a 20-year lease inJune 2021 for a building complex inEverett, Washington that has not commenced as ofSeptember 30, 2022 , and therefore rent payments are not included in lease liability balances as ofSeptember 30, 2022 . Refer to Note 3 in the Notes to Financial Statements in Item 1 for further detail of our lease obligations. 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 nine months endedSeptember 30, 2022 were$48.1 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 inEverett, Washington , which is expected to provide us additional manufacturing, laboratory, and office space in the future. We expect our capital expenditures for thisEverett 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 endedDecember 31, 2021 filedFebruary 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$189.4 million for the nine months endedSeptember 30, 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 endedDecember 31, 2021 filedFebruary 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 nine months endedSeptember 30, 2022 were consistent with those in Part II Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
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