Seagen Inc

F:SGT

Earnings Call Transcript 2018-Q4

[Operator]

Good day, and welcome to the Seattle Genetics' Fourth Quarter and Year 2018 Financial Results. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Peggy Pinkston, Vice President, Investor Relations. Please go ahead, ma'am.

[Peggy Pinkston]

Thank you, operator, and good afternoon, everyone. I'd like to welcome all of you to Seattle Genetics' fourth quarter and year 2018 conference call. With me today are Clay Siegall, President and Chief Executive Officer; Todd Simpson, Chief Financial Officer; Roger Dansey, Chief Medical Officer; and Darren Cline, Executive Vice President Commercial. Accompanying today's conference call or supporting flies, which are available on our website in the Investors section, the Events and Presentations page. Following our prepared remarks today, we'll open the line for question.

Today's conference call will include forward-looking statements regarding future events or the future financial and operating performance of the company such as those among others relating to the company's 2019 financial outlook, including anticipated 2019 ADCETRIS sales and future revenues; cost and expenses, the company's potential and anticipated timing to achieving future clinical and regulatory milestones, and published data for ADCETRIS, enfortumab vedotin, tucatinib and tisotumab vedotin. Actual results or developments may differ materially from those projected or implied in these forward-looking statements.

Among the factors that may cause such a difference includes the difficulty in forecasting sales, revenues and expenses and the uncertainty associated with the pharmaceutical development and regulatory approval process. More information about the risks and uncertainties faced by Seattle Genetics is contained under the caption Risk Factors, included in the company's periodic report filed with the securities and is the right exchange commission, including the company's quarterly report on Form 10-Q for the quarter ended September 30, 2018, and future periodic reports filed by the company, including the company's annual report on Form 10-K for the year ended December 31, 2018.

Now I'll turn the call over to Clay.

[Clay Siegall, Co-Founder, Chairman, President & CEO]

Thanks, Peg, and good afternoon, everyone. 2018 was a remarkable year, highlighted by significant ADCETRIS achievements and substantial progress with our late-stage clinical portfolio, bringing us closer to becoming a multiproduct oncology company. In 2018, ADCETRIS was launched in two frontline indications and is becoming the foundation of therapy in CD30-expressing lymphomas. We expect to continue our momentum in 2019, including maintaining focus on ADCETRIS commercial growth.

Beyond ADCETRIS, our three late-stage programs in solid tumors that are approaching near-term milestones. Importantly, in 2019, we'll report data from pivotal trials with enfortumab vedotin and tucatinib. In March, ADCETRIS in combination with chemotherapy was approved for Stage III and IV Hodgkin lymphoma, based on the ECHELON-1 trial. And in mid-November, ADCETRIS in combination with chemotherapy was granted Breakthrough Therapy designation, and then approve in frontline CD30-expressing peripheral T-cell lymphoma, based on a positive results from the ECHELON-2 trial. The PTCL approval came 11 days after submission under the FDA's real-time oncology review pilot program. This is a testament to the strength of data, close collaboration with FDA and our commitment to bringing ADCETRIS to patients in need.

In 2018, we achieved record net sales of $477 million in the U.S. and Canada. U.S. approval in front-line Hodgkin lymphoma was a primary contributor to the 55% increase in net sales in 2018 over 2017. For 2019, we estimate that ADCETRIS net sales in the U.S. and Canada will be in the range of $610 million to $640 million, an increase of 28% to 34% over the last year. Our guidance reflects the expanded patient populations provided by the new frontline labels and indication with decades old standard of care. Globally, ADCETRIS could exceed $1 billion in sales in 2019. Our partner Takeda continues to make great progress in its territories.

In Japan, ADCETRIS was approved for frontline Hodgkin lymphoma in September. In Europe, approval is pending in front-line Hodgkin lymphoma based on the E1 trial, and tucata plans to submit E2 data to EMA and other health authorities later this year. Turning to our three late-stage solid tumor programs. We are preparing for several upcoming milestones. With enfortumab vedotin or EV, we and our partner Astellas expect to report top line data from a pivotal trial in metastatic urothelial cancer this quarter. These data could support a regulatory submission in 2019 under the FDA's accelerated approval regulations for the EV on the path to becoming our next marketed drug. Our second late stage program is tucatinib, which is an oral tyrosine kinase inhibitor that targets HER2. The pivotal trial called, HER2CLIMB, we have completed the enrollment for 480 patients to enable analysis of PFS, the primary endpoint of the trial. We expect to report topline data this year.

If HER2CLIMB is successful, our intention is to build tucatinib into a broad development program into earlier lines of breast cancer and other HER2-expressing tumor types, which Roger will further outline. Our third pivotal stage program is tisotumab vedotin or TB, which we're developing a partnership with Genmab. Our initial focus with TB is metastatic cervical cancer, where we are conducting an ongoing pivotal trial designed to support a regulatory submission under the FDA's accelerated approval path. We expect to complete enrollment by mid-2019. In parallel, we are evaluating TV in other lines of cervical cancer and other solid tumors that express tissue factor. In addition to the late state programs, we're developing a multiple targeted therapy, including ladiratuzumab vedotin and ADC for triple-negative breast cancer, that's in Phase II development and SCA ECMA, an empowered antibody in Phase I development for multiple myeloma.

We also expect to submit INDs during 2019 for additional novel agents to treat cancer. Investing in our pipeline is a key part of our strategy for future growth. Our ADC collaborators are also making progress with programs using our technologies. Of note, Genentech Roche announced that they have submitted [indiscernible] in relapsing large B-cell lymphoma for approval in both the U.S. and EU. We believe that our accomplishments in 2018 and progress expected in 2019 better than ever to bring new medicines to people with cancer. At this point, I'll turn the call over to Darren to view our commercial activities. After that, Todd will discuss our 2018 financial results as well as our 2019 guidance. And then Roger will provide additional comments on our clinical pipeline. Darren?

[Darren Cline, EVP, Commercial]

Thanks, Clay. Since the commercial launch in 2011, our vision has been to build ADCETRIS into a blockbuster brand in the U.S. and Canada. The frontline approvals in 2018, bring the number of approved indications in the U.S. to 6 and further position us to achieve that vision. In the fourth quarter of 2018, we saw continued sales growth. ADCETRIS net sales were $132 million in the quarter and were $477 million for the full year in 2018, a 55% increase over 2017. The frontline approvals significantly expanded the addressable patient opportunity for ADCETRIS we are confident that ADCETRIS based frontline regiment could become the preferred treatment of choice. This is based on the strength of our clinical data from other frontline trials and the expedience commercial team that we have in place.

That said, we're up against long-standing broadly used chemotherapy standards of care in both settings with ingrained physician habits. Therefore, achieving our vision will take time and solid execution. I would like to share with - some additional context around the frontline opportunities. Let me start with an update on front-line Hodgkin lymphoma. As you know, this was approved in March 2018 for Stage III and IV patients. During the fourth quarter, we continue to build positional awareness in both community and academic centers. It will take time and effort to establish to its full potential in its editing. We view the marketplace as having three main segments: first, physicians who are familiar with ADCETRIS and regularly treat patients with Hodgkin lymphoma; second, physicians who appreciate the product profile of ADCETRIS, but see only a few Hodgkin lymphoma patients per year; and third, physicians who do not recognize the benefit that ADCETRIS may have for their patients and continue to use a ABVD.

Our commercial plan is intended to lead each of these physician profiles, and our research shows that we're making progress. We continue to see increased utilization in newly diagnosed Stage III and IV patients. This is reflected in market share improvement over the last 2 quarters and an increase in the number of new ordering accounts. Importantly, we've seen growth in community practices where the majority of frontline Hodgkin lymphoma patients are diagnosed and treated. Physician recall of our key messages continues to be strong. We are also focused on ensuring that physicians have access to the involving ADCETRIS data. For example, the North American data from the E1 trial were recently published. These data provide additional evidence that A+AVD along with prophylactic growth factor support can result in superior efficacy, while avoiding the toxicities associated with neomycin. These data are an important part of our efforts to align the treatment guidelines and pathways with our label.

Next, I'll comment on our most recent approval in frontline PTCL. As you know, we've received disapproval rapidly following the submission, and the commercial team was ready. While still early into the launch, we are hearing positive reactions to the data E2 data from the physician community, including the significant improvement in overall survival. The efficacy advantage of the using the ADCETRIS regiment, shown in the E2 trial, resulted in conclusion of A+CHP into the NCC and guidelines in December, that is consistent with the label. Our goal with the E2 trial is to improve upon the decades-old CHOP chemotherapy regimen that leaves a significant unmet need for patients in frontline PTCL. The successful E2 trial supports our belief that A+CHP can become the new standard of care for CD30-expressing PTCL patients in the U.S. In conclusion, we believe that ADCETRIS will have a meaningful impact on the lives of patients with CD30-expressing lymphomas. This is an exciting time and the lifecycle of the brand. We believe that ADCETRIS can become the product of choice in the frontline indications. We will also continue our efforts in the 4 other labeled indications. Our ultimate goal is to for both patients and physicians. I look forward to updating you on our progress.

I'll now turn the call over to Todd to discuss our financial results.

[Todd Simpson, CFO]

Great. Thanks, Darren, and thanks, everyone, for joining us on the call this afternoon. In addition to achieving important milestones with ADCETRIS and making substantial progress with our late stage pipeline, we also had a strong year financially with record ADCETRIS sales. Today, I'll summarize our 2018 financial results for the fourth quarter and full year, and then provide our financial outlook for 2019. Total revenues in the fourth quarter of 2018 were $175 million, this included ADCETRIS net sales in the U.S. and Canada of $132 million. For the year in 2018, total revenues were $655 million, including ADCETRIS net sales of $477 million. The 55% increase in 2018 primarily reflects the label expansion in front-line Hodgkin lymphoma. Royalty revenues in the fourth quarter increased to $25 million compared to $20 million in the fourth quarter of.

For the year in 2018, royalty revenues increased to $83 million compared to $66 million for 2017. These increases reflect higher sales like Takeda in its territory. Collaboration revenues were $18 million in the fourth quarter and $94 million for the full year in 2018. These revenues are primarily driven by amounts earned under our ADCETRIS collaboration with Takeda and our ADC deals. The decreases in 2018 collaboration revenues reflect reduced product supply sales to Takeda as the transition to their own primary supply chain. Collaboration revenues also reflect milestone payments earned from our partners who continue to make progress with ADCs that utilize our technology. These included Genentech Roche, GSK and ABV, who each of programs and late stage development.

In addition to milestones under these deals, we are entitled to receive royalties on future products sale's in the mid-single-digit range. R&D expenses were $150 million in the fourth quarter of 2018 and $565 million for the year in 2018. The increases over 2017 primarily reflect higher investment across our pipeline, notably, our late stage program EV, tucatinib and TV.

2018 expenses also include technology licensing activities in the first quarter of the year. SG&A expenses were $79 million in the fourth quarter and $261 million for the year in 2018. The increase in SG&A in the fourth quarter reflects the rapid approval and launch of ADCETRIS in frontline PTCL. For the full year in 2018, expenses included cost associated with the acquisition of Cascadian and the commercial launch of ADCETRIS in front-line Hodgkin lymphoma. We ended 2018 with $460 million in cash and investments. This is in addition to approximately $110 million in common stock holdings in Immunomedics at the end of the year. These shares are mark-to-market, which causes variability in our financial results and is not core to our operations. Of note, this contributed to an investment net loss for the quarter of $53 million and a gain for the year of $40 million.

Regarding our financial guidance for 2019, we anticipate total revenues to increase to a range of $790 million to $840 million. There are three main components to our revenues: first, we expect ADCETRIS net sales in the U.S. and Canada to be in the range of $610 million to $640 million. This reflects our expectations for growth within our firm labor, including front-line Hodgkin lymphoma and frontline PTCL. Second, we expect royalty revenues to be in the range of $85 million to $90 million, based upon - based primarily on anticipated sales of ADCETRIS Takeda in the territory. As a reminder, royalty rates under the collaboration Escalade [ph] from the midteens to the mid-20s based on sales and reset at the beginning of each year. Also note that the Takeda has different approval in reimbursement timelines than what we see here in the U.S. And third, we expect revenues from collaboration and license agreements to be in the range of $95 million to $110 million.

Turning now to expenses. We expect R&D expenses to be in the range of $600 million to $650 million. The increase from last year reflects planned investments in EV, tucatinib, TV, LV and our pipeline programs. SG&A expenses are expected to be in the range of $280 million to $310 million. This affects commercial activities for ADCETRIS across the 6 label indications as well as additional headcount to support our growth. This also includes preparatory work as we approached top line data readouts for EV this quarter and tucatinib later this year.

We expect cost of sales to be in the range of 5% to 6% of sales. Aside from the $80 million charge that we took in the fourth quarter in process inventory that did not meet our release specifications, the improvement in gross margin for ADCETRIS reflects some reductions in royalty obligations related to licensed technologies.

As a reminder, cost of royalty revenues reflects the third-party royalty obligation that is owed on sales by Takeda in this territory. This will decrease to a low single-digit percentage on ADCETRIS - on Takeda sale.

As we've discussed today, we expect significant progress with our late stage program this year. As a result, we anticipate that we'll provide updates to our financial guidance and subsequent quarters based on pivotal trial data and any resulting regulatory interactions.

Now I'll turn the call over to Roger.

[Roger Dansey, Chief Medical Officer]

Thanks, Todd, and good afternoon, everyone. Today, I'll comment on recent upcoming development activities for the ADCETRIS and our pipeline. First, there were more than 30 ADCETRIS scontaining data presentations at the American Society of Hematology's annual meeting in December. Notably, the ECHELON-2 trial was featured in an oral presentation and simultaneously published in The Lancet. The data demonstrated statistically significant and clinically meaningful improvements in both progression-free and overall survival of A+CHP compared to CHOP in PTCL patients. All other key endpoints also achieved the statistical significance. This was an unprecedented with in practice changing results.

Also presented where important data with 18 more months of follow-up on ECHELON-1 in front-line Hodgkin lymphoma. Showing that the PSF benefit with ADCETRIS plus CHP was maintained at three years. An updated analysis was also presented, which showed for the resolution. These data are key to understanding the long-term benefits of the - and we will continue to report on the E1 trial at appropriate time points in the future.

Beyond the two successful frontline trials of E1 and E2, where ADCETRIS was combined with standard started chemotherapy, we are evaluating for the development opportunities in combination with either fewer chemotherapy agents and/or the PD-1 inhibitor such as nivolumab. Support for using less chemotherapy comes from investigated trial results presented at ASH by [indiscernible], where a three drug combination of ADCETRIS with adriamycin and tucatinib produced a 100% response rate in 34 early-stage Hodgkin lymphoma patients, with no progressions of death after a median follow-up of 15 months. This regiment produce increasing activity without the use of something thus avoiding toxicity and reducing something rates. For ADCETRIS and PD-1 inhibitor, the collaborated was showed that the combination of ADCETRIS and nivolumab produced a 93% overall response rate and an 80% complete response rate in second line relapsed Hodgkin lymphoma patients, and a 70% objective response rate in relapsed primary B-cell lymphoma patients.

I will now move on to enfortumab vedotin. Our current focus with EV is with metastatic colorectal cancer. Several PD-1 and PD-1 inhibitors have been improved and second line phasing yet many patients do not directly respond to treatment of checkpoint inhibitors and need new treatment options. Data from the Phase I study EV 101 supported FDA Breakthrough Therapy designation and results from this trial will be updated next week at the ASCO GU meeting in San Francisco. The pivotal trial, EV-201, is currently being inducted at local events for metastatic colorectal cancer patients, who previously received platinum therapy and PD-1 or PD-1 inhibitor. As Clay mentioned earlier, we are on track to report the date of this quarter, which could result in a regulatory submission during 2019. Metastatic cancer we believe EV has the potential to provide benefit to patients with this cancer in a number of different clinical something and in combination with other therapies.

To this end, we are conducting the EV-103 trial in combination with [indiscernible], which is standard of care in second line treatment and in combination with a platinum agent, which are the current first line standard of care.

Data generated from these combinations, along with the results from frontline trials incorporating PD-1, PD-L1 agents, will inform our first-line registration strategy. We also believe EV has potential and other tumor types given expression profile of something and are considering future developments.

Next in our late stage pipeline is tucatininb. Tucatinib has the potential to be a best-in-class RO HER2 Ki. It has high selectivity and affinity for HER2 without meaningful inhibition of EGFR which produces such as rash and diarrhea, that makes less selective HER2 for difficult patients to tolerated. In this program, our highest priority is the pivotal trial court HER2CLIMB, which is evaluating tucatinib or placebo in combination with something and something in patients with HER2-positive breast rental who previously received other HER2 targeted therapies. Enrollment in this trial continues to be brisk, and we plan to report data later this year on the primary endpoint of PFS in 480 patients.

In addition, we are continuing to enroll HER2CLIMB up to a total of 600 patients to support analysis of the secondary endpoints of overall survival as well as PSF in patients with brain metastases. We anticipate completing accrual by mid-2019.

Assuming positive data from HER2CLIMB, we see multiple opportunities to develop tucatinib further in earlier lines of breast cancer and other tumor searches HER2 gastric cancer. Initial assets are already underway with tucatinib now included in the something trial for HER2 positive patients. This is in combination with standard treatments in the near adjuvant breast cancer setting. For HER2 positive cancer, there is an ongoing investigated trial, evaluating tucatinib together with the [indiscernible] in third line patients with data likely in 2019.

In closing, 2018 was a year of substantial clinical and regulatory progress with 2 ADCETRIS improvements. We see additional opportunities to put ADCETRIS lymphoma, and we are preparing for another busy year in 2019 of 2 pivotal trial readouts that may lead to important regulatory submissions when new drug approvals can follow tumors pick it is a potentially conservative time with genetics.

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

[Peggy Pinkston]

Thanks, Roger. In the year ahead, we expect to grow the ADCETRIS brand Blank globally and to make significant progress towards becoming a multiproducts an oncology company. Key activities expected in 2019 for ADCETRIS and our pivotal state program, include: first, continue to establish ADCETRIS as the standard of care in front-line Hodgkin lymphoma and frontline PTCL. Second, reporting top line data from EV pivotal trial in cancer in the first quarter potentially enabling a submission later this year. Third, reporting top line data for tucatinib pivotal trial HER2CLIMB. And lastly, completing enrollment in the pivotal trial of TV in cervical cancer by midyear.

At this point, we'll open the line for Q&A. Operator, please open the call for questions.

[Operator]

[Operator Instructions]. We will take our first question from Keenan McKay of RBC Capital Markets.

[Kennen MacKay, RBC Capital Markets]

May be helping a little bit more color around the guidance, given the sort of $5 million quarter-over-quarter increase, wondering sort of, if we run rate Q4, we get to around $528 million. And so to where we're going to get the relational $82 million to $112 million in sales to meet the guidance that you issued? Is that coming from sort of a E2 population? Or where we should be thinking about that coming from versus, again, the incremental quarter-over-quarter sales we saw in Q4?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

Yes, thanks, Kennen. So the incremental or the guidance, I should say, of [610 to 640], includes the E2 launch, and it includes continuing to increase penetration into the E1 population. Keep in mind that with E2 regiment, it uses less cycles of drugs then the E1 regiment, and so it's going really great. And ADCETRIS is a - is an awesome drug. But this will take time and persistence to continue to build this market and that's what we're doing in 2019. We're up for the challenge, and we're making great progress.

[Kennen MacKay, RBC Capital Markets]

May be a quick follow-up. There has been some changes with guidelines in terms of factory setting checkpoints previously had been recommended versus sort of the current recommendations previously been behind [indiscernible] and now sort of being three or more prior therapies. Is there any color you can give us in terms of how that it's affecting the dynamic refractory settings?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

Yes, sure. I'll turn it over to Roger to address that.

[Roger Dansey, Chief Medical Officer]

Sure. So as you pointed out, PD-1 inhibitors certainly have a role in Hodgkin lymphoma. I think our view of ADCETRIS, as Clay indicate, it's a great drug. It has approvals all the way from frontline to refractory Hodgkin lymphoma a little he has a role to play almost every stage of the disease. And so yes, it's good, other that therapy is available. We remain confident that ADCETRIS will be used broadly in Hodgkin lymphoma from front to all the way to the end.

[Kennen MacKay, RBC Capital Markets]

Got you. Maybe just one follow-up on the pipeline. I noticed after you do, we're going to get mature data from the Phase I cohort of [indiscernible] in cancer. I'm wondering if there's something what kind of maturity that can imply if that's referring to a duration responses or survival. And very much looking forward to that.

[Clay Siegall, Co-Founder, Chairman, President & CEO]

It's from the Phase I study. So it's really the responses, the duration, the safety and all things like that. It's premature to talk about survival at this point.

[Operator]

Our next question will come from Geoff Meacham of Barclays.

[Geoffrey Meacham, Barclays Bank]

Just on ADCETRIS commercially, I'm curious if there's any mattress metrics you can give and utilization in the E1 population among community docs? I guess, I'm trying to figure out, what percent haven't adopted and the ones that have, maybe what the new start trends are? And then any anecdote you can give us on the PTCL sale adoption will be helpful? I know it's early on that.

[Clay Siegall, Co-Founder, Chairman, President & CEO]

Right. More and more community docs are taking this on, so we see that. We're not providing the specific numbers for you on that, but we continue to see more community docs using the E1 regiment and that's really good. We are increasing our market share with increased new accounts, we're increasing market penetration, increasing the connection we have a docs using ADCETRIS and it's going in the right direction. This is where we are facing a regimen that was out there for 41 years before we got approved. And there is docs that take it on right away, and there's other docs that need to be convinced and we're doing that. And there's still some docs that just say "hey, no, I have been using ABVD for decades. This is what I want to do." But we're not giving up, and we're working with them. And we're showing them the benefits of using E1 regimen and the data is with us. It's better data it's better for the patients. And so we think that if we continue to our efforts, we'll get everybody. It is going to take a little bit of time. You asked also about PTCL. PTCL is a little different than Hodgkin lymphoma.

And PTCL, we are going after patients that have good results, not great results of chemotherapy. ABVD pretty give pretty great results in chemotherapy success story. With PTCL, CHOP chemotherapy got pretty good responses. where more than half the patients, but more than half a patient's very nice responses immediately to CHOP therapy. Now some of them relapsed, but the data - so the data is good, not great, which is ABVD was part of initially that we had to go against. So there is more upside there as far as treating the patients and more patients declining faster with PTCL and where great stuff from docs. We had the docs they are using it, using it more and more but keep in mind, it's an incident population flexibly get approval towards the end of the year, first that has to happen. dog serve to identify patient for T-cell lymphomas. And then start to put them on to the protocol, and then when we charge per each time we send a while, so we don't charge for the whole regimen all at once. So you can only get so much at a time. And we are building this and just to place it so that you totally understand it. And every patient under E1 regimen, it's about $125,000. Please keep in mind, it could be higher or lower, based on how much they weigh. The average regimen with E2 - or the average cost, excuse me, for the E2 regiment, is more like about $90,000 to $100,000. So it's just they get less drug because there's less number of cycles there. So there is a difference that if we had even the equal number of patients, ever going to have less dollars from the E2 regiment but that something we always do and I've discussed for a long time.

[Geoffrey Meacham, Barclays Bank]

Okay. And just a follow-up to the earlier question on 201. The language feels pretty good on filing an ultimate approval ahead of topline data. I'm just curious if you guys can take a stab at what you view as clinically meaningful and you're feeling, while always or duration there?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

Never pivotal trial for EV you were talking about the primary endpoint is ORR. And I will make one comment and see if Roger wants to add any color to that. The last approvals in [indiscernible] cancer were for different checkpoints, and the approvals were based on response rate between 14% and 21%. So when we came in with our data from our leader in trial at 40%, 41% or so objective response, we had a lot of room from the Phase I trial. Now we don't have the data yet, we haven't reported the data on a pivotal trial but we feel very strongly about our data. We got Regard Breakthrough Therapy designation. And you will see it this quarter with the data is. So we feel very good about that. Roger?

[Roger Dansey, Chief Medical Officer]

Just to add one comment. And the initial signaling the Phase I trial is based over 100 patient. So it's a robust number of patients being results is placed in in the context of bladder cancer, the response rates for that outcome was excellent. And so the drug really - if we to reach close to what we saw in Phase I, I think we would be pretty confident that we could make an argument to regulators that this is something that should be seriously considered for use.

[Geoffrey Meacham, Barclays Bank]

But just to be clear, PFS and the OS weren't considered in the FDA discussions, it's still about ORR' ?

[Roger Dansey, Chief Medical Officer]

That's right. This is an accelerated approval approach and the 2 key outcomes are overall response and duration of response.

[Operator]

Our next question will be coming from Mr. Michael Schmidt of the Guggenheim security.

[Michael Schmidt, Guggenheim Securities]

I had a few on tucatinib. And we've seen a couple of positive trials here recently in the HER2 breast cancer space. And I was just wondering if you could share with us may be the baseline assumptions that were used for PFS and OS to power the HER2CLIMB study? And then the follow-up would be, whether you are planning to file on the initial PFS data at the [Technical Difficulty].

[Clay Siegall, Co-Founder, Chairman, President & CEO]

Michael, you kind of phased out there at the end. And I think we got the question before you phased out. You were asking about PFS and OS and HER2CLIMB. And could we be able to submit based on the 480 patients? I think it was something like that.

[Michael Schmidt, Guggenheim Securities]

That is correct.

[Clay Siegall, Co-Founder, Chairman, President & CEO]

Okay. Thank you. So absolutely, we - our primarily endpoint is at 480, and it's PFS. So we are fully enrolled in that 480, data comes this year and we're really excited and looking forward to that. We think that tucatinib is a really exciting drug because of the activity we have seen in the lead-in trial and other trials that have used to tucatinib historically. We also are excited with the safety profile, and it's very different. It's a totally differentiated, potentially best-in-class [indiscernible] because of that very clear interaction with HER2, but not with EGFR. So it's certainly a one-of-a-kind there that we hope to take this and improve with the data from HER2CLIMB that it's best-in-class. And that's going to come out - the first data set is really the 480 patients primary endpoint of PFS.

[Michael Schmidt, Guggenheim Securities]

Anything specific you can trade may be on the specific assumption for PFS for powering the HER2CLIMB study the treatment and control arm?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

We don't normally talk about the specifics of how we power the study and what our underlying assumptions are. In this case, there are a lot of other data that was available on treating HER2-positive patients. But there is never perfect data sets to make all of the assumptions that's why the cult of assumptions and not facts. And so I think we have used all of the available data to help us look at what is best, how to populate, read something that would be meaningful to doctors and patients and I think that's really how you do it. It's not just to have the most minor, minor, minor differences in our drug. it's to make something that docs are going to want to use and patients are going to want to take. We think that the trial was designed for that. Roger, do you want to add anything to the trial design? Or...

[Roger Dansey, Chief Medical Officer]

No, I agree. And just to add to Clay's commentary, this is a - it's a well thought of design. The control arm is commonly used and it is simple add-on design, where we're adding a TKI on top of a HER2 plus chemotherapy. So we should be able to - if tucatinib has a treatment effect that we believe it does, this trial should be able to really demonstrate that. Not only the general population, but also in a population of patients with metastatic colorectal cancer, which is an area of higher-met need.

[Operator]

[Operator Instructions]. Our next question comes from Salveen Richter of Goldman Sachs.

[Salveen Richter, Goldman Sachs Group]

With regard to the first line study pent up demand for ADCETRIS, just curious whether we should expect that same trend for PTCL in the frontline, just given the existing regimen?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

For front-line Hodgkin lymphoma, there wasn't really a pent-up demand. Remember, this is an incident population. Would there was we had a few people that transferred over from the existing ABVD protocol, and they were on that regiment and then didn't finish it and transferred over, if that's what you meant by pent-up demand, we've talked about that. But it is an incident population. With PTCL, there is going to be less of that and that's because the chopper regimen for PTCL is not at as toxic as a bleomycin containing ABVD regimen. What some docs just want to get away from it. I think that might have been of a little bit of that. But really nothing to mention.

[Salveen Richter, Goldman Sachs Group]

And then with regard to tucatinib, I know the core study is 480 patients, and you're adding another 120 for the secondary endpoints and OS. Do you need data from those 120 to file the NDA?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

We decided that we wanted to have more data since we had the time between when we finished the 480 and the data was going to come out and that enrollment being so brisk. So we went to FDA and we said, look, we'd to enroll to 600, so we can have a bigger data to look at two things, not the primary endpoint, to look two secondary endpoints: one being OS, which we always want more patients to look at OS; and the other one was really brain mets and the reason why we wanted to look at more with brain mets because brain mets were only half off of the patient's. So it gets us additional patients to look at a bigger pool. So no with the primary endpoints, it's really going to be based on the 480.

[Salveen Richter, Goldman Sachs Group]

And just maybe one last question. With regard to your comment earlier about PD-1 use in HL, do you expect an impact. From Mike's keynote duel forced study. I'm just curious how you think about that read in the context of the drug having HL on it's label.

[Clay Siegall, Co-Founder, Chairman, President & CEO]

Okay. The keynote tool for study, initially it was our understanding, they it would read-out in the fourth quarter, and we're now in February, it hasn't read out. So we don't know the data first and foremost, so I can't really comment on the specifics of the data. Clearly, I want the best for patients, and I want different options for patients with Hodgkin lymphoma and other lymphomas. So I hope it can help patients. What I would say is we have data with ADCETRIS and Brenda mice - bendamustine showing more than 90% ORR in the relapse setting, and we have a very high response rate of ADCETRIS plus PD-1 and nivolumab with a very high or both of them have very high CRH. To us, this is the way you really treat the relapse patient the best. And I think that when we get into single agent, is probably not best for the patients. So I don't think that doctors are going to make necessarily strong decisions based on more single agent data at this point when so much combination data and such strong data is available. We will add one other thing that the use of ADCETRIS in combination with different drugs including bendamustine is in guidelines right now and reimbursed.

[Operator]

Our next question comes from Andrew Berens of SVB Leerink.

[Andrew Berens, SVB Leerink]

I had a question. During the Q3 call, you guys mentioned a couple of things that impacted the numbers, one of which was the seasonality in the diagnosis of Hodgkin's. I was wondering have that return to what it was previously? Or is it still well within expected?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

When you look back over a 10-year period with Hodgkin lymphoma, it kind of - it does go up and down and these things happen in demographics of the patients, and I'm talking about the United States numbers. Over the last few years, it's likely gone down each year, and we don't know exactly the rationale for why that is. I mean, it's obviously good for patients in the U.S. - or people in the U.S, there's less Hodgkin lymphoma diagnosed. It's not diagnosed on a - it's not a huge decline, but it has declined a few years. Whether next year it starts raising backup, it is very hard to know, and you've seen the ups and downs over the years. So that's one thing on the diagnostic right and on the seasonality, there are some quarters where you see more diagnosis and the other quarters it's a little less. It depends on when patients want to go to immunotherapy and how it relates to different holiday periods and things like that. So short, the seasonality of our many patients we hear it from the docs. So I hope that goes and addresses your question.

[Andrew Berens, SVB Leerink]

Okay. And then I just - I had a question since it's coming imminently with some of the competitors or eventual competitors with compounds that the bar is probably much lower than what you guys have seen in the Phase I or somebody already asked the question but I would like to just get a sense of how much headroom do you think there is between what you saw in Phase I and what the FDA accelerated approval response rates?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

In our work with FDA in getting BTD [ph], we didn't see any line in the sand from regulators. I think they are interested in two things: one is - well, three things, I should say for this: one is clearly the safety of the drug. But we have a lot of information on that. And one is the response rate, the ORRO that you get. And the last one, Roger mentioned briefly, was the duration. I think that's really important. If you have a very high response rate and attended duration, docs, the FDA, patient won't care as much of the drug using doesn't have a good duration. We've seen good duration drug in our leering trial. So we just want to see what our response rate is, what the vision we think when we saw in the leering trial of approximately 40% ORR with a duration, I think that was between -nit was close to 6 months or something like that, I don't remember exactly, and some of the patients were on a long time, I mean, that is well in excess of what we think the bottom line is for the FDA, in this setting of the relapses patients. So we think we have a lot of headroom. I just don't know - I don't want to give you a number of the bottom FDA number because I don't know what they haven't told us what it is. So I don't know the things established something like that. They want to see the whole package. I would also say with EV that we have other studies going on. Most notably, in combination with something and that something we have been enrolled well and we look forward to presenting data on that because we think that is a really interesting approach to getting up earlier in therapy.

[Andrew Berens, SVB Leerink]

Okay. And one quick housekeeping question. You had a write-down, it was $18.1 million of ADCETRIS, I assume. And I was another wondering is that a onetime event? Or is it something that could continue? Can you give some more color on it.

[Clay Siegall, Co-Founder, Chairman, President & CEO]

Todd?

[Todd Simpson, CFO]

Yes, sure. So it's actually a very infrequent thing for us. This is I think the first time we've had the related manufacturing of ADCETRIS. They were large lots that didn't need our release specifications. So we basically took them out of inventory, rode them off. This I would add most product that never got into the supply chain. It was in process. So it didn't impact our ability to make sure it affects not the patient I think the first time it's happened was but I did wanted to call it out today because it was about $18 million charge that is included in the cogs.

[Operator]

Our next question comes from Cory Kasimov of JP Morgan.

[Cory Kasimov, JPMorgan Chase & Co.]

First of all, for the full E2 results, are you able to break out kind of relative sales contribution at least roughly from frontline PTCL or perhaps within PTCL? Anything you can say about the different sub-segments of disease where the drug is currently or initially been used?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

I will say that we started that very closely as best as we can pick it's hard to be precise like it's really hard to look at that, but that's not something that we intend to report. But we try to track as best we can, just to understand the dynamics of the marketplace and what the docs are [indiscernible].

[Cory Kasimov, JPMorgan Chase & Co.]

Okay. But PTCL was a contributor to do the fourth quarter, in terms of sale?

[Todd Simpson, CFO]

Yes, let me jump in pick. The approval came mid-November, so it likely had a very modest contribution to Q4. But certainly is included in our 2019 guidance.

[Cory Kasimov, JPMorgan Chase & Co.]

The reason I was asking, you had like - that was like 3 or 4 selling days for E1, and you've done a good job talking about the differences between those markets. But that's what I was wondering for the month and the half, even with the holidays and stuff like that? And ASH, what that relative contribution might have been.

[Darren Cline, EVP, Commercial]

Yes, Cory, it's Darren. You are exactly right. We got the indication we had, 2- some selling days. And to Clay's point, we will look at it, but it's too early in the launch at this point.

[Cory Kasimov, JPMorgan Chase & Co.]

Okay. a question maybe for project. I'm curious about next as potentially testing ADCETRIS in early-stage Hodgkin lymphoma. What kind of endpoints could you potentially using the study like that?

[Roger Dansey, Chief Medical Officer]

Yes, it's a great question. Thank you. So we are still working our way around but that can potentially look like. One of the obvious concerns with a very large early-stage Hodgkin lymphoma trial powered for a traditional outcome could take a very long time. So we are thinking through are there other ways potential of generating data that will be meaningful for various audiences but we are thoroughly compiled by the inclination that was presented at ASH. It looks like a pretty appealing proposition but we have no plans to show thinking it through.

[Cory Kasimov, JPMorgan Chase & Co.]

Okay. Last one for Todd, a modeling question on the cost of goods guidance. So 5% to 6% this year, when historically I believe, it's been north of 10%. Is that that all the result of this royalty falling off? Or is there something else changing as well?

[Darren Cline, EVP, Commercial]

No, that's - if you take the write-off out of the equation, we've been running sort of in the 10%, 11% range, that comes down to 5% or 6%. And that's largely the result of some royalty obligation on in-license technology that's now sort of run it's term. So we are no longer paying those royalties.

[Operator]

[Operator Instructions]. Our next question comes from Boris Peaker of Cowen and Company.

[Boris Peaker, Cowen and Company]

First quarter Hodgkin lymphoma. You've talked about the commercial strategies for community docs and variability of community docs based on the prior history and the lack of approved agents over 4 decades. I'm just curious what fraction of patients of Hodgkin lymphoma are treated by community doctors versus academic docs?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

Darren?

[Darren Cline, EVP, Commercial]

About 70% of frontline Hodgkin lymphoma patients are diagnosed and treated in community versus academic centers.

[Boris Peaker, Cowen and Company]

Got you. My second question on PTCL. I'm just curious how long do you anticipate the patient's to be on treatment?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

In the trial, I think there was up to 6 to 8 cycles in the trial that were used.

[Darren Cline, EVP, Commercial]

Most of six.

[Clay Siegall, Co-Founder, Chairman, President & CEO]

Yes, most of the patients were allowed up to 8, but most had 6.

[Boris Peaker, Cowen and Company]

How do you expect that will translate to the real-world? Would it be shorter, or would it be consistent?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

It's hard to know exactly how to translate it. I would say it's never identical but I think when you potentially cured therapy patients tend to stay up.

[Boris Peaker, Cowen and Company]

Got you. My last question, I don't know if this is for Clay or Todd but with all the discussion around drug pricing, I'm just curious how we should think about price increases going forward relative to the historicals?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

I would start by saying we don't normally discuss our thoughts on exactly what our prices are and how we do it. We have been very reasonable and what we've looked at and for the value that ADCETRIS brings. We think ADCETRIS is a very reasonably priced drug. Todd, do you want to add anything to that?

[Todd Simpson, CFO]

No, I think that says it well. Obviously, the pricing environment is something that we and many others stayed at constantly. So we do take that into consideration. I think Clay is right, in a world of pricing pressure, having a drug like ADCETRIS that really provides profound patient benefit is where you want to be. So we feel gratified that we've got such a good drug in a tough pricing environment.

[Operator]

Our next question comes from [indiscernible] of Oppenheimer.

[Unidentified Analyst]

First along the lines of the earlier question, what would you say is the split of additional 8,000 patients for front-line Hodgkin lymphoma and PTCL in terms of community setting and academic centers?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

With Hodgkin lymphoma, there's a larger percentage probably more like 60% of patients coming to community. Whereas in PTCL, it's probably the other way around just because it's not - the outcome is not as strong with PTCL.

[Unidentified Analyst]

Thank you. A quick question on the HER2CLIMB trial. The additional patients that you are enrolling post the 480 patients, are they enriched in patients with brain meds or is that just something?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

It's half of them roughly for patients that have pre-existing brain metastasis click.

[Unidentified Analyst]

In terms of filing after the EV 101 top line I know you're Breakthrough Therapy designation but what can we expect an update on your discussions with FDA and their sign off on allowing you to file an order? Will you give any guidance on that?

[Clay Siegall, Co-Founder, Chairman, President & CEO]

We have brought a lot of discussions with regulators and we continue to have discussions with regulators on EV and specifics of those are Obviously confidential. So as soon as we have the top line data, which is we've got into this quarter so sometime soon, we will update. And usually come at some point, nor their distance from then, we start to give guidance on other aspects like when timing to submit. As part of filing goes, filing is usually within 60 days of submission unless there's an issue. So that's what we would start talking about the ability to submit based on the data we have. We have said that he plans to submit this year. We haven't given a specific month but our goal is to submit on EV in 2019.

[Operator]

Our last question for today comes from [indiscernible] of William Blair.

[Unidentified Analyst]

May be a longer-term question strategy for Roger. Frontline UC there's different pieces probably different segments. And you probably all 1 status eligibility Clay just wondering if you can remind us for EV, it's there any particular area where it has shown strength and how that would inform your strategy in earlier lines going forward?

[Roger Dansey, Chief Medical Officer]

Thanks, great question. Since a couple of observations. Obviously EV is based on expression, however, we don't see any need for a biomarker. So we can be broadly used. Certainly, the data has been generated from a post PD-1 express population potentially shows that EV is effective in both PD-1 exposed and a PD-1 naïve population that helps us a little bit in understanding what the role of a PD-1 inhibitor together with something and then as we have done is a great example, using combined at least in the construct, we can combine antibody ABC with chemotherapy. So we have a number of options. And I've mentioned a couple of times, we've designed our trials such that we will hopefully be considered to be able to choose what looks like the best possible available to move into frontline of that's appropriate.

[Operator]

Speakers, that concludes today's Q&A.

[Peggy Pinkston]

Thank you, operator, and thanks, everybody, for joining us this afternoon. Have a good evening.

[Operator]

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.