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

This Quarterly Report on Form 10-Q, including the following discussion of our
financial condition and results of operations, contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
are based on our management's beliefs and assumptions and on information
currently available to our management. All statements other than statements of
historical facts are "forward-looking statements" for purposes of these
provisions, including those relating to future events or our future financial
performance and financial guidance. In some cases, you can identify
forward-looking statements by terminology such as "may," "might," "will,"
"should," "expect," "plan," "anticipate," "project," "believe," "estimate,"
"predict," "potential," "intend" or "continue," the negative of terms like these
or other comparable terminology, and other words or terms of similar meaning in
connection with any discussion of future operating or financial performance.
These statements are only predictions. All forward-looking statements included
in this Quarterly Report on Form 10-Q are based on information available to us
on the date hereof, and we assume no obligation to update any such
forward-looking statements except as required by law. Any or all of our
forward-looking statements in this document may turn out to be wrong. Actual
events or results may differ materially. Our forward-looking statements can be
affected by inaccurate assumptions we might make or by known or unknown risks,
uncertainties and other factors. We discuss many of these risks, uncertainties
and other factors in this Quarterly Report on Form 10-Q in greater detail under
the heading "Part II Item 1A-Risk Factors." We caution investors that our
business and financial performance are subject to substantial risks and
uncertainties.
Overview
Seagen is a biotechnology company that develops and commercializes targeted
therapies to treat cancer. We are commercializing ADCETRIS®, or brentuximab
vedotin, for the treatment of certain CD30-expressing lymphomas, PADCEV®, or
enfortumab vedotin-ejfv, for the treatment of certain metastatic urothelial
cancers, and TUKYSA®, or tucatinib, for the treatment of certain metastatic
HER2-positive breast cancers. We are also advancing a pipeline of novel
therapies for solid tumors and blood-related cancers designed to address unmet
medical needs and improve treatment outcomes for patients. Many of our programs,
including ADCETRIS and PADCEV, are based on our antibody-drug conjugate, or ADC,
technology that utilizes the targeting ability of monoclonal antibodies to
deliver cell-killing agents directly to cancer cells.
Second quarter 2021 highlights and recent developments
Corporate
•Achieved 44% growth in net product sales for the quarter ended June 30, 2021
compared to the quarter ended June 30, 2020. Generated record quarterly net
product sales across all commercial brands.
•Continued to make strategic investments in our pipeline, commercial launches,
infrastructure, and headcount to support our future growth.

ADCETRIS

•Published the five-year update of the phase 3 ECHELON-1 clinical trial in frontline advanced Hodgkin lymphoma in the Lancet Haematology.

PADCEV

•U.S. Food and Drug Administration, or FDA:
•converted PADCEV's accelerated approval to regular approval; and
•approved a new indication for PADCEV in the treatment of 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.
•Published results from the second cohort of the EV-201 trial for patients with
locally advanced or metastatic urothelial cancer that received prior treatment
with an immunotherapy but had not received a platinum-containing chemotherapy
and were ineligible for cisplatin chemotherapy in The Lancet Oncology.

TUKYSA

•Presented long-term results for HER2CLIMB trial at the 2021 American Society of
Clinical Oncology, or ASCO, annual meeting demonstrating median survival for the
TUKYSA arm extended to two years with benefit maintained across all prespecified
patient subgroups.

                                       15

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

Table of Contents

Pipeline

•Biologics License Application, or BLA, accepted for Priority Review of
tisotumab vedotin for patients with recurrent or metastatic cervical cancer with
disease progression on or after chemotherapy. FDA set a Prescription Drug User
Fee Act, or PDUFA, target action date of October 10, 2021.
•Published the results of the innovaTV 204 pivotal phase 2 trial in The Lancet
Oncology in April 2021.
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-20210630_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-20210630_g2.jpg]] Urothelial Cancer (PD-1) or programmed death-ligand 1 (PD-L1) inhibitor and

platinum-containing chemotherapy, or

•are ineligible for cisplatin-containing chemotherapy and

have previously received one or more prior lines of

therapy.

In combination with trastuzumab and capecitabine for the

treatment of adult patients with advanced unresectable or

   [[Image Removed: sgen-20210630_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.

•*ADCETRIS, PADCEV and TUKYSA are only indicated for use in adults. u

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 is commercially available in more than 75 countries worldwide. We
commercialize ADCETRIS in the U.S. and its territories and in Canada, and we
collaborate with Takeda Pharmaceutical Company Limited, or Takeda, to develop
and commercialize ADCETRIS on a global basis. Under this collaboration, Takeda
has commercial rights in the rest of the world and pays us a royalty. Takeda has
received regulatory approvals for ADCETRIS as monotherapy or in combination with
other agents in various settings for the treatment of patients with Hodgkin
lymphoma or CD30-positive T-cell lymphomas in Europe and many countries
throughout the rest of the world and is pursuing additional regulatory
approvals.
                                       16

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

Table of Contents

PADCEV®

PADCEV is an ADC targeting Nectin-4, a protein expressed on the surface of cells
and highly expressed in bladder cancer as well as other cancers. PADCEV was
granted accelerated approval by the FDA in December 2019 for the treatment of
adult patients with locally advanced or metastatic urothelial cancer who have
previously received a PD-1 or PD-L1 inhibitor and a platinum-containing
chemotherapy before (neoadjuvant) or after (adjuvant) surgery in the locally
advanced or metastatic setting. FDA approval of PADCEV was supported by data
from a single-arm pivotal phase 2 clinical trial called EV-201.
In July 2021, the FDA converted PADCEV's accelerated approval to regular
approval in the U.S., in addition to granting regular approval for a new
indication for adult patients with locally advanced or metastatic urothelial
cancer, who are ineligible for cisplatin-containing chemotherapy and have
previously received one or more prior lines of therapy. The conversion to
regular approval was supported by the pivotal phase 3 trial called EV-301 and
the expanded indication was supported by data from the second cohort in the
EV-201 trial. The FDA reviewed the application for regular approval under the
Oncology Center of Excellence's, or OCE's, Real Time Oncology Review, or RTOR,
pilot program.
PADCEV, is being co-developed and jointly commercialized with Astellas Pharma,
Inc., or Astellas. In the U.S., we and Astellas are jointly promoting PADCEV. In
the U.S., we record net sales of PADCEV and are responsible for all distribution
activities. We and Astellas each bear the costs of our own sales organizations
in the U.S., equally share certain other costs associated with commercializing
PADCEV in the U.S., and equally share in any profits realized in the U.S.
TUKYSA®
TUKYSA is an oral, small molecule tyrosine kinase inhibitor, or TKI, that is
highly selective for HER2, a growth factor receptor overexpressed in many
cancers. HER2 mediates cell growth, differentiation and survival. Tumors that
over-express HER2 are generally more aggressive and historically have been
associated with poor overall survival, compared with HER2-negative cancers. In
April 2020, TUKYSA received approval from the FDA in combination with
trastuzumab and capecitabine for the treatment of adult patients with advanced
unresectable or metastatic HER2-positive breast cancer, including patients
with brain metastases, who have received one or more prior anti-HER2-based
regimens in the metastatic setting. FDA approval of TUKYSA was supported by data
from the HER2CLIMB trial.
The application for approval was reviewed under the FDA's RTOR pilot program. We
also participated in the Project Orbis initiative of the FDA OCE which provides
a framework for concurrent submission and review of oncology products among
international partners. Under this program we have received approval in the
U.S., Canada, Australia, Singapore, and Switzerland. In February 2021, the EC
granted marketing authorization for TUKYSA in combination with trastuzumab and
capecitabine for the treatment of adult patients with HER2-positive locally
advanced or metastatic breast cancer who have received at least two prior
anti-HER2 treatment regimens. This approval is valid in all countries of the
European Union as well as Norway, Liechtenstein, Iceland and Northern Ireland.
In March 2021, we began marketing TUKYSA in Austria, France and Germany.
Additionally, in February 2021, the UK Medicines and Healthcare products
Regulatory Agency, or MHRA, granted a Great Britain marketing authorization for
TUKYSA.
We are responsible for commercializing TUKYSA in the U.S., Canada and Europe. In
September 2020, we entered into a license and collaboration agreement, or the
TUKYSA Agreement, with a subsidiary of Merck & Co., Inc., or Merck, pursuant to
which we granted exclusive rights to Merck to commercialize TUKYSA in Asia, the
Middle East and Latin America and other regions outside of the U.S., Canada and
Europe. The collaboration is intended to accelerate global availability of
TUKYSA.
Clinical Development and Regulatory Status
ADCETRIS (brentuximab vedotin)
Beyond our current labeled indications, we are evaluating ADCETRIS as
monotherapy and in combination with other agents in ongoing trials, including
several potential registration-enabling trials such as the ECHELON-3 phase 3
trial in relapsed or refractory diffuse large B-cell lymphoma. In addition to
our corporate-sponsored trials there are numerous investigator-sponsored trials
of ADCETRIS in the United States. The investigator-sponsored trials include the
use of ADCETRIS in a number of malignant hematologic indications and in solid
tumors.
                                       17

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

Table of Contents

PADCEV (enfortumab vedotin-ejfv)
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.
In September 2020, we announced that the EV-301 trial, which compared PADCEV to
chemotherapy in adult patients with locally advanced or metastatic urothelial
cancer who were previously treated with platinum-based chemotherapy and a
PD-1/L1 inhibitor, met its primary endpoint of overall survival, or OS, compared
to chemotherapy. For patients in the PADCEV arm of the trial, rash, fatigue, and
decreased neutrophil count were the most frequent Grade 3 or greater
treatment-related adverse events occurring in more than 5 percent of patients.
In July 2021, the FDA converted PADCEV's accelerated approval to regular
approval based on data from the EV-301 trial.
In March 2021, the European Medicines Agency, or EMA, accepted for review a
Marketing Authorization Application, or MAA, for PADCEV based on the EV-301
trial. In addition, applications have been submitted for PADCEV approval in
Australia and Canada, under the FDA's Project Orbis program, as well as in
Japan, Singapore, Brazil and Switzerland.
In October 2020, we announced positive topline results from the second cohort of
patients in the pivotal phase 2 EV-201 trial. The cohort is evaluating PADCEV
for patients with locally advanced or metastatic urothelial cancer who have been
previously treated with a PD-1/L1 inhibitor and have not received a
platinum-containing chemotherapy and are ineligible for cisplatin. In May 2021
the primary results of the cohort were published in the Lancet Oncology.
In May 2021, we reported updated analysis of the second cohort at the 2021 ASCO
annual meeting. With a median follow-up of 16 months, 51 percent of patients who
received PADCEV had a confirmed objective response [95% Confidence Interval, or
CI: 39.8, 61.3] per blinded independent central review (the primary endpoint),
with 22 percent of patients experiencing a complete response, or CR. Median
duration of response, or DOR, was 13.8 months [95% CI: 6.4, not reached].
Patients lived a median of 6.7 months without cancer progression
[progression-free survival, or PFS (95% CI: 5.0-8.3)] and had a median OS of
16.1 months (95% CI: 11.3, 24.1). The most common all-grade treatment-related
adverse events, or TRAEs, were alopecia (51%), peripheral sensory neuropathy
(49%) and fatigue (34%), and the most common Grade 3 or greater TRAEs were
neutropenia (9%), maculopapular rash (8%) and fatigue (7%). Grade 3 or greater
TRAEs of special interest included skin reactions (17%), peripheral neuropathy
(8%) and hyperglycemia (6%). Four deaths were previously reported as
treatment-related by investigators in patients age 75 years and older with
multiple comorbidities.
In July 2021, the FDA granted 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 approval was based on data from the
second cohort of the EV-201 trial.
PADCEV is also 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 the anti-PD-1 therapy pembrolizumab. The
trial is evaluating safety, tolerability and activity in locally advanced and
first- and second-line metastatic urothelial cancer, and was expanded to include
muscle invasive bladder cancer, or MIBC.
In February 2020, based on the positive initial results of the dose-escalation
cohort and the expansion Cohort A of the EV-103 trial, the FDA granted
Breakthrough Therapy designation for PADCEV in combination with pembrolizumab
for the treatment of patients with unresectable locally advanced or metastatic
urothelial cancer who are unable to receive cisplatin-based chemotherapy in the
first-line setting. In April 2020, we announced that, based on discussions with
the FDA, data from the randomized cohort K in the EV-103 trial, along with other
data from the EV-103 trial, could potentially support registration under the
FDA's accelerated approval pathway. The primary outcome measures are objective
response rate and duration of response. We expect to complete enrollment in
cohort K by the end of 2021.
In May 2021, we presented updated results of the dose-escalation cohort and the
expansion Cohort A of the EV-103 trial at the 2021 ASCO annual meeting. As
previously reported, results demonstrated an objective response rate of 73.3
percent (95% CI: 58.1, 85.4) per investigator assessment, with 15.6 percent of
patients experiencing a CR. The median PFS was 12.3 months (95% CI: 8.0, not
reached). The updated data after a median follow-up of two years showed a median
DOR of 25.6 months (95% CI: 8.3, not reached) and median OS of 26.1 months (95%
CI: 15.7, not reached). The longer-term analysis demonstrated a safety profile
generally consistent with previous findings. The most common TRAEs were
peripheral sensory neuropathy (55.6%), fatigue (51.1%) and alopecia (48.9%), and
the most common Grade 3 or greater TRAEs were increased lipase (17.8%),
maculopapular rash (11.1%) and fatigue (11.1%). Grade 3 or greater TRAEs of
interest included skin reactions (20%), hyperglycemia (8.9%) and peripheral
neuropathy (4.4%). There was one death previously reported as possibly related
to study treatment (multiple organ dysfunction syndrome).
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 a
                                       18

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

Table of Contents

subsidiary of Merck. We, Astellas and Merck are jointly funding EV-302 and the
trial is being led by us. EV-302 is an open-label, randomized phase 3 clinical
trial evaluating the combination of PADCEV and pembrolizumab 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 PFS and OS and is intended to support global
regulatory submissions and potentially serve as a confirmatory trial if
accelerated approval is granted based on EV-103.
In April 2020, we and Astellas entered into an agreement with Merck to evaluate
PADCEV in MIBC. Merck has amended its ongoing phase 3 KEYNOTE-905/EV-303
registrational trial in cisplatin-ineligible patients with MIBC to include an
arm evaluating PADCEV in combination with pembrolizumab. In October 2020, we and
Astellas entered into an agreement with Merck to evaluate PADCEV in combination
with pembrolizumab in a phase 3 trial, called KEYNOTE-B15/EV-304, to be
conducted by Merck in cisplatin-eligible patients with MIBC. This trial was
initiated in the first quarter of 2021.
In January 2020, we and Astellas also initiated a phase 2 clinical trial, called
EV-202, to evaluate PADCEV monotherapy in solid tumors that have high-levels of
Nectin-4 expression, including non-small cell lung, head and neck,
gastric/esophageal and breast cancers.
TUKYSA (tucatinib)
We are conducting a broad clinical development program of TUKYSA including
ongoing and planned trials in earlier lines of breast cancer and in other
HER2-positive cancers. The positive results of the HER2CLIMB trial served as the
basis for approval in the U.S., Canada, the European Union as well as other
countries. Merck is co-funding a portion of the TUKYSA global development plan.
In October 2019, we initiated a phase 3 randomized trial, called HER2CLIMB-02,
evaluating TUKYSA versus placebo, each in combination with T-DM1, for patients
with unresectable locally advanced or metastatic HER2-positive breast cancer,
including those with brain metastases, who have had prior treatment with a
taxane and trastuzumab.
We are supporting a U.S. cooperative group, the Alliance for Clinical Trials in
Oncology, that is conducting a phase 3 randomized trial, called CompassHER2 RD,
which is evaluating TUKYSA in combination with T-DM1 in the adjuvant setting for
patients with high-risk, HER2-positive breast cancer.
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 are conducting a phase 2 trial, called MOUNTAINEER, evaluating TUKYSA in
combination with trastuzumab in patients with HER2-positive, RAS wild-type
metastatic colorectal cancer after treatment with first- and second-line
standard-of-care therapies. Initial results from 23 patients were presented at
the ESMO 2019 Congress that demonstrated encouraging antitumor activity. We
expect to complete enrollment by the end of 2021. We believe the trial could
potentially support an application for accelerated approval in the U.S.
We are conducting a phase 2/3 trial, called MOUNTAINEER-02, in combination with
trastuzumab, ramucirumab and paclitaxel in second-line HER2-positive metastatic
gastroesophageal cancer. 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.
                                       19

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

Table of Contents

Tisotumab Vedotin
In collaboration with Genmab we are developing tisotumab vedotin for metastatic
cervical cancer and are evaluating it for other solid tumors.
We and Genmab are conducting a pivotal phase 2 trial, called innovaTV 204,
evaluating single-agent tisotumab vedotin for patients with recurrent or
metastatic cervical cancer who have relapsed or progressed after standard of
care treatment. In September 2020, data from the innovaTV 204 trial were
presented at the European Society for Medical Oncology, or ESMO, Virtual
Congress 2020 and in April 2021 were published in The Lancet Oncology. Results
from the trial showed a 24 percent confirmed objective response rate, or ORR, by
independent central review with a median DOR of 8.3 months. The most common
treatment-related adverse events (greater than or equal to 20 percent) included
alopecia, epistaxis (nose bleeds), nausea, conjunctivitis, fatigue and dry eye.
In April 2021, the FDA accepted for Priority Review the BLA seeking accelerated
approval for tisotumab vedotin. This BLA requests FDA approval of tisotumab
vedotin for the treatment of patients with recurrent or metastatic cervical
cancer with disease progression on or after chemotherapy. The FDA has set a
PDUFA target action date of October 10, 2021.
In January 2021, we and Genmab initiated a phase 3 clinical trial, called
innovaTV 301, to evaluate tisotumab vedotin 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 potentially serve as a confirmatory trial in the U.S. if
we are able to obtain accelerated approval based on the innovaTV 204 trial.
We are also conducting a phase 2 clinical trial, called innovaTV 205, evaluating
tisotumab vedotin 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.
Additionally, we are conducting a phase 2 clinical trial, called innovaTV 207,
for patients with relapsed, locally advanced or metastatic solid tumors and a
phase 2 clinical trial, called innovaTV 208, for patients with
platinum-resistant ovarian cancer.
Ladiratuzumab Vedotin
We are developing ladiratuzumab vedotin, or LV, an ADC targeting LIV-1, which is
currently being evaluated in phase 1 and phase 2 clinical trials both as
monotherapy and in combination with other agents for patients with metastatic
breast cancer and select solid tumors with high LIV-1 expression. In September
2020, we and a subsidiary of Merck entered into a license and collaboration
agreement, or the LV Agreement, under which the companies will jointly develop
and share future costs and profits worldwide for LV.
Other clinical and early-stage product candidates
We are advancing a pipeline of early-stage clinical candidates as well as
multiple preclinical and research-stage programs that employ our proprietary
technologies. We advanced several product candidates into clinical development
in 2020 and we plan to submit additional investigational new drug applications,
or INDs, to the FDA in 2021.
Antibody-Drug Conjugate technology license agreements
We have active technology license agreements for our ADC technology with a
number of biotechnology and pharmaceutical companies, including AbbVie
Biotechnology Ltd., or AbbVie; Genentech, Inc., a member of the Roche Group, or
Genentech; and GlaxoSmithKline LLC, or GSK, as well as collaboration agreements
with Astellas and Genmab. Genentech and GSK have received approval for ADC drugs
that utilize our technology, Polivy® (polatuzumab vedotin-piic) and Blenrep™
(belantamab mafodotin-blmf), respectively, in the U.S., European Union and other
countries. Under our ADC license agreements with Genentech and GSK, we are
entitled to receive royalties on net sales of Polivy and Blenrep worldwide.
                                       20

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

Table of Contents

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, and we have continued our essential
research, manufacturing, and laboratory activities on site. Recently, we began
to allow additional U.S. office-based employees who have been fully vaccinated
to return to the office on a voluntary and limited basis. We maintain a number
of precautionary measures designed to protect our on-site employees, such as
enhanced facilities cleaning, lower concentrations of staff, contact tracing and
making testing available. In addition, in accordance with guidelines from
government authorities, we have additional precautionary measures for facilities
with essential research, manufacturing and laboratory staff, who may not all be
fully vaccinated, including temperature checks, screening protocols, masks and
social distancing. After pausing most in-person customer interactions in
healthcare settings earlier in the pandemic, our field-based personnel are now
engaging in an increasing number of in-person interactions where state and local
laws and regulations allow, the institution or office is accepting in-person
interactions and our field-based personnel are comfortable engaging in-person
with healthcare providers. They are also using electronic communications to
continue to support healthcare professionals and patients when they cannot meet
with healthcare providers face-to-face. 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 revenue from ADCETRIS product sales in the U.S. and Canada. While
we anticipate that sales of ADCETRIS will increase modestly in 2021 as compared
to 2020, we have experienced and expect continued impacts associated with the
COVID-19 pandemic, which appear to have led to a reduction in the rate of
Hodgkin lymphoma diagnoses and may further adversely affect the rate of Hodgkin
lymphoma diagnoses in the future. We have also experienced an increase in
gross-to-net deductions that we believe is due to a shift in the locations where
ADCETRIS is administered, which has increased the proportion of ADCETRIS sales
through the federal 340B drug discount program. We may also experience
additional shifts from commercial payor coverage to government payor coverage in
the U.S., which would further increase gross-to-net deductions. We also expect
that our ability to maintain or continue to grow our ADCETRIS sales, if at all,
will depend on our ability to establish or demonstrate to the medical community
the value of ADCETRIS and its potential advantages compared to existing and
future therapeutics in its approved indications, including in the frontline
Hodgkin lymphoma indication, and the extent to which physicians make prescribing
decisions with respect to ADCETRIS. Other important factors affecting our
ADCETRIS sales include the incidence flow of patients eligible for treatment in
ADCETRIS' approved indications, the extent to which coverage and adequate levels
of reimbursement for ADCETRIS are available from governments and other
third-party payors, the impact of any healthcare reform measures that may be
upheld, or adopted in the future, including measures that could result in more
rigorous coverage criteria or reduce the price that we receive for ADCETRIS,
increasing competition from competing therapies including pembrolizumab in
multiple indications, including in the relapsed or refractory classical Hodgkin
lymphoma indication, continuing impacts resulting from the evolving effects of
the COVID-19 pandemic including potential further impacts from lower diagnosis
rates, and the potential future approval of ADCETRIS in any additional
indications. For these reasons, we cannot assure you that ADCETRIS sales will
continue to grow or that we can maintain sales of ADCETRIS at or near current
levels. In addition, as a result of these and other factors, our future ADCETRIS
product sales can be difficult to accurately predict from period to period.
We recognize revenue from PADCEV product sales in the U.S. Our ability to
realize the anticipated benefits from our investment in PADCEV is subject to a
number of risks and uncertainties, including our and Astellas' ability to
successfully jointly market and commercialize PADCEV in the U.S. in its approved
indications, the extent to which we and Astellas are able to obtain regulatory
approvals of PADCEV in additional indications in the U.S., including in the
frontline metastatic urothelial cancer setting, and in territories outside the
U.S., the acceptance of PADCEV by the medical community and patients, the extent
to which physicians make prescribing decisions with respect to PADCEV, the
incidence flow of patients eligible for treatment in PADCEV's approved
indications, the duration of therapy for patients receiving PADCEV, the extent
to which coverage and adequate levels of reimbursement for PADCEV are available
from governments and other third-party payors, the impact of any healthcare
reform measures that may be adopted in the future, including measures that could
potentially result in more rigorous coverage criteria and additional downward
pressure on the price that we receive for PADCEV, potential competition from
competing therapies, the impact of conducting launch activities virtually during
the COVID-19 pandemic and other impacts resulting from the evolving effects of
the COVID-19 pandemic including potential negative impacts of reduced cancer
diagnosis rates. In addition, as a result of these and other factors, including
the lack of significant historical sales data, PADCEV sales are currently
difficult to predict from period to period.
                                       21

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

Table of Contents

We recognize revenue from TUKYSA product sales in the U.S., Europe, and Canada.
Our ability to realize the anticipated benefits of our investment in TUKYSA is
subject to a number of risks and uncertainties, including our and Merck's
ability to successfully launch, market and commercialize TUKYSA in our
respective territories in its approved indication, the extent to which we and
Merck are able to obtain regulatory and other required governmental and pricing
and reimbursement approvals of TUKYSA in additional territories, the extent to
which we and Merck are able to obtain regulatory approvals of TUKYSA in
additional indications, including earlier lines of breast cancer and other
HER2-positive cancers, the acceptance of TUKYSA by the medical community and
patients, competition from other therapies, our and Merck's ability to
accurately predict and supply product demand, the extent to which coverage and
adequate levels of reimbursement will be available from governments and other
third-party payors, the impact of any healthcare reform measures that may be
adopted in the future, including measures that could potentially result in more
rigorous coverage criteria and additional downward pressure on the price that we
receive for TUKYSA, our ability to effectively commercialize a product outside
of the U.S., the impact of conducting launch activities virtually during the
COVID-19 pandemic and other impacts resulting from the evolving effects of the
COVID-19 pandemic including potential negative impacts of reduced cancer
diagnosis rates. In addition, as a result of these and other factors, including
the lack of significant historical sales data, TUKYSA sales are currently
difficult to predict from period to period.
The biopharmaceutical industry and the markets in which we operate are intensely
competitive. Many of our competitors are working to develop or have
commercialized products similar to those we market or are developing. Drug
prices are under significant scrutiny and we expect drug pricing and other
health care costs to continue to be subject to intense political and societal
pressures on a global basis. For example, in July 2021, the Biden administration
announced an Executive Order that includes initiatives aimed at lowering
prescription drug costs and implementing Canadian drug importation. In addition
to pricing actions and other measures being taken worldwide designed to reduce
healthcare costs and limit the overall level of government expenditures, our
sales and operations could also be affected by other risks of doing business
internationally.
We expect that amounts received from our collaboration agreements, including
royalties, will continue to be an important source of our revenues and cash
flows. These revenues and cash flows will be impacted by future development
funding and the achievement of development, clinical and commercial success by
our collaborators under our existing collaboration and license agreements, as
well as by entering into potential new collaboration and license agreements.
Our ongoing research, development, manufacturing and commercial activities will
require substantial amounts of capital and may not ultimately be successful. We
expect that we will incur substantial expenses, and we will require significant
financial resources and additional personnel in order to advance the development
of, to pursue, obtain and maintain regulatory approvals for, and to
commercialize our products and product candidates, and expand our pipeline. In
addition, we may pursue new operations or continue the expansion of our existing
operations, including with respect to the continued development of our
commercial infrastructure in Europe and our plans to otherwise continue to
expand our operations internationally. As a result, we may need to raise
additional capital, and our operating expenses may fluctuate as a result of such
activities. We may also incur milestone payment obligations to certain of our
licensors as our product candidates progress through clinical trials towards
potential commercialization.
                                       22

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

Table of Contents

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 that we normally call on are working a greater proportion of their
working schedule from home and are facing additional demands on their time
during the ongoing COVID-19 pandemic. We are continuing to experience increased
competition for virtual appointments with healthcare professionals and a
significant reduction in the number of interactions our sales personnel are
having with physicians. 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
for the foreseeable future, including increasing COVID-19 infection rates due to
coronavirus mutations and/or low vaccination rates or otherwise, the need to
navigate varying restrictions for entering healthcare facilities and the
pandemic's impacts on employee childcare arrangements. In addition, the effects
of the COVID-19 pandemic continue to evolve rapidly, and we may subsequently be
forced to, or subsequently determine that we should, 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. COVID-19 related
restrictions could also present product distribution challenges as we utilize
recently initiated distribution channels for TUKYSA. 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. 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, significant increases in unemployment and the resulting 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.
With respect to ADCETRIS specifically, impacts associated with the COVID-19
pandemic appear to have led to a reduction in the rate of Hodgkin lymphoma
diagnoses and may further adversely affect the rate of Hodgkin lymphoma
diagnoses in the future. In addition, we have experienced lower than expected
levels of our research and development spending, in part as a result of the
COVID-19 pandemic. This includes some delays in clinical trial enrollment as
well as reduced travel due to the conversion of medical and scientific meetings
to virtual formats. 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 be some 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. In
addition, many of our non-essential on-site research activities are currently
significantly reduced as a result of the COVID-19 pandemic, which may negatively
impact the number of IND candidates entering our clinical pipeline in future
years. The extent to which the risks and evolving effects of the COVID-19
pandemic impact our business, our ability to generate sales of and revenues from
our approved products, and our clinical development and regulatory efforts will
depend on future developments that are highly uncertain and cannot be predicted
with confidence, such as the ultimate duration and severity of the pandemic,
government actions, such as travel restrictions, quarantines and social
distancing requirements in the U.S. and in other countries, business closures or
business disruptions and the effectiveness of actions taken in the U.S. and in
other countries to contain and treat the disease, including the effectiveness
and timing of vaccine programs in the U.S. and worldwide. 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.

Financial summary
For the six months ended June 30, 2021, our total revenues increased to
$720.5 million, compared to $512.5 million for the same period in 2020. This
growth was primarily driven by the U.S. launch of TUKYSA in April 2020 and
higher PADCEV net product sales.
                                       23

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

Table of Contents

For the six months ended June 30, 2021, total costs and expenses increased to
$932.5 million, compared to $718.8 million for the same period in 2020. This
reflected higher selling, general and administrative expenses, research and
development expenses, and cost of sales.
As of June 30, 2021, we had $2.5 billion in cash, cash equivalents and
investments and $3.4 billion in total stockholders' equity.

Results of operations
Net product sales
                                                           Three months ended June 30,                                         Six months ended June 30,
(dollars in thousands)                            2021                  2020              % Change                   2021                    2020              % Change
ADCETRIS                                    $      181,912          $ 167,535                     9  %       $     344,484               $ 331,588                     4  %
PADCEV                                              82,405             57,175                    44  %             152,163                  91,636                    66  %
TUKYSA                                              83,021             15,755                   427  %             153,279                  15,755                   873  %

Net product sales                           $      347,338          $ 240,465                    44  %       $     649,926               $ 438,979                    48  %



Our net product sales grew 44% and 48% during the three and six months ended
June 30, 2021, as compared to the comparable periods in 2020, primarily driven
by increased sales volumes following the launch of TUKYSA in April 2020 and
higher PADCEV net product sales. PADCEV net product sales grew primarily due to
higher volumes, driven by increased utilization in its initial approved
indication for the 2021 periods, following the U.S. launch in December 2019.
ADCETRIS net product sales increased during the three and six months ended June
30, 2021, as compared to the comparable periods in 2020, primarily due to higher
volumes of vials sold.
We expect growth in net product sales in 2021 from 2020 to be primarily driven
by sales growth of TUKYSA and PADCEV, and to a lesser extent, ADCETRIS. Refer to
"Overview-Outlook" above for additional information.
Gross-to-net deductions, net of related payments and credits, were as follows:
                                                                                    Distribution fees,
                                                              Rebates and            product returns
(in thousands)                                                chargebacks               and other                  Total
Balance as of December 31, 2020                             $     44,193          $            15,689          $   59,882
Provision related to current period sales                        236,039                       20,232             256,271
Adjustment for prior period sales                                 (2,687)                        (613)             (3,300)
Payments/credits for current period sales                       (197,286)                     (13,961)           (211,247)
Payments/credits for prior period sales                          (26,949)                      (6,073)            (33,022)
Balance as of June 30, 2021                                 $     53,310          $            15,274          $   68,584


Government-mandated rebates and chargebacks are the most significant component
of our total gross-to-net deductions and the discount percentage has been
increasing. These discount percentages increased during the six months ended
June 30, 2021 as a result of price increases for ADCETRIS that we instituted
that exceeded the rate of inflation. The most significant portion of our
gross-to-net accrual balances as of June 30, 2021 and 2020 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 2021 as compared to 2020, driven by
anticipated growth in our gross product sales.

Royalty revenues
Royalty revenues primarily reflect royalties earned under the ADCETRIS
collaboration with Takeda. These royalties include commercial sales-based
milestones and sales royalties. Sales royalties are based on a percentage of
Takeda's net sales of ADCETRIS, with rates that range from the mid-teens to the
mid-twenties based on annual net sales tiers. Takeda bears third-party royalty
costs owed on its sales of ADCETRIS. This amount is included in royalty
revenues. Royalty revenues also reflect, to a lesser extent, amounts from
Genentech earned on net sales of Polivy beginning in 2019, and amounts from
GlaxoSmithKline earned on net sales of Blenrep beginning in 2020, both of which
utilizes technology that we have licensed to them.
                                       24

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

  Table of Contents

                                                           Three months ended June 30,                                     Six months ended June 30,
(dollars in thousands)                            2021                 2020              % Change                 2021                2020              % Change
Royalty revenues                            $       36,296          $ 31,235                    16  %       $      63,514          $ 51,595                    23  %


Royalty revenues increased for the three and six months ended June 30, 2021 from
the comparable periods in 2020, primarily due to growth in Takeda net sales of
ADCETRIS in its territories, as well as higher royalties earned on net sales of
Blenrep and Polivy by our other licensees.
We expect that royalty revenues will increase in 2021 as compared to 2020
primarily due to higher royalties from anticipated growth in ADCETRIS sales
volume by Takeda, as well as anticipated growth of our other licensees' net
product sales.

Collaboration and license agreement revenues
Collaboration and license agreement revenues reflect amounts earned under
certain of our license and collaboration agreements. These revenues reflect
license fees, payments received by us for technology access and maintenance
fees, sales of drug supply to our collaborators, milestone payments, and
reimbursement payments for research and development support that we provide to
our collaborators.
Collaboration and license agreement revenues by collaborator were as follows:
                                                             Three months ended June 30,                                    Six months ended June 30,
(dollars in thousands)                               2021                2020             % Change                2021                2020              % Change

Takeda                                         $           -          $ 5,598                  (100) %              1,851            15,913                   (88) %

Other                                                  4,844              700                   592  %              5,169             6,025                   (14) %
Total collaboration and license
agreement revenues                             $       4,844          $ 6,298                   (23) %       $      7,020          $ 21,938                   (68) %


Collaboration revenues from Takeda for the three and six months ended June 30,
2021 declined primarily due to a decrease in ADCETRIS drug supply sold to
Takeda.
Other collaboration revenues increased for the three months ended June 30, 2021
as compared to the comparable period in 2020 primarily due to drug supply sold
to a collaborator in the 2021 period. Other collaboration revenues were
relatively consistent for the three months ended June 30, 2021, as compared to
the comparable period.
We expect our collaboration and license agreement revenues in 2021 to
significantly decrease compared to 2020, driven by the amounts recognized
related to the agreements with Merck in the third and fourth quarters of 2020.
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, amount of drug supplied to our collaborators, the
level of support we provide to our collaborators, specifically to Takeda under
our ADCETRIS collaboration, the timing of milestones achieved, and our ability
to enter into potential additional collaboration and license agreements.

Collaboration agreements
Takeda ADCETRIS collaboration
We have an agreement with Takeda for the global co-development of ADCETRIS and
the commercialization of ADCETRIS by Takeda in its territory. We 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.
                                       25

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

Table of Contents

Astellas PADCEV collaboration
We have a collaboration agreement with Agensys, Inc., which subsequently became
an affiliate of Astellas, to jointly research, develop and commercialize ADCs
for the treatment of several types of cancer. Under this collaboration, we and
Astellas are equally co-funding all development and certain commercialization
costs for PADCEV. In the U.S., we and Astellas jointly promote PADCEV. We record
sales of PADCEV in the U.S. and are responsible for all U.S. distribution
activities. The companies each bear the costs of their own sales organizations
in the U.S., equally share certain other costs associated with commercializing
PADCEV in the U.S., and equally share in any profits realized in the U.S. Gross
profit share payments owed to Astellas in the U.S. under the joint
commercialization agreement are recorded in cost of sales. Outside the U.S., we
have commercialization rights in all countries in North and South America, and
Astellas has commercialization rights in the rest of the world, including
Europe, Asia, Australia and Africa.
Astellas or its affiliates are responsible for manufacturing PADCEV for
development and commercial use. However, we are responsible for packaging and
labeling in countries in which we sell PADCEV. In addition, if the parties
determine that a second source is required, we will be responsible for
establishing such second source whether internally or through a third party.
Genmab tisotumab vedotin collaboration
We have an agreement with Genmab to develop and commercialize ADCs for the
treatment of several types of cancer, under which we previously exercised a
co-development option for tisotumab vedotin. Under this collaboration, we and
Genmab are co-funding all development costs for tisotumab vedotin.
In 2020, we and Genmab entered into a joint commercialization agreement to
govern the global commercialization of tisotumab vedotin, if we are successful
in obtaining any regulatory approvals of tisotumab vedotin:
•In the U.S., we and Genmab will co-promote tisotumab vedotin. We will record
sales of tisotumab vedotin in the U.S. and are responsible for leading U.S.
distribution activities. The companies will each hire and maintain 50% of the
sales representatives and medical science liaisons, equally share those and
certain other costs associated with commercializing tisotumab vedotin in the
U.S., individually bear the costs of certain other personnel in the U.S., and
equally share in any profits realized in the U.S. In February 2021, a BLA for
tisotumab vedotin was submitted to the FDA seeking accelerated approval for the
treatment of patients with recurrent or metastatic cervical cancer with disease
progression on or after chemotherapy, and in April 2021, FDA accepted the BLA
for Priority Review, and set target action date of October 10, 2021.
•Outside the U.S., we have commercialization rights in the rest of the world
except for Japan, where Genmab has commercialization rights. In Europe, China,
and Japan, we and Genmab equally share 50% of the costs associated with
commercializing tisotumab vedotin as well as any profits realized in these
markets. In markets outside the U.S. other than Europe, China, and Japan, aside
from certain costs specified in the agreement, we are solely responsible for all
costs associated with commercializing tisotumab vedotin and will pay Genmab a
royalty based on a percentage of aggregate net sales ranging from the mid-teens
to mid-twenties.
Merck LV collaboration
In September 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 of
$600.0 million, and we are eligible to receive up to $850.0 million in milestone
payments upon the initiation of certain clinical trials and regulatory approval
in certain major markets, and up to an additional $1.8 billion in milestone
payments upon the 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. In connection
with the LV Agreement, we entered into a stock purchase agreement with Merck in
September 2020, pursuant to which we agreed to issue and sell, and Merck agreed
to purchase 5,000,000 newly-issued shares of our common stock, at a purchase
price of $200 per share, for an aggregate purchase price of $1.0 billion,
referred to as the Purchase Agreement. We closed the Purchase Agreement in
October 2020.
We recognized license revenue of $850.1 million during 2020 associated with the
LV Agreement and Purchase Agreement, and 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.
                                       26

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

Table of Contents

Merck TUKYSA collaboration
In September 2020, we entered into the TUKYSA Agreement with a subsidiary of
Merck. We granted exclusive rights to commercialize TUKYSA in Asia, the Middle
East and Latin America and other regions outside of the U.S., Canada and Europe.
Under the terms of the TUKYSA Agreement, Merck is responsible for marketing
applications for approval in its territory, supported by the positive results
from the HER2CLIMB clinical trial. We retained commercial rights in, and will
record sales in, the U.S., Canada and Europe. Merck is also co-funding a portion
of the TUKYSA global development plan, which encompasses several ongoing and
planned trials across HER2-positive cancers. We will continue to lead ongoing
TUKYSA global development operational execution. Merck will solely fund and
conduct country-specific clinical trials necessary to support anticipated
regulatory applications in its territories. We received an upfront cash payment
from Merck of $125.0 million and also received $85.0 million in prepaid research
and development funding to be applied to Merck's global development cost sharing
obligations. We are eligible to receive progress-dependent milestone payments of
up to $65.0 million, and are entitled to receive tiered royalties on sales of
TUKYSA by Merck that begin in the low twenty percent range and escalate based
sales volume by Merck in its territory.
We recognized license revenue of $125.0 million during 2020 associated with the
TUKYSA Agreement, and 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 prepayment received for global development cost-sharing was
recorded as a co-development liability in accrued liabilities and other or other
long-term liabilities on our condensed consolidated balance sheet as of June 30,
2021. As joint development expenses are incurred, we recognize the portion of
Merck's prepayment as a reduction of our research and development expenses on
our condensed consolidated statements of comprehensive loss. As of June 30, 2021
and December 30, 2020, $70.3 million and $80.9 million was recorded as the
remaining co-development liability, respectively.
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 pursuant to our PADCEV collaboration,
amortization of acquired technology license costs, royalties owed on our PADCEV
net product sales and global ADCETRIS and TUKYSA net product sales.
                                                           Three months ended June 30,                                      Six months ended June 30,
(dollars in thousands)                            2021                 2020              % Change                 2021                 2020              % Change

Cost of sales                               $       78,090          $ 48,244                    62  %       $      142,225          $ 77,665                    83  %


Cost of sales increased for the three and six months ended June 30, 2021 from
the comparable periods in 2020, driven by the Astellas gross profit share
related to PADCEV net product sales, amortization expense associated with
acquired TUKYSA technology costs, and in-licensing royalties owed on PADCEV and
TUKYSA net product sales. The gross profit share with Astellas totaled
$38.6 million and $71.1 million for the three and six months ended June 30,
2021, respectively, as compared to $27.1 million and $43.5 million for the
comparable periods in 2020. We recorded amortization expense of $11.5 million
for acquired TUKYSA technology costs during the six months ended June 30, 2021,
as compared to $4.7 million during the six months ended June 30, 2020.
We expect cost of sales to increase in 2021 as compared to 2020 as a result of
the net product sales growth of our marketed products, contributing to higher
anticipated manufacturing and distribution costs for goods sold and increased
royalties owed on certain net sales of our products. This growth also includes
higher anticipated gross profit share with Astellas under our PADCEV
collaboration, and the full-year 2021 amortization of acquired TUKYSA technology
costs.

                                       27

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

  Table of Contents

Research and development
                                                              Three months ended June 30,                                         Six months ended June 30,
(dollars in thousands)                               2021                  2020              % Change                   2021                    2020              % Change
Research and clinical development              $      164,869          $ 137,158                    20  %       $     338,873               $ 270,387                    25  %
Process sciences and manufacturing                     69,992             60,919                    15  %             126,413                 122,889                     3  %
Total research and development                 $      234,861          $ 198,077                    19  %       $     465,286               $ 393,276                    18  %


Research and clinical development expenses include personnel, occupancy and
laboratory expenses, technology access fees, preclinical translational biology
and in vitro and in vivo studies, IND-enabling pharmacology and toxicology
studies, and external clinical trial costs including costs for clinical sites,
clinical research organizations, contractors and regulatory activities
associated with conducting human clinical trials. The increase for the three and
six months ended June 30, 2021 from the comparable periods in 2020 primarily
reflected higher employee-related costs and external development costs mainly to
support our early- and late-stage pipeline of product candidates.
Process sciences and manufacturing expenses include personnel and occupancy
expenses, manufacturing costs for the scale-up and pre-approval manufacturing of
product candidates used in research and our clinical trials, and costs for drug
product supplied to our collaborators. Process sciences and manufacturing
expenses also include quality control and assurance activities, and storage and
shipment of our product candidates. The increase for the three and six months
ended June 30, 2021 from the comparable period in 2020 primarily reflected the
timing of our manufacturing of product candidates for use in clinical trials, as
well as increased manufacturing of our approved products.
We utilize our employee and infrastructure resources across multiple research
and development projects. We track human resource efforts expended on many of
our programs for purposes of billing our collaborators for time incurred at
agreed upon rates and for resource planning. We do not account for actual costs
on a project basis as it relates to our infrastructure, facility, employee and
other indirect costs; however, we do separately track significant third-party
costs including clinical trial costs, manufacturing costs and other contracted
service costs on a project basis. To that end, the following table shows
third-party costs incurred for research, contract manufacturing of our product
candidates and clinical and regulatory services, as well as development
milestone payments for in-licensed technology for our products and certain of
our clinical-stage product candidates. The table also presents other costs and
overhead consisting of third-party costs for our preclinical stage programs,
personnel, facilities, manufacturing, and other indirect costs not directly
charged to development programs, as well as cost reimbursements received from or
payments made to collaborators related to our product candidates.
                                                     Three months ended June 30,                  Six months ended June 30,
(dollars in thousands)                                2021                  2020                  2021                  2020
ADCETRIS (brentuximab vedotin)                  $       10,990          $   

11,396 $ 22,869 $ 22,962 TUKYSA (tucatinib)

                                      28,781              15,444                  56,903              37,970
PADCEV (enfortumab vedotin-ejfv)                        15,966               5,877                  26,952              14,006
Tisotumab vedotin                                        9,384               3,868                  21,388               7,443
Ladiratuzumab vedotin                                    6,955               4,592                  11,800               8,960
Other clinical stage programs                           11,567              16,197                  32,163              22,743
Total third-party costs for clinical
stage programs                                          83,643              57,374                 172,075             114,084
Other costs, overhead, and net
cost-sharing with collaborators                        151,218             140,703                 293,211             279,192
Total research and development                  $      234,861          $  

198,077 $ 465,286 $ 393,276

Third-party costs for ADCETRIS were consistent for three and six months ended
June 30, 2021 as compared to the 2020 periods. Third-party costs for TUKYSA,
PADCEV, tisotumab vedotin, and ladiratuzumab vedotin increased for the three and
six months ended June 30, 2021 as compared to the 2020 periods, due to higher
clinical trial costs.
Third-party costs for other clinical stage programs decreased for the three
months ended June 30, 2021, as compared to the 2020 period, due to lower
manufacturing costs, and increased for the six months ended June 30, 2021 as
compared to the 2020 period, primarily due to an in-license development
milestone payment made in the first quarter of 2021 related to one of our
clinical pipeline programs.
                                       28

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

Table of Contents

Other costs, overhead, and net cost-sharing with collaborators include
third-party costs of our preclinical programs and costs associated with
personnel and facilities. In total, these net costs were relatively consistent
for the three and six months ended June 30, 2021 from the comparable periods in
2020. During the three months ended June 30, 2021 and 2020, net cost-sharing
reimbursements from and payments made to collaborators were $19.0 million and
$0.8 million, respectively. During the six months ended June 30, 2021 and 2020,
net cost-sharing reimbursements from and payments made to collaborators were
$40.3 million and $5.7 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 2021 will
increase compared to 2020, primarily due to higher costs for the continued
development of our approved products and product candidates.
The risks and uncertainties associated with our research and development
projects are discussed more fully in "Part II Item 1A-Risk Factors." As a result
of these 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 June 30,                                         Six months ended June 30,
(dollars in thousands)                                2021                  2020              % Change                   2021                    2020              % Change
Selling, general and administrative             $      165,130          $ 125,642                    31  %       $     324,972               $ 247,891                    31  %


Selling, general and administrative expenses increased for the three and six
months ended June 30, 2021 from the comparable periods in 2020, reflecting
investments to support European TUKYSA launches and our continued growth in the
U.S. and Europe.
We anticipate that selling, general and administrative expenses will increase in
2021 as compared to 2020 as we continue our commercial activities in support of
product launches, and invest in infrastructure to support our continued growth
in the U.S. and Europe.

Investment and other income, net

                                                          Three months ended June 30,                                     Six months ended June 30,
(dollars in thousands)                            2021                2020              % Change                2021                2020              % Change
Gain on equity securities                   $       4,670          $ 70,683                   (93) %       $      4,929          $ 11,604                   (58) %

Investment and other income, net                      357             2,092                   (83) %              1,098             5,124                   (79) %
Total investment and other income,
net                                         $       5,027          $ 72,775                   (93) %       $      6,027          $ 16,728                   (64) %


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
in U.S. Treasury securities.
Investment income decreased for the three months ended June 30, 2021 as compared
to the comparable period in 2020 primarily driven by a $70.7 million gain from
the sale of certain equity securities in April 2020. The decrease for the six
months ended June 30, 2021 as compared to the comparable period in 2020 was also
impacted by a $59.1 million decline in the fair value of our equity securities
during the first quarter of 2020. Our investment portfolio experienced lower
average yields during the three and six months ended June 30, 2021 as compared
to the 2020 periods.

                                       29

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

Table of Contents

Liquidity and capital resources
(in thousands)                                June 30, 2021       December 31, 2020
Cash, cash equivalents, and investments      $    2,451,612      $        2,660,250
Working capital                                   2,664,678               2,674,246
Stockholders' equity                              3,391,274               3,488,100


                                    Six months ended June 30,
(in thousands)                        2021                 2020
Cash provided (used) by:
Operating activities          $     (197,770)          $ (155,343)
Investing activities                  20,130              (55,113)
Financing activities                  32,992               53,271


The change in net cash from operating activities was primarily related to the
change in our net loss, working capital fluctuations and changes in our non-cash
expenses, all of which are highly variable. The change in net cash from
investing activities reflected differences between the proceeds received from
sale and maturity of our investments, proceeds from sales of securities, and
amounts reinvested. The change in net cash from financing activities was driven
by differences in proceeds from stock option exercises and our employee stock
purchase plan.
We primarily have financed our operations through the issuance of our common
stock, collections from commercial sales of our products, amounts received
pursuant to license and collaboration agreements, and royalty revenues. To a
lesser degree, we also have financed our operations through investment income.
These financing and revenue sources have allowed us to maintain adequate levels
of cash and investments.
Our cash, cash equivalents, and investments are held in a variety of
non-interest bearing bank accounts and interest-bearing instruments subject to
investment guidelines allowing for holdings in U.S. government and agency
securities, corporate securities, taxable municipal bonds, commercial paper and
money market accounts. Our investment portfolio is structured to provide for
investment maturities and access to cash to fund our anticipated working capital
needs. However, if our liquidity needs should be accelerated for any reason in
the near term, or investments do not pay at maturity, we may be required to sell
investment securities in our portfolio prior to their scheduled maturities,
which may result in a loss. As of June 30, 2021, we had $2.5 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 the fees. milestone
payments and reimbursements we expect to receive under our existing
collaboration and license agreements, will be sufficient to fund our operations
for at least the next twelve months.
We expect to make additional capital outlays and to increase operating
expenditures over the next several years as we hire additional employees, and
support our development, commercialization, invest in our facilities, and expand
globally, which may require us to raise additional capital. Further, we actively
evaluate various strategic transactions on an ongoing basis, including licensing
or otherwise acquiring complementary products, technologies or businesses, and
we may require significant additional capital in order to complete or otherwise
provide funding for such transactions. We may seek additional capital through
some or all of the following methods: corporate collaborations, licensing
arrangements, and public or private debt or equity financings. We do not know
whether additional capital will be available when needed, or that, if available,
we will obtain financing on terms favorable to us or our stockholders. If we are
unable to raise additional funds when we need them, our business and operations
may be adversely affected.
Commitments
Our future minimum contractual commitments were reported in our Annual Report on
Form 10-K for the year ended December 31, 2020.
In June 2021, we entered into we entered into a lease agreement for an
approximately 258,000 square feet building complex to be constructed by the
landlord on approximately 20.5 acres of land in Everett, Washington. We expect
to make a significant capital investment in the facility and intend to use the
building for future manufacturing, laboratory, and office space. Under the terms
of the lease, base rent is payable at an initial rate of $4.0 million per year,
subject to annual escalations of 3% during the initial term of 20 years. The
lease commences on the date when construction and delivery of the building shell
and related improvements by the landlord have been substantially completed. We
have an option to renew the lease for two additional terms of ten years each. In
addition, we have an option to purchase the premises in the future.

Excluding the lease agreement described above, our future minimum contractual commitments have not changed materially from the amounts previously reported.

                                       30

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

Table of Contents

Critical accounting policies
The preparation of financial statements in accordance with generally accepted
accounting principles, or GAAP, requires us to make estimates, assumptions, and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. We
believe the following critical accounting policies describe the more significant
judgments and estimates used in the preparation of our financial statements.
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 six months ended
June 30, 2021 were consistent with those in Part II Item 7 of our Annual Report
on Form 10-K for the year ended December 31, 2020.
Recent accounting pronouncements
Refer to "Part I Item 1 Note 1--Summary of significant accounting policies" for
a discussion on recent accounting pronouncements.

© Edgar Online, source Glimpses