Item 1. Business
Overview
Seattle Genetics is a biotechnology company focused on the development and
commercialization of targeted therapies for the treatment of cancer. Our marketed product ADCETRIS
®
, or
brentuximab vedotin, is now approved by the United States Food and Drug Administration, or FDA, and the European Commission for three indications, encompassing several settings for the treatment of relapsed Hodgkin lymphoma and relapsed systemic
anaplastic large cell lymphoma, or sALCL. ADCETRIS is commercially available in 66 countries around the world, including in the United States, Canada, members of the European Union and Japan. We are collaborating with Takeda Pharmaceutical Company
Limited, or Takeda, to develop and commercialize ADCETRIS on a global basis. Under this collaboration, Seattle Genetics retains commercial rights for ADCETRIS in the United States and its territories and in Canada, and Takeda has commercial rights
in the rest of the world.
Beyond our current
labeled indications, we and Takeda have a broad development strategy for ADCETRIS evaluating its therapeutic potential in earlier lines of therapy for patients with Hodgkin lymphoma or mature T-cell lymphoma, or MTCL, also known as peripheral T-Cell
lymphoma, or PTCL, including sALCL, and in other CD30-expressing malignancies. We and Takeda are currently conducting three phase 3 clinical trials of ADCETRIS: ALCANZA, ECHELON-1 and ECHELON-2. All of these trials are being conducted under Special
Protocol Assessment, or SPA, agreements with the FDA and pursuant to scientific advice from the European Medicines Agency, or EMA. An SPA is an agreement with the FDA regarding the design of the clinical trial, including size and clinical endpoints,
to support an efficacy claim in a new drug application or a Biologics License Application, or BLA, submission to the FDA if the trial achieves its primary endpoints. We plan to submit a supplemental Biologics License Application, or sBLA, to the FDA
in mid-2017 to seek approval for a new indication in CD30-expressing relapsed CTCL. We have also completed enrollment of 1,334 patients in our ECHELON-1 trial and expect to report data in 2017. In November 2016, we completed enrollment of 452
patients in our ECHELON-2 trial, and expect to report data in 2018.
We are also advancing the development of SGN-CD33A, or vadastuximab talirine. A phase 3 clinical trial, called the CASCADE trial, was initiated in the second quarter of 2016 based on data from our phase 1
clinical trial for patients with acute myeloid leukemia, or AML. The CASCADE trial is evaluating SGN-CD33A in
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combination with hypomethylating agents, or HMAs, in previously untreated older patients with AML who are not candidates for intensive induction chemotherapy. We also have been evaluating
SGN-CD33A in additional treatment settings, and overall, more than 300 patients have been treated with SGN-CD33A to date in clinical trials across these multiple treatment settings. On December 27, 2016, we announced that we had received notice
from the FDA that a full clinical hold or partial clinical hold had been placed on several early stage trials of
SGN-CD33A
in AML to evaluate the potential risk of hepatotoxicity following adverse medical
events, including fatal events. We are working diligently with the FDA to determine whether there is any association between hepatotoxicity and treatment with SGN-CD33A and to promptly identify appropriate measures for patient safety with the goal
of addressing the FDAs concerns.
In
addition, in collaboration with Astellas Pharma, Inc., or Astellas, we are developing ASG-22ME, or enfortumab vedotin. We and Astellas are planning discussions with regulatory agencies during 2017 to advance the program into potential registrational
trials in urothelial cancer patients, including patients who have been previously treated with a checkpoint inhibitor therapy.
Our clinical-stage pipeline also includes six other antibody-drug conjugate, or ADC, programs consisting of SGN-LIV1A, SGN-CD19A, or
denintuzumab mafodotin, SGN-CD19B, SGN-CD123A, SGN-CD352A, and ASG-15ME, as well as two immuno-oncology agents, SEA-CD40, which is based on our sugar-engineered antibody, or SEA, technology, and SGN-2FF, which is a novel small molecule. In addition,
we have multiple preclinical and research-stage programs that employ our proprietary technologies, including SGN-CD48A, a preclinical ADC that is a candidate for investigational new drug, or IND, submission in 2017.
We announced on February 10, 2017 that we had entered
into a development and license agreement, or the Immunomedics License, with Immunomedics, Inc., or Immunomedics, pursuant to which, upon the terms and subject to the conditions set forth in the Immunomedics License, we would receive exclusive
worldwide rights to develop, manufacture and commercialize sacituzumab govitecan, or IMMU-132. IMMU-132 is an ADC targeted to TROP-2, which is expressed in several solid tumors, and is in a pivotal phase 1/2 trial for patients with triple negative
breast cancer, or TNBC, and is being investigated in other solid tumors. IMMU-132 received Breakthrough Therapy Designation, or BTD, from the FDA for the treatment of patients with TNBC who have failed prior therapies for metastatic disease. In
connection with the closing of the transactions contemplated by the Immunomedics License, Immunomedics would receive an upfront payment of $250 million. In addition, Immunomedics would also be eligible to receive development, regulatory and
sales-dependent milestone payments across multiple indications and geographical regions of up to a total maximum of approximately $1.7 billion, as well as royalties which are based on a percentage of annual net sales of the licensed products, if
any, beginning in the teens and rising to twenty percent based on sales volume. The closing of the transactions contemplated by the Immunomedics License is subject to customary closing conditions, including the expiration of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the HSR Act, there being no pending court or administrative challenges to the Immunomedics License and there being no court or administrative orders blocking the
closing. On February 20, 2017, Immunomedics and we entered into a letter agreement pursuant to which Immunomedics irrevocably waived to the extent applicable to Immunomedics the condition precedent to the closing and effectiveness of the
Immunomedics License that there be no pending court or administrative challenges to the transaction. Additionally, under the terms of the Immunomedics License, Immunomedics had the right to continue discussions with a small number of parties that
previously expressed interest in licensing IMMU-132 until 11:59 p.m. New York City time on February 19, 2017. If a third party had provided Immunomedics with a financially superior licensing offer, we would have had the right to match any such
offer, and if we had decided not to match, Immunomedics would have had the right to accept the superior offer and terminate the Immunomedics License upon payment of a termination fee to us. We have not received notice from Immunomedics of any such
third party offers during this limited time period, and on February 21, 2017, Immunomedics announced that it is subject to customary no-shop restrictions on its and its representatives ability to solicit, discuss or negotiate
alternative licensing agreement proposals from third parties with regard to IMMU-132.
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On February 13, 2017, we were named a co-defendant in a lawsuit filed by venBio Select
Advisors LLC, or venBio, in the Delaware Chancery Court against the members of the board of directors of Immunomedics pursuant to which, among other things, venBio seeks to enjoin the closing of the transactions contemplated by the Immunomedics
License. As a result of the pending litigation challenging the transactions contemplated by the Immunomedics License, Immunomedics and we have committed to the Court not to close the transactions contemplated by the Immunomedics License prior to
March 10, 2017. We cannot predict the timing or outcome of this lawsuit or the impact it may have on the Immunomedics License or the closing of the transactions contemplated by the Immunomedics License. See License
AgreementsImmunomedics License below for more information.
We have collaborations for our ADC technology with a number of biotechnology and pharmaceutical companies, including AbbVie Biotechnology Ltd., or AbbVie; Bayer Pharma AG, or Bayer; Celldex Therapeutics,
Inc., or Celldex; Genentech, Inc., a member of the Roche Group, or Genentech; GlaxoSmithKline LLC, or GSK; Pfizer, Inc., or Pfizer; and PSMA Development Company LLC, a subsidiary of Progenics Pharmaceuticals Inc., or Progenics. In addition, we have
entered into a 50/50 co-development agreement with Agensys, Inc., an affiliate of Astellas, for the development of ADCs, including ASG-22ME. We also have an option for an ADC co-development agreement with Genmab A/S, or Genmab, and a collaboration
with Unum Therapeutics, Inc., or Unum, to develop and commercialize novel antibody-coupled T-cell receptor, or ACTR, therapies incorporating our antibodies for the treatment of cancer.
Our Antibody-Drug Conjugate (ADC) Technologies
ADCETRIS and many product candidates in our pipeline of
clinical-stage monoclonal antibody-based product candidates utilize our ADC technology. ADCs are monoclonal antibodies that are linked to cytotoxic or cell-killing agents. Our ADCs utilize monoclonal antibodies that internalize within target cells
after binding to a specified cell-surface receptor. Enzymes present inside the cell catalyze the release of the cytotoxic agent from the monoclonal antibody, which then results in the desired activity, specific killing of the target cell.
A key component of our ADCs are the linkers that
attach the cell-killing agent to the monoclonal antibody, which are designed to hold the cytotoxic agent to the monoclonal antibody until it binds to the cell surface receptor on the target cell and then to release the cytotoxic agent upon
internalization within the target cell. This targeted delivery of the cell-killing agent is intended to maximize delivery of the cytotoxic agent to targeted cells while minimizing toxicity to normal tissues. Our ADCs use proprietary auristatins,
which are microtubule disrupting agents, or pyrrolobenzodiazepine, or PBD, dimers, which are DNA cross-linkers, as cell-killing agents. The PBD dimer cell-killing agent is stably linked to an antibody using our proprietary, site-specific conjugation
technology, resulting in uniform drug-loading of two PBD dimers per antibody. We call this engineered antibody an EC-mAb. In contrast to natural products that are often more difficult to produce and link to antibodies, the cytotoxic drugs used in
our ADCs are synthetically produced and easier to scale for manufacturing. ADCETRIS, SGN-CD33A (vadastuximab talirine), ASG-22ME (enfortumab vedotin), SGN-LIV1A, SGN-CD19A (denintuzumab mafodotin), SGN-CD19B, SGN-CD123A, SGN-CD352A, and
ASG-15ME, each utilize our proprietary, auristatin-based or PBD-based ADC technologies. These technologies are also the basis of our corporate collaborations. In addition, we are advancing a preclinical product candidate, SGN-CD48A, which utilizes a
novel linker technology, PEG-Glucuronide linker, attached to an auristatin. We own or hold exclusive or partially-exclusive licenses to multiple issued patents and patent applications covering our ADC technology. We continue to evaluate new linkers,
antibody formats, and cell-killing agents for use in our ADC programs.
Our Sugar-Engineered Antibody (SEA) Technology
Our proprietary SEA technology is a method to selectively reduce fucose incorporation in monoclonal antibodies as they are produced in cell line-based manufacturing. We believe that this may result in
increased effector function and antitumor activity. Our SEA technology is a novel approach to modify the activity of monoclonal antibodies that is complementary to our ADC technology.
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A key feature of our SEA technology is that no genetic modification of the
antibody-producing cell line is necessary and standard cell culture conditions can be used while maintaining the underlying manufacturing processes, yields and product quality. We believe the SEA approach may be simpler and more cost-effective to
implement as compared to existing technologies for enhancing antibody effector function, most of which require development of new cell lines.
SEA-CD40 is a clinical-stage non-fucosylated monoclonal antibody developed using SEA technology. Enhanced binding to effector cells
results in crosslinking and activation of CD40 signaling in immune cells. We hypothesize that this increased stimulation of the patients own immune cells may result in meaningful antitumor activity. We are developing SEA-CD40 as a novel
immuno-oncology agent. A phase 1 clinical trial of SEA-CD40 for solid tumors and hematologic malignancies is ongoing.
Other Technologies
In addition, we utilize other technologies designed to maximize antitumor activity and reduce toxicity of antibody-based therapies.
Genetic engineering enables us to produce antibodies that are optimized for their intended uses. For ADCs, we screen and select antibodies that bind to antigens that are differentially expressed on tumor cells versus vital normal tissues, rapidly
internalized within target cells and utilize native or engineered conjugation sites to optimize drug attachment. In some cases, we evaluate the use of our monoclonal antibodies and ADCs in combination with conventional chemotherapy and other
anticancer agents, which may result in increased antitumor activity.
Our Strategy
Our strategy is to become a leading developer and marketer of targeted therapies for cancer. Key elements of our strategy are to:
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Successfully Execute our ADCETRIS Commercial Plan.
An important near-term objective is to continue to execute our
ADCETRIS commercial plan by driving market penetration and duration of therapy consistent with the current ADCETRIS label. We continue to focus our efforts on commercializing ADCETRIS in the United States and Canada through the coordinated efforts
of our sales, marketing, reimbursement and market planning groups. In addition, as of January 31, 2017, ADCETRIS had received marketing authorizations in relapsed Hodgkin lymphoma and sALCL from regulatory authorities in 66 countries, and we
are continuing to support Takedas efforts to obtain regulatory approvals and conduct commercial launches in additional countries worldwide.
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Expand the Therapeutic Potential of ADCETRIS.
We believe ADCETRIS may have applications in earlier lines of therapy for
Hodgkin lymphoma and MTCL and in other types of CD30-expressing lymphomas. In this regard, during 2016 we reported data from the ALCANZA trial and intend to submit an sBLA to the FDA in mid-2017 to seek approval for a new indication in
CD30-expressing relapsed CTCL. We also have ongoing clinical trials evaluating ADCETRIS in frontline therapy for Hodgkin lymphoma (the ECHELON-1 trial) and MTCL (the ECHELON-2 trial). Clinical trials are also being conducted by us, by our
collaborators and as investigator sponsored trials in different CD30-expressing indications, including salvage therapy for patients with Hodgkin lymphoma prior to autologous hematopoietic stem cell transplant, or auto-HSCT, novel combinations of
ADCETRIS plus immuno-oncology or other anticancer agents and in other areas of medical and scientific interest.
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Advance Clinical Pipeline of Oncology Drugs.
We are employing our clinical, development, regulatory and manufacturing
expertise with the goal of advancing our clinical stage product candidates towards regulatory approval and commercialization on a global basis. Our efforts in this regard include:
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Evaluate SGN-CD33A in AML and Myelodysplatic Syndrome Patient Populations.
In the second quarter of 2016, we initiated
the phase 3 CASCADE trial evaluating SGN-CD33A in combination with HMAs in previously untreated older patients with AML who are not candidates for intensive induction chemotherapy. We are also evaluating SGN-CD33A in additional treatment settings.
On December 27, 2016, we announced that we had received notice from the FDA that a full clinical
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hold or partial clinical hold had been placed on several early stage trials of SGN-CD33A in AML to evaluate the potential risk of hepatotoxicity following adverse medical events, including fatal
events. We are working diligently with the FDA to determine whether there is any association between hepatotoxicity and treatment with SGN-CD33A, and to promptly identify appropriate measures for patient safety with the goal of addressing the
FDAs concerns. No new studies of SGN-CD33A will be initiated unless and until the clinical holds are lifted. Our phase 3 CASCADE trial in older AML patients and our phase 1/2 trial in myelodysplastic syndrome, or MDS, are currently proceeding
with enrollment.
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Advance ASG-22ME into Registrational Trials for Urothelial Cancer.
We and Astellas are planning discussions with
regulatory agencies during 2017 to advance the program into potential registrational trials of ASG-22ME in urothelial cancer patients, including patients who have been previously treated with a checkpoint inhibitor therapy.
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Global Expansion.
We have established operations in Zug, Switzerland to support clinical trials, regulatory, medical
affairs and manufacturing and future potential commercial activities for our pipeline. In 2017, we will continue to develop our European presence in support of our global expansion.
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Continue to Develop our Other Pipeline Programs.
We believe that it is important to maintain a diverse pipeline of
product candidates to sustain our future growth. To accomplish this, we are continuing to advance the development of our other clinical product candidates, including SGN-LIV1A, SGN-CD19A, SEA-CD40, SGN-CD19B, SGN-CD123A, SGN-CD352A, SGN-2FF and
ASG-15ME, as well as other preclinical and research-stage programs that employ our proprietary technologies. In addition, we have an ADC co-development agreement with Genmab that provides us with a future ADC product opportunity and we are
co-developing several preclinical immuno-oncology programs with Unum Therapeutics.
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Continue to Leverage our Industry-Leading ADC Technology.
We have developed proprietary ADC technology designed to
empower monoclonal antibodies. We are currently developing multiple product candidates that employ our ADC technology and we have also licensed this technology to biotechnology and pharmaceutical companies to generate collaboration revenues and
funding, as well as potential milestones and potential future royalties. Presently, we have active ADC collaborations with AbbVie, Bayer, Celldex, Genentech, GSK, Pfizer, and Progenics, as well as ADC co-development agreements with Astellas and
Genmab. These ADC collaboration and co-development agreements have generated over $350 million as of December 31, 2016 through a combination of upfront payments, research support, and other fees, milestone payments and equity purchases.
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Support Future Growth of our Pipeline through Internal Research Efforts and Strategic In-Licensing.
We have internal
research programs directed toward identifying novel antigen targets, monoclonal antibodies and other targeting molecules, creating new antibody engineering techniques and developing new classes of stable linkers and cell-killing agents for our ADC
technology. In addition, we supplement these internal efforts through ongoing initiatives to identify product candidates, products and technologies to in-license from biotechnology and pharmaceutical companies and academic institutions. In this
regard, we recently announced our entry into the Immunomedics License, pursuant to which, if the transactions contemplated by the Immunomedics License are consummated, we would receive exclusive worldwide rights to develop, manufacture and
commercialize IMMU-132.
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Enter into Strategic Product Collaborations to Supplement our Internal Resources.
We enter into collaborations to broaden
and accelerate clinical trial development and potential commercialization of our product candidates. Collaborations can generate significant capital, supplement our own internal expertise in key areas such as manufacturing, regulatory affairs and
clinical development, and provide us with access to our collaborators marketing, sales and distribution capabilities in specific territories. When establishing strategic collaborations, we seek beneficial financial terms and endeavor to retain
significant product rights, particularly in the United States, Canada and Europe.
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ADCETRIS and Product Candidate Development Pipeline
The following table summarizes our ADCETRIS and product
candidate development pipeline:
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Name of Product or
Product Candidate
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Description
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Commercial Rights
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Status
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ADCETRIS
®
(brentuximab vedotin)
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Anti-CD30 ADC
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Seattle Genetics in United States and Canada; Takeda in rest of world
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ADCETRIS has regular approval in the United States for the treatment of patients with (i) relapsed classical Hodgkin lymphoma or
(ii) classical Hodgkin lymphoma at high risk of relapse or progression as post-autologous hematopoietic stem cell transplantation, or post-auto-HSCT consolidation. ADCETRIS also has accelerated approval in the United States for the treatment of
patients with relapsed sALCL. In addition, ADCETRIS has approval with conditions in Canada for the treatment of patients with relapsed Hodgkin lymphoma or sALCL.
As of January 31, 2017, ADCETRIS had received marketing authorizations in
relapsed Hodgkin lymphoma or relapsed sALCL from regulatory authorities in 66 countries. In particular, ADCETRIS has conditional marketing authorization in the European Union and marketing authorization in Japan for patients with relapsed Hodgkin
lymphoma or relapsed sALCL. In January 2016, Takeda received an additional approval from the European Commission for retreatment of adult patients with relapsed or refractory Hodgkin lymphoma or sALCL who previously responded to ADCETRIS and who
later relapse. In June 2016, the European Commission approved ADCETRIS for the treatment of adult patients with CD30-positive Hodgkin lymphoma at increased risk of relapse or progression following autologous stem cell transplant, or ASCT.
Ongoing trials of ADCETRIS include:
The ALCANZA phase 3 randomized trial for relapsed CD30-expressing CTCL
patients, comparing ADCETRIS versus investigators choice of methotrexate or bexarotene. In 2016, we reported that the ALCANZA phase 3 trial met its primary endpoint. Based on the results of the trial, we expect to submit an sBLA to the FDA in
mid- 2017 for approval of a new indication in CD30-expressing relapsed CTCL.
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The ECHELON-1 phase 3 randomized trial ongoing for patients with newly diagnosed advanced stage classical Hodgkin lymphoma comparing
adriamycin, bleomycin, vinblastine and dacarbazine, or ABVD, versus AVD plus ADCETRIS. We expect to report data in 2017.
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The ECHELON-2 phase 3 randomized trial ongoing for patients with newly diagnosed CD30-expressing MTCL, including sALCL, comparing
cyclophosphamide, doxorubicin, vincristine and prednisone, or CHOP, versus CHP plus ADCETRIS. Enrollment was completed in November 2016 and we expect to report data in 2018.
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Phase 2 trial ongoing for patients age 60 or older with newly diagnosed Hodgkin lymphoma evaluating ADCETRIS as frontline monotherapy or
in combination with other agents, including bendamustine or dacarbazine. In late 2016, the trial was amended to evaluate the combination of ADCETRIS and nivolumab.
Phase 1/2 second-line trial ongoing for patients with relapsed Hodgkin
lymphoma evaluating ADCETRIS in combination with bendamustine.
Phase 2 trial ongoing for patients with relapsed or refractory CD30-expressing diffuse large B-cell lymphoma, or DLBCL, evaluating rituximab and
bendamustine either with or without ADCETRIS.
Phase 1/2 trial
ongoing for patients with relapsed or refractory Hodgkin lymphoma after failure of frontline therapy evaluating ADCETRIS in combination with nivolumab.
Phase 1/2 trial ongoing for patients with relapsed or refractory B-cell and T-cell non-Hodgkin lymphomas, including DLBCL, evaluating ADCETRIS in
combination with nivolumab. In 2016, the trial was amended to also evaluate the combination in rare B-cell lymphomas.
Phase 2 monotherapy trial ongoing for patients with systemic lupus erythematosus.
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SGN-CD33A (vadastuximab talirine)
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Anti-CD33 ADC
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Seattle Genetics
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Phase 3 CASCADE trial ongoing to evaluate SGN-CD33A in combination with HMAs in previously untreated older AML patients.
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Phase 1/2 trial ongoing for patients with previously untreated MDS evaluating SGN-CD33A in combination with azacitidine.
Several early stage trials of SGN-CD33A are on a full or partial clinical
hold. See
SGN-CD33A
(Vadastuximab Talirine) below for more information on these trials.
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ASG-22ME (enfortumab vedotin)
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Anti-Nectin-4 ADC
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50: 50
co-development and
commercialization with Astellas
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Phase 1 trial ongoing for Nectin-4-positive solid tumors, including urothelial cancers such as bladder cancer.
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SGN-LIV1A
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Anti-LIV-1 ADC
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Seattle Genetics
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Phase 1 trial ongoing for patients with LIV-1-positive metastatic breast cancer, in particular triple negative disease. In addition, the
trial was expanded to include patients who are LIV-1 positive and HER2 positive to evaluate SGN-LIV1A in combination with trastuzumab.
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SGN-CD19A (denintuzumab mafodotin)
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Anti-CD19 ADC
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Seattle Genetics
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Phase 2 randomized trial ongoing for patients with relapsed DLBCL evaluating SGN-CD19A in combination with rituximab, ifosfamide,
carboplatin and etoposide, or RICE, to RICE alone.
Phase 2
randomized trial ongoing for patients with newly diagnosed DLBCL comparing a combination therapy that includes SGN-CD19A versus standard frontline therapy.
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SEA-CD40
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Anti-CD40 SEA empowered antibody
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Seattle Genetics
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Phase 1 trial ongoing for patients with solid tumors. In 2016, the trial was amended to include patients with hematologic
malignancies.
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SGN-CD19B
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Anti-CD19 ADC
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Seattle Genetics
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Phase 1 trial ongoing for patients with relapsed or refractory aggressive B-cell non-Hodgkin lymphoma.
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SGN-CD123A
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Anti-CD123 ADC
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Seattle Genetics
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Phase 1 trial ongoing for patients with relapsed or refractory AML.
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SGN-CD352A
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Anti-CD352 ADC
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Seattle Genetics
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Phase 1 trial ongoing for patients with relapsed or refractory multiple myeloma.
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SGN-2FF
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Small molecule
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Seattle Genetics
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Phase 1 trial ongoing for patients with advanced solid tumors.
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ASG-15ME
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Anti-SLITRK6 ADC
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50: 50
co-development and
commercialization with Astellas
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Phase 1 trial ongoing for patients with urothelial cancer.
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ADCETRIS
ADCETRIS is an ADC comprised of an anti-CD30 monoclonal
antibody attached by a protease-cleavable linker to a proprietary microtubule disrupting agent, monomethyl auristatin E, or MMAE. ADCETRIS employs a linker system that is designed to be stable in the bloodstream and to release MMAE upon
internalization into CD30-expressing cells. We believe that the CD30 antigen is an attractive target for cancer therapy because it is expressed on multiple types of cancer, but has limited expression on normal tissues. We are collaborating with
Takeda on the global development and commercialization of ADCETRIS. Under this collaboration, we retain commercial rights in the United States and Canada. Takeda has exclusive rights to commercialize ADCETRIS in the rest of the world. ADCETRIS has
received regulatory approvals as follows:
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United States
. ADCETRIS
®
(brentuximab vedotin) injection for intravenous infusion has received approval from the FDA for three indications: (1) regular approval for the treatment of
patients with classical Hodgkin lymphoma 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, (2) regular approval for the treatment of classical
Hodgkin lymphoma patients at high risk of relapse or progression as post-auto-HSCT consolidation, and (3) accelerated approval for the treatment of patients with sALCL after failure of at least one prior multi-agent chemotherapy regimen. The
sALCL indication is approved under accelerated approval based on overall response rate. Continued approval for the sALCL indication is contingent upon verification and description of clinical benefit in confirmatory trials.
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Canada
. Health Canada has issued a Notice of Compliance with conditions, authorizing marketing of ADCETRIS for two
lymphoma indications: (1) the treatment of patients with Hodgkin lymphoma after failure of ASCT, or after failure of at least two multi-agent chemotherapy regimens in patients who are not ASCT candidates, and (2) the treatment of patients
with sALCL after failure of at least one multi-agent chemotherapy regimen. The indications for ADCETRIS were authorized based on promising response rates demonstrated in single-arm trials.
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European Union
. ADCETRIS was granted conditional marketing authorization by the European Commission in October 2012 for
two indications: (1) for the treatment of adult patients with relapsed or refractory CD30-positive Hodgkin lymphoma following ASCT, or following at least two prior therapies when ASCT or multi-agent chemotherapy is not a treatment option, and
(2) the treatment of adult patients with relapsed or refractory sALCL. The European Commission extended the current conditional approval of ADCETRIS and approved ADCETRIS for the treatment of adult patients with CD30-positive Hodgkin lymphoma
at increased risk of relapse or progression following ASCT.
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Worldwide
. As of January 31, 2017, ADCETRIS is commercially available in 66 countries for relapsed or refractory
Hodgkin lymphoma and relapsed or refractory sALCL.
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Required ADCETRIS Post-approval Clinical Study
ADCETRIS was granted approval for the treatment of patients with sALCL after failure of at least one prior multi-agent chemotherapy regimen under the FDAs accelerated approval regulations, which
allows the FDA to approve products for cancer or other serious or life-threatening illnesses based on surrogate endpoints or on a clinical endpoint other than survival or irreversible morbidity. Under the FDAs accelerated approval regulations,
we are subject to certain post-approval requirements pursuant to which we are conducting an additional confirmatory phase 3 trial to verify and describe the clinical benefit of ADCETRIS. In addition, we are subject to extensive ongoing obligations
and continued regulatory review from the FDA and other applicable regulatory agencies, such as continued adverse event reporting requirements and the requirement to have our promotional materials pre-cleared by the FDA.
Successful completion of our AETHERA trial converted our
accelerated approval to regular approval in the relapsed Hodgkin lymphoma indication. ECHELON-2 is a required post-approval study to convert the approval of ADCETRIS in the United States from accelerated approval to regular approval in its currently
approved relapsed sALCL indication; however, the FDA has indicated that positive results from either the ECHELON-1 or
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the ECHELON-2 trial could form the basis for such a conversion. Post-approval clinical studies similar to those required by the FDA are required in many other countries, including in Canada and
the European Union. The requirements of these post-approval clinical studies vary from country to country and may in some cases involve testing in addition to the post-approval studies required by the FDA.
Market Opportunities
According to the American Cancer Society, more than 8,500
cases of Hodgkin lymphoma were expected to be diagnosed in the United States during 2016, and an estimated 1,120 people were expected to die of the disease. Approximately 1,800 additional patients per year in the United States are diagnosed with
sALCL, a type of MTCL that expresses the CD30 antigen. The use of combination chemotherapy as frontline therapy for malignant lymphomas has resulted in high remission rates; however, these frontline chemotherapy regimens have substantial associated
toxicities and a significant number of lymphoma patients relapse and require additional treatments including other chemotherapy regimens and ASCT. For the reasons discussed in Item 1ARisk Factors, we may not be able to obtain
regulatory approvals to market ADCETRIS for frontline Hodgkin lymphoma or MTCL, or otherwise continue to expand its labeled indications of use.
Clinical Development Status and Plan
In collaboration with Takeda, we are pursuing a broad development strategy that includes clinical trials of ADCETRIS both as a single
agent and in combination with standard therapies for CD30-expressing cancers. These ongoing clinical trials include:
Phase 3 Cutaneous T-Cell Lymphoma (ALCANZA).
The ALCANZA trial is a randomized, open-label, phase 3 trial of
ADCETRIS versus investigators choice of methotrexate or bexarotene in patients with
CD30-expressing
CTCL, including those with pcALCL or mycosis fungoides. The ALCANZA trial enrolled 131 patients
and is being conducted under an SPA agreement with the FDA and also received EMA scientific advice. In August 2016, we reported that the ALCANZA phase 3 trial met its primary endpoint and showed that treatment with ADCETRIS resulted in a
statistically significant improvement in the rate of objective response lasting at least four months (ORR4) versus the control arm as assessed by an independent review committee
(p-value
<0.0001).
Additional data were reported at the December 2016 American Society of Hematology, or ASH, annual meeting showing that the median progression free survival, or PFS, in the ADCETRIS arm was 16.7 months compared to 3.5 months in the control arm
(p-value <0.0001). The most common adverse events of any grade occurring in 15 percent or more of patients in the ADCETRIS and control arms were peripheral neuropathy (67 and six percent, respectively), nausea (36 and 13 percent, respectively),
diarrhea (29 and six percent, respectively), fatigue (29 and 27 percent, respectively), vomiting (17 and five percent, respectively), alopecia (15 and three percent, respectively), pruritis (17 and 13 percent respectively), fever (17 and 18
percent, respectively), decreased appetite (15 and five percent, respectively) and hypertriglyceridemia (2 and 18 percent, respectively). We plan to submit a sBLA to the FDA in mid-2017 to seek approval for a new indication in
CD30-expressing
relapsed CTCL. ADCETRIS is included in National Comprehensive Cancer Network, or NCCN, treatment guidelines for patients with certain types of CTCL.
Phase 3 Frontline Hodgkin Lymphoma
(ECHELON-1)
. We and Takeda have completed patient enrollment of 1,334 patients in a randomized, open-label, phase 3 trial investigating ADCETRIS plus AVD versus ABVD as frontline therapy in patients with advanced classical
Hodgkin lymphoma, or the ECHELON-1 trial. The study enrolled patients who have histologically-confirmed diagnosis of Stage III or IV classical Hodgkin lymphoma and who have not been previously treated with systemic chemotherapy or radiotherapy. The
primary endpoint of this trial is modified PFS per independent review facility assessment. Secondary endpoints include overall survival, complete remission rate and safety. The trial is being conducted under an SPA agreement with the FDA and also
received scientific advice from the EMA. We expect to report data from this trial in 2017.
Data from a phase 1 trial in frontline Hodgkin lymphoma that evaluated ADCETRIS combined with ABVD or combined with AVD supported our decision to initiate the ECHELON-1 phase 3 trial. In November 2013,
data
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from the phase 1 trial were published in the medical publication
Lancet Oncology
. Among the 25 evaluable patients in the ADCETRIS plus AVD cohorts, 24 patients who completed frontline
therapy on study achieved a complete remission. Follow-up data were reported at the December 2014 ASH annual meeting showing that in the ADCETRIS plus AVD arm, three-year overall survival was 100 percent and three-year failure-free survival was 92
percent. In the ADCETRIS plus ABVD arm, three-year overall survival was 92 percent and three-year failure-free survival was 79 percent. Grade 3 or higher adverse events occurring in more than one patient overall noted in the ABVD and AVD cohorts,
respectively, were neutropenia (80 percent, 77 percent), anemia (20 percent, 12 percent), febrile neutropenia (20 percent, 8 percent) and pulmonary toxicity (24 percent, 0 percent).
Phase 3 Frontline Mature T-Cell Lymphoma (ECHELON-2).
We and Takeda have
completed patient enrollment of 452 patients in a global randomized, double-blind, placebo-controlled multi-center phase 3 clinical trial known as ECHELON-2. This trial is evaluating ADCETRIS in combination with CHP versus CHOP for the treatment of
newly diagnosed CD30-expressing MTCL patients, including patients with sALCL and other types of peripheral T-cell lymphomas. The primary endpoint of the trial is PFS per independent review facility assessment. Secondary endpoints include overall
survival, complete remission rate and safety. We expect to report data in 2018. A molecular companion diagnostic test is being used in this trial to identify eligible patients based on CD30-expression. We are developing a companion diagnostic under
a collaboration agreement with Ventana Medical Systems, or Ventana, and Takeda. The ECHELON-2 trial is being conducted under an SPA agreement with the FDA and also received scientific advice from the EMA. We are required to conduct this trial as
part of our ADCETRIS post-marketing requirement for the relapsed sALCL indication, and the trial is designed to be confirmatory in the United States, Canada and Europe.
Data from a phase 1 trial that evaluated ADCETRIS plus
chemotherapy for frontline sALCL, which was subsequently amended to include patients with any CD30-expressing MTCL, supported our decision to initiate the ECHELON-2 trial. Among the 26 patients who received the combination regimen of ADCETRIS plus
CHP, 88 percent achieved a complete remission. At the December 2016 ASH annual meeting, follow-up data were reported showing that the estimated four-year PFS rate was 52 percent, with no patients receiving a consolidative stem cell transplant in
first remission. The estimated four-year overall survival rate was 80 percent. There were no progression events or deaths in the trial since the previous presentation at the 2015 ASH annual meeting. The most common adverse events of any grade
occurring in more than 30 percent of patients were nausea and peripheral sensory neuropathy (69 percent each), diarrhea (62 percent), fatigue (58 percent) and hair loss (54 percent). ADCETRIS is included in NCCN treatment guidelines for patients
with relapsed CD30-expressing PTCL.
Frontline
Therapy for Hodgkin Lymphoma Patients Age 60 and Over
. In October 2012, we initiated a phase 2 clinical trial evaluating ADCETRIS monotherapy as a frontline therapy for patients age 60 or older with newly diagnosed Hodgkin
lymphoma. The trial was subsequently amended to include the administration of ADCETRIS in combination with bendamustine or dacarbazine. The phase 2 open-label clinical trial is evaluating the activity and tolerability of ADCETRIS in patients age 60
or older with newly diagnosed Hodgkin lymphoma. The primary endpoint of the trial is the objective response rate, with key secondary endpoints of safety and tolerability, duration of response, complete remission rate and PFS. At the October 2016
International Symposium on Hodgkin Lymphoma, or ISHL, meeting, we presented updated data from this study. Of 21 evaluable patients in the dacarbazine combination arm, all patients (100 percent) had an objective response, including 62 percent with a
complete remission. Of 17 evaluable patients in the bendamustine combination arm, all patients (100 percent) had an objective response, including 88 percent with a complete remission. The most common adverse events of any grade occurring in at least
25 percent of patients in the dacarbazine combination arm were peripheral sensory neuropathy (77 percent); constipation (45 percent); fatigue and nausea (41 percent each), peripheral edema (32 percent) and diarrhea (27 percent). The most common
adverse events of any grade occurring in at least 25 percent of patients in the bendamustine combination arm were diarrhea (85 percent), nausea (65 percent), fatigue (50 percent), decreased appetite (45 percent) and peripheral sensory neuropathy and
fever (40 percent each). Enrollment on the bendamustine arm was closed given the tolerability of the combination did not meet study goals for this fragile patient population. In 2016, the trial was amended to
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evaluate the combination of ADCETRIS and nivolumab. ADCETRIS monotherapy is included in NCCN guidelines for older patients with newly diagnosed Hodgkin lymphoma.
Relapsed or Refractory CD30-expressing
DLBCL
. In October 2015, we announced the initiation of a randomized phase 2 open-label, multi-center clinical trial of rituximab and bendamustine with or without ADCETRIS in relapsed or refractory patients with
CD30-expressing DLBCL. The primary endpoint is to compare the objective response rates between the two study arms. Secondary endpoints include PFS, complete remission rate, duration of response and overall survival. ADCETRIS is included in NCCN
guidelines for patients with second-line or beyond CD30-expressing DLBCL.
Combination trials with nivolumab (OPDIVO).
In January 2015, we and BMS announced a clinical trial collaboration agreement to evaluate the investigational combination of
ADCETRIS and BMS immunotherapy nivolumab in two phase 1/2 clinical trials. Nivolumab is a programmed death-1, or PD-1, immune checkpoint inhibitor that is designed to harness the bodys own immune system to help restore antitumor immune
response.
One ongoing trial is evaluating the
combination of ADCETRIS and nivolumab for patients with second line Hodgkin lymphoma. At the 2016 ASH annual meeting, data were reported from 42 patients with relapsed or refractory Hodgkin lymphoma after failure of frontline therapy who received
the combination regimen. Patients were treated with up to four cycles of combination therapy. After completion of the fourth cycle of treatment, patients were eligible to undergo an ASCT. Of 29 response-evaluable patients, 90 percent had an
objective response, including 62 percent with a complete metabolic response. The most common adverse events of any grade occurring prior to ASCT in more than 20 percent of patients were fatigue, nausea, infusion related reaction, or IRR, pruritus
and rash. IRRs were observed in 38 percent of patients and most symptoms included flushing and nausea (14 percent each); chest discomfort, dyspnea, urticaria (12 percent each); cough and pruritis (10 percent each). The protocol was amended to
require premedication with low-dose corticosteroids and antihistamine.
The second ongoing trial is evaluating the combination of ADCETRIS and nivolumab in patients with relapsed or refractory B-cell and T-cell non-Hodgkin lymphomas, including DLBCL. This trial has been
subsequently amended to evaluate the combination in rare B-cell lymphomas, including gray zone and mediastinal B-cell lymphomas.
Investigator-Sponsored Trials.
In addition to our corporate-sponsored trials, as of December 31, 2016,
there were more than 35 reported investigator-sponsored trials of ADCETRIS in the United States. In addition, we and Takeda are reviewing proposals from multiple clinical investigators and cooperative groups in the United States, Canada and Europe
about potential investigator-sponsored trials of ADCETRIS. The investigator-sponsored trials to date include the use of ADCETRIS in a number of malignant hematologic indications such as CTCL, DLBCL, untreated limited stage Hodgkin lymphoma, salvage
therapy for patients with Hodgkin lymphoma prior to auto-HSCT and graft versus host disease. There are also numerous other investigator-sponsored trials for the use of ADCETRIS in other CD30-expressing and select CD30-undetectable settings, and in
solid tumors such as mesothelioma and testicular germ cell tumors. One cooperative group investigator-sponsored trial is currently evaluating ADCETRIS with immuno-oncology compounds in Hodgkin lymphoma, and we expect additional
investigator-sponsored trials might evaluate ADCETRIS in novel combination regimens.
SGN-CD33A (Vadastuximab Talirine)
SGN-CD33A is an ADC composed of an anti-CD33 monoclonal antibody linked to a potent PBD dimer using our proprietary ADC technology. We are developing this product candidate as a potential treatment of AML
and MDS. SGN-CD33A targets CD33, a protein that is expressed on most AML cells. SGN-CD33A employs our newest proprietary ADC technology. This technology is comprised of a PBD dimer, which is a potent cell-killing agent that works by a different
mechanism than auristatins, linked to an engineered antibody called EC-mAb, resulting in uniform drug-loading of two PBD dimers per antibody.
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On December 27, 2016, we announced that we had received notice from the FDA that a full
clinical hold or partial clinical hold had been placed on several early stage trials of SGN-CD33A in AML to evaluate the potential risk of hepatotoxicity following adverse medical events, including fatal events. Our phase 1/2 trial of SGN-CD33A
monotherapy in pre- and post- allogeneic transplant AML patients has been placed on full clinical hold. Additionally, clinical trials evaluating SGN-CD33A monotherapy, and including a subset of older AML patients in combination with HMAs, and
SGN-CD33A combination treatment with 7+3 chemotherapy in newly diagnosed younger AML patients have been placed on partial clinical hold. Our phase 3 CASCADE trial in older AML patients and our phase 1/2 trial in MDS are proceeding with enrollment.
No new studies of SGN-CD33A will be initiated unless and until the clinical holds are lifted. We are working diligently with the FDA to determine whether there is any association between hepatotoxicity and treatment with SGN-CD33A and to promptly
identify appropriate measures for patient safety with the goal of addressing the FDAs concerns.
In May 2016, we initiated a phase 3, randomized, double-blind, placebo-controlled, global clinical trial called CASCADE. The CASCADE trial
is designed to evaluate if SGN-CD33A in combination with the HMAs azacitidine or decitabine can extend overall survival compared to either HMA alone in older patients with newly diagnosed AML. Patients will be randomized on a 1:1 ratio to be treated
with an HMA plus SGN-CD33A or an HMA plus placebo. The secondary endpoints include the comparison of composite complete remission rate (complete remission and complete remission with incomplete hematologic recovery), event-free and leukemia-free
survival, duration of response, safety, and 30- and 60-day mortality rates. Treatment and patient enrollment in this trial is ongoing.
Our decision to initiate the CASCADE trial was supported by interim data from a phase 1 open-label, multi-center, dose-escalation clinical
trial of SGN-CD33A as monotherapy or in combination with other standard treatments. In addition, the trial was evaluating anti-leukemic activity, pharmacokinetics, PFS and overall survival in patients with CD33-positive AML. At the December 2016 ASH
annual meeting, we reported updated data from a cohort of this trial that evaluated SGN-CD33A in combination with an HMA. Of 49 patients evaluable for response, 73 percent of patients achieved a complete remission or complete remission with
incomplete platelet or neutrophil recovery. With a median follow-up of 14.7 months, median overall survival for all patients was 11.3 months and 28 percent of patients remained alive and on study as of last follow-up. The 30- and 60-day mortality
rates were two and eight percent, with no treatment-related deaths occurring during that time. The most common Grade 3 or 4 treatment-emergent adverse events occurring in 20 percent or more of patients were thrombocytopenia, febrile neutropenia,
anemia and neutropenia. The most common Grade 1 and 2 treatment-emergent adverse events occurring in 20 percent or more of patients were fatigue, nausea, constipation, peripheral edema and decreased appetite. In December 2016, this phase 1 trial was
placed on a partial clinical hold by the FDA. Under the partial clinical hold, existing patients in the trial may continue treatment with
SGN-CD33A
following execution of an additional informed consent form,
but no new patients may be enrolled in the trial.
In February 2016, we initiated a phase 1/2, open label, multi-center clinical trial of SGN-CD33A in combination with azacitidine in
patients with previously untreated Intermediate-2 or high risk MDS. Phase 1 of the study will identify the recommended dose of SGN-CD33A when combined with azacitidine in this patient population. The phase 2 portion of the trial will be a
randomized, double-blind, placebo-controlled study evaluating azacitidine with or without SGN-CD33A. The primary endpoint in phase 1 is determination of the recommended SGN-CD33A dose in combination with azacitidine. The primary endpoint in phase 2
is to compare the overall response rate between the two treatment arms. The secondary endpoints include evaluation of safety, best response, duration of response, PFS and overall survival. Treatment and patient enrollment in this trial is ongoing.
In December 2014, we initiated a phase 1b,
open-label, multi-center, dose-escalation clinical trial designed to evaluate SGN-CD33A administered in combination with frontline standard of care regimens for induction (cytarabine and daunorubicin, also known as 7+3) for younger patients with
newly diagnosed AML. The trial was also designed to evaluate SGN-CD33A in the consolidation setting for AML, both in combination with
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cytarabine and as a single-agent maintenance regimen. The primary endpoints are determination of the maximum tolerated dose and safety profile of SGN-CD33A. In addition, the trial was evaluating
anti-leukemic activity, pharmacokinetics, PFS and overall survival. At the ASH 2016 annual meeting, we reported interim data showing that of 42 patients evaluable for response, 76 percent achieved a complete remission or complete remission with
incomplete platelet or neutrophil recovery. Among patients who achieved a remission, 78 percent were negative for minimal residual disease. Median OS had not yet been reached. The 30-day mortality rate was two percent. The most common Grade 3 or 4
treatment-emergent adverse events occurring in 20 percent or more of patients were febrile neutropenia, thrombocytopenia, anemia and neutropenia. The most common Grade 1 and 2 treatment-emergent adverse events occurring in 20 percent or more of
patients were nausea, diarrhea, constipation, hypokalemia and decreased appetite. In December 2016, this phase 1b trial was placed on partial clinical hold by the FDA. Under the partial clinical hold, existing patients in the trial may continue
treatment with SGN-CD33A following execution of an additional informed consent form, but no new patients may be enrolled in the trial.
In November 2015, we initiated a phase 1/2 clinical trial of SGN-CD33A in patients with relapsed or refractory AML. The trial was designed
to evaluate SGN-CD33A monotherapy as a pre-conditioning regimen prior to an allogeneic stem cell transplant and also for use as maintenance therapy following transplant. In December 2016, this trial was placed on full clinical hold by the FDA. Under
the full clinical hold, all patients in the trial were required to discontinue treatment with SGN-CD33A immediately and no new patients may be enrolled in the trial.
We may be unable to submit to the FDA all required clinical
follow-up information to respond to the clinical holds. Even if we are able to provide such information, the FDA may not deem the information to be sufficient to lift any or all of the clinical holds. In addition, we may encounter delays in reaching
an agreement with the FDA regarding the terms under which these trials may be resumed, or we may elect to discontinue one or more of these trials for safety or any other reasons. Furthermore, the FDA may require us to implement additional,
potentially burdensome pharmacovigilance procedures or conduct additional pre-clinical studies before it will consider lifting the clinical holds, if at all. In addition, although the FDA has not placed a clinical hold on the CASCADE trial or our
phase 1/2 trial in MDS and we continue to enroll patients in these trials, we cannot assure you that the FDA or another regulatory authority will not place a clinical hold on one or both of these trials. If we are unable to submit required
information to the FDA in a timely manner, or at all; if the FDA does not lift the clinical holds in a timely manner, or at all; if the FDA does not permit us to initiate additional trials of SGN-CD33A and/or the FDA imposes clinical holds on the
CASCADE trial or our phase 1/2 trial in MDS; or if there are additional safety results, including from our ongoing trials of SGN-CD33A, that alter the benefit-risk profile of SGN-CD33A or cause it to become unacceptable, we would be further delayed
or prevented from advancing the clinical development of SGN-CD33A, which would adversely affect our business, results of operations and prospects.
ASG-22ME (Enfortumab Vedotin)
ASG-22ME is an ADC composed of an anti-Nectin-4 monoclonal antibody linked to a potent auristatin compound using our proprietary ADC
technology. Nectin-4 is a novel target expressed in multiple cancers including urothelial cancers, such as bladder cancer, as well as ovarian and lung cancers. We are developing ASG-22ME as a potential treatment of solid tumors under our
co-development collaboration with Astellas.
In
October 2016, we reported interim data from a phase 1, open-label, dose-escalation, multi-center clinical trial of ASG-22ME at the European Society for Medical Oncology, or ESMO, annual meeting. Of the 49 metastatic urothelial cancer patients
evaluable for response, 37 percent had an objective response, including two percent who achieved a complete response. The preliminary estimate of median PFS was 16.6 weeks. At the recommended phase 2 dose of 1.25 mg/kg, 17 patients were treated of
which 59 percent had a partial response. In the 16 patients across dose levels who had previously been treated with checkpoint inhibitors, 38 percent achieved a partial response. Among the seven patients treated at the recommended phase 2 dose that
had
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previously been treated with checkpoint inhibitors, 57 percent achieved a partial response. The most common treatment related adverse events of any grade occurring in 20 percent or more of
patients were pruritis (31 percent), fatigue (30 percent), diarrhea (29 percent), nausea (28 percent), rash (26 percent) and alopecia (21 percent).
Based on these interim phase 1 data, we and Astellas are planning discussions with regulatory agencies during 2017 to advance the program
into potential registrational trials of ASG-22ME in urothelial cancer patients, including patients who have been previously treated with a checkpoint inhibitor therapy.
SGN-LIV1A
SGN-LIV1A is an ADC composed of an anti-LIV-1 monoclonal
antibody linked to a potent auristatin compound using our proprietary ADC technology, and is being developed as a potential treatment of LIV-1-positive metastatic breast cancer.
In October 2013 we initiated a phase 1, open-label,
dose-escalation clinical trial to evaluate the safety and antitumor activity of SGN-LIV1A in patients with LIV-1-positive metastatic breast cancer. At the December 2016 San Antonio Breast Cancer Symposium annual meeting, updated interim data were
reported showing that among 30 evaluable patients with triple negative disease, 37 percent achieved a partial response. The estimated median PFS for these patients was 12 weeks with seven patients remaining on treatment. The maximum tolerated dose
was not reached among doses ranging from 0.5 to 2.8 mg/kg. For all patients in the study, the most common adverse events of any grade occurring in 20 percent or more of patients included fatigue (57 percent), nausea (53 percent), alopecia (42
percent), decreased appetite (34 percent) and constipation (32 percent). The incidence of grade 3/4 neutropenia at the 2.5 mg/kg dose was 50 percent. Two patients (seven percent) experienced febrile neutropenia, and there was one treatment-related
death due to sepsis. Based on these safety data, a separate expansion cohort at 2.0 mg/kg is currently being evaluated. In addition, enrollment is ongoing for patients with HER2 positive breast cancer to evaluate SGN-LIV1A in combination with
trastuzumab.
SGN-CD19A (Denintuzumab Mafodotin)
SGN-CD19A is an ADC composed of an
anti-CD19 monoclonal antibody linked to a potent auristatin compound using our proprietary ADC technology. CD19 is a B-cell antigen that is expressed in non-Hodgkin lymphoma, chronic lymphocytic leukemia and acute lymphoblastic leukemia.
In October 2015, we announced the initiation of a phase 2
randomized, open-label, multi-center clinical trial of SGN-CD19A in combination with the second-line salvage regimen of rituximab, ifosfamide, carboplatin and etoposide, or RICE, for patients with relapsed or refractory DLBCL. The primary endpoint
is to compare the complete remission rates between the two study arms. Secondary endpoints include safety of the combination regimen, PFS, overall survival and the number of patients who are able to undergo ASCT.
In October 2016, we announced the initiation of a phase 2
clinical trial of SGN-CD19A in patients with newly-diagnosed DLBCL. The trial will assess the activity and tolerability of adding SGN-CD19A to the standard frontline regimen, R-CHOP, as well as a modified regimen, R-CHP. The primary endpoints are to
evaluate the complete remission rate and tolerability profile of the combinations. Secondary endpoints include event-free survival, PFS, overall survival and duration of response.
SEA-CD40
SEA-CD40 utilizes our novel proprietary SEA technology to
produce a non-fucosylated antibody targeting CD40, which is believed to work as an immuno-oncology molecule, activating certain immune cells. It builds on our extensive experience targeting CD40. In February 2015, we announced initiation of a phase
1, open-label, multi-center, dose-escalation clinical trial of SEA-CD40 in patients with advanced solid tumors who have failed current standard of care treatments. Expansion cohorts are planned to evaluate SEA-CD40 across up to three
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cancer indications that will be determined based on data from the dose escalation portion of the study. The primary endpoints are determination of the maximum tolerated dose and safety profile of
SEA-CD40. In addition, the trial will evaluate antitumor activity, pharmacokinetics and immunological pharmacodynamic effects. In 2016, the phase 1 trial was expanded to evaluate patients with hematologic malignancies.
SGN-CD19B
SGN-CD19B is a proprietary ADC composed of an anti-CD19
monoclonal antibody utilizing our proprietary EC-mAb technology linked to a potent PBD dimer. We are developing this product candidate as a potential treatment of non-Hodgkin lymphoma. In February 2016, we announced initiation of a phase 1,
open-label, multi-center, dose-escalation clinical trial of SGN-CD19B for patients with relapsed or refractory DLBCL or grade 3 follicular lymphoma. The primary endpoints are the estimation of the maximum tolerated dose and evaluation of the safety
of SGN-CD19B. In addition, the trial will evaluate antitumor activity, pharmacokinetics, objective response rate and PFS.
SGN-CD123A
SGN-CD123A is a proprietary ADC composed of an anti-CD123 monoclonal antibody utilizing our proprietary EC-mAb technology linked to a
potent PBD dimer. We are developing this product candidate as a potential treatment of AML. In September 2016, we announced initiation of a phase 1, open-label, multi-center, dose-escalation clinical trial of SGN-CD123A for patients with relapsed or
refractory AML. It will initially evaluate the maximum tolerated dose of SGN-CD123A, followed by an expansion cohort to further define safety and estimate anti-leukemic activity. In addition, the trial will assess pharmacokinetics, remission rate,
duration of complete remission and overall survival.
SGN-CD352A
SGN-CD352A is a proprietary ADC composed of an anti-CD352 monoclonal antibody utilizing our proprietary EC-mAb technology linked to a
potent PBD dimer. In January 2017, we announced initiation of a phase 1, open-label, multi-center, dose-escalation clinical trial of SGN-CD352A for patients with relapsed or refractory multiple myeloma. The trial will be conducted in two parts, with
a dose escalation part to identify the maximum tolerated dose of SGN-CD352A followed by an expansion part to further define safety and antitumor activity.
SGN-2FF
SGN-2FF is a novel small molecule immuno-oncology agent. It is an oral agent that has been shown in preclinical models to inhibit
fucosylation of proteins, which may make tumors more visible to the immune system, and thereby slow the growth and spread of cancer cells. In January 2017, we initiated an open-label, multi-center, dose-escalation clinical trial of SGN-2FF for
patients with relapsed or refractory solid tumors, including non-small cell lung cancer.
ASG-15ME
ASG-15ME is an ADC composed of an anti-SLITRK6 monoclonal antibody linked to a potent auristatin compound using our proprietary ADC technology. We are developing ASG-15ME under our co-development
collaboration with Astellas. A phase 1 clinical trial of ASG-15ME for the treatment of metastatic urothelial cancer, notably bladder cancer, was initiated in October 2013. This trial is evaluating the safety, tolerability, pharmacokinetic profile
and antitumor activity of escalating doses of ASG-15ME. We and Astellas are focusing our development activities on ASG-22ME for metastatic urothelial cancer, while evaluating next development steps for ASG-15ME.
Research Programs
In addition to our pipeline of product candidates and
antibody-based and SEA technologies, we have internal research programs directed toward developing new classes of potent, cell-killing agents and stable
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linkers, identifying novel antigen targets, monoclonal antibodies and other targeting molecules, and advancing our antibody engineering initiatives.
New Cell-Killing Agents.
We
continue to study new cell-killing agents that can be linked to antibodies, such as the auristatins and PBDs that we currently use in our ADC technology, and new classes of cell-killing agents.
New Stable Linkers.
We are
conducting research with the intent to develop new linker systems that are more stable in the bloodstream and more effective at releasing the cell-killing agent once inside targeted cancer cells.
Novel Monoclonal Antibodies and Antigen
Targets.
We are actively engaged in internal efforts to identify and develop monoclonal antibodies and other targeting molecules and ADCs with novel specificities and activities against selected antigen targets. We focus
on antigen targets that are highly expressed on the surface of cancer cells that may serve as targets for monoclonal antibodies or ADCs. We may then create and screen panels of cancer-reactive monoclonal antibodies in our laboratories to identify
those with the desired specificity. We supplement these internal efforts by evaluating opportunities to in-license targets and antibodies from academic groups and other biotechnology and pharmaceutical companies, such as our ongoing co-development
collaboration with Genmab.
Antibody
Engineering.
We have substantial internal expertise in antibody engineering, both for antibody humanization and non-fucosylation, as well as engineering of antibodies to improve drug linkage sites for use with our ADC
technology. By modifying the number and type of drug-linkage sites found on our antibodies, we believe that we can improve the robustness and cost-effectiveness of our manufacturing processes for conjugation of ADCs.
Research and Development Expense
Since inception, we have devoted a significant amount of
resources to develop ADCETRIS, our product candidates and our antibody-based technologies. For the years ended December 31, 2016, 2015, and 2014, we recorded $379.3 million, $294.5 million, and $230.7 million, respectively, in research and
development expenses.
Corporate Collaborations
We enter into collaborations with biotechnology and
pharmaceutical companies to advance the development and commercialization of our product candidates and to supplement our internal pipeline. We seek collaborations that will allow us to retain significant future participation in product sales
through either profit-sharing or royalties paid on net sales. We also license our ADC technology to collaborators to be developed with their own antibodies. These ADC collaborations benefit us in many ways, including generating cash flow and
revenues that partially offset expenditures on our internal research and development programs, expanding our knowledge base regarding ADCs across multiple targets and antibodies provided by our collaborators and providing us with future pipeline
opportunities through co-development or opt-in rights to new ADC product candidates.
Takeda ADCETRIS Collaboration
In December 2009, we entered into a collaboration agreement with Takeda to develop and commercialize ADCETRIS, under which Seattle Genetics retains commercial rights in the United States and its
territories and in Canada, and Takeda and its Takeda affiliates have commercial rights in the rest of the world. As of December 31, 2016, we had received an upfront payment of $60 million and had achieved milestone payments totaling $70 million
related to regulatory and commercial progress by Takeda. As of December 31, 2016, we were entitled to receive additional progress- and sales-dependent milestone payments of up to $165 million based on Takedas achievement of significant
events under the collaboration in addition to tiered royalties with percentages starting in the mid-teens and escalating to the mid-twenties based on net sales of ADCETRIS within Takedas licensed
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territories. Takeda also bears a portion of third-party royalty costs owed on sales of ADCETRIS in its territory. We and Takeda equally co-fund the cost of development activities conducted under
the collaboration. Although we are funding half of the development activities conducted under the collaboration, Takeda is responsible for the achievement of the progress- and sales-dependent milestone payments that we may receive. Either party may
terminate the collaboration agreement if the other party materially breaches the agreement and such breach remains uncured. Takeda may terminate the collaboration agreement for any reason upon prior written notice to us and we may terminate the
collaboration agreement in certain circumstances. The collaboration agreement can also be terminated by mutual written consent of the parties. If neither party terminates the collaboration agreement, then the agreement automatically terminates on
the expiration of all payment obligations.
Astellas
Co-Development Collaboration
In January
2007, we entered into an agreement with Astellas to jointly research, develop and commercialize ADCs for the treatment of several types of cancer. The collaboration encompasses combinations of our ADC technology with fully-human antibodies developed
by Astellas to proprietary cancer targets.
Under
the collaboration agreement, we and Astellas are co-funding all development and commercialization costs for ASG-22ME and ASG-15ME, and will share on a 50/50 basis in any profits that may come from these product candidates if successfully
commercialized. Costs associated with co-development activities are included in research and development expense.
Astellas has the right to develop and commercialize certain other ADC product candidates on its own, subject to paying us annual
maintenance fees, milestones, royalties and support fees for research and development services and material provided under the collaboration agreement. We are entitled to receive progress- and sales-dependent milestone payments of up to
approximately $96 million based on Astellas achievement of significant events under the collaboration in addition to mid-single digit royalties on net sales of any of these other ADC product candidates by Astellas. Either party may opt out of
co-development and profit-sharing in return for receiving milestones and royalties from the continuing party. Either party may terminate the collaboration agreement if the other party becomes insolvent or the other party materially breaches the
agreement and such breach remains uncured. Subject to certain restrictions, either party may terminate the collaboration agreement for any reason upon prior written notice to the other party. The collaboration agreement can also be terminated by
mutual written consent of the parties. If neither party exercises its option to terminate the collaboration agreement, then the agreement will automatically terminate on the later of: (a) the expiration of all payment obligations pursuant to
the collaboration agreement, or (b) the day upon which we and Astellas cease to develop and commercialize products under the agreement.
Unum Therapeutics Collaboration
In June 2015, we entered into a strategic collaboration and license agreement with Unum to develop and commercialize novel ACTR therapies
incorporating our antibodies for cancer. Unums proprietary ACTR technology enables programming of a patients T-cells to attack tumor cells when co-administered with tumor-specific therapeutic antibodies. Through our research and
development in the field of ADCs, we have a substantial portfolio of cancer targets and tumor-specific monoclonal antibodies from which programs will be selected for the collaboration with Unum. Under the terms of the agreement, we and Unum will
initially develop two ACTR product candidates that combine Unums ACTR technology with our antibodies, and we have an option to expand the collaboration to include a third ACTR product candidate upon payment of an additional fee. Unum is
obligated to conduct preclinical research and clinical development activities through phase 1 clinical trials and we are obligated to provide funding for these activities. The agreement calls for us to work together to co-develop and jointly fund
programs after phase 1 clinical trials unless either company opts out. We and Unum would co-commercialize any successfully developed product candidates and share any profits 50/50 on any co-developed programs in the United States. We retain
exclusive commercial rights outside of the United States, paying Unum a royalty that is a high single digit to mid-teens percentage of ex-U.S. sales, if any. The potential future licensing and progress-dependent milestone payments to Unum under the
collaboration may total up to
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$615 million across all three ACTR programs, payment of which is triggered by the achievement of development, regulatory and commercial milestones. As of the date of this filing, this agreement
is not material to us.
Genmab Co-Development Collaboration
In September 2010, we entered into an
ADC research collaboration agreement with Genmab. Under the agreement, Genmab has rights to utilize our ADC technology with its HuMax-TF antibody targeting the Tissue Factor, or TF, antigen, which is expressed on numerous types of solid tumors.
Under this agreement, we received an upfront payment and have the right to exercise a co-development option for any resulting ADC products at the end of phase 1 clinical development. Genmab is responsible for research, manufacturing, preclinical
development and phase 1 clinical trials under the collaboration. We receive research support payments for any assistance provided to Genmab. If we opt into the anti-TF ADC product at the end of phase 1, we and Genmab would co-develop and share all
future costs and profits for the product on a 50/50 basis. If we do not opt in, then Genmab would pay us fees, milestones and mid-single digit royalties on worldwide net sales of the product. As of the date of this filing, this agreement is not
material to us.
ADC Collaborations
We have active collaborations with a number of companies to
allow them to use our proprietary ADC technology with their monoclonal antibodies. Under our ADC collaborations, which we enter into in the ordinary course of business, we receive or are entitled to receive upfront cash payments, progress-dependent
milestones and single digit royalties on net sales of products incorporating our ADC technology, as well as annual maintenance fees and support fees for research and development services and materials provided under the agreements. Our ADC
collaborators are responsible for development, manufacturing and commercialization of any ADC product candidates that result from the collaborations and are solely responsible for the achievement of any of the potential milestones under these
collaborations.
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Our current ADC collaborations are at various stages of clinical and preclinical
development. Our ability to generate significant future revenues from our current ADC collaboration agreements will largely depend on a product that incorporates our ADC technology entering late-stage clinical development and receiving marketing
approval from the FDA at which point the milestone payments, royalties or other rights and benefits would become more substantial and material to our company. Below is a table setting forth our active ADC collaborations and current development
status:
License Agreements
We have in-licensed antibodies, targets and enabling
technologies from pharmaceutical and biotechnology companies and academic institutions for use in our pipeline programs and ADC technology, including the following:
Bristol-Myers Squibb
License.
In March 1998, we obtained rights to some of our technologies and product candidates, portions of which are exclusive, through a license agreement with Bristol-Myers Squibb. Through this license, we secured rights
to use various targeting technologies. Under the terms of the license agreement, we are required to pay royalties in the low single digits on net sales of products, including ADCETRIS, which incorporate various technologies owned by Bristol-Myers
Squibb.
University of Miami
License.
In September 1999, we entered into an exclusive license agreement with the University of Miami, Florida, covering an anti-CD30 monoclonal antibody that is the basis for the antibody component of ADCETRIS. Under
the terms of this license, we made an upfront payment and are required to pay annual maintenance fees, progress-dependent milestone payments and royalties in the low single digits on net sales of products, including ADCETRIS, incorporating
technology licensed from the University of Miami.
Immunomedics License
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On February 10, 2017, we entered into the Immunomedics License.
Pursuant to the Immunomedics License, Immunomedics granted us, subject to the terms and conditions of the Immunomedics License, exclusive worldwide rights to develop, manufacture and commercialize IMMU-132 and second generation ADCs targeting TROP-2
for all human therapeutics uses in any and all indications. IMMU-132 is an ADC targeted to TROP-2, which is expressed in several solid tumors, and is in a pivotal phase 1/2 trial for patients with TNBC, and is being investigated in other solid
tumors. Under the Immunomedics License, we
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agreed to pay Immunomedics an up-front payment of $250 million following closing of the Immunomedics License. In addition, we agreed to pay development, regulatory and sales-dependent milestone
payments to Immunomedics across multiple indications and geographic regions of up to a total maximum of approximately $1.7 billion. Immunomedics would also be eligible to receive royalties on worldwide annual net sales of licensed products at tiered
royalty rate percentages beginning in the teens and rising to twenty percent, subject to customary reductions, during the royalty term specified in the Immunomedics License. We would bear the future costs of worldwide development and
commercialization of licensed products, subject to specified exceptions. We agreed to use commercially reasonable efforts to develop IMMU-132. Following regulatory approval (and pricing and reimbursement approvals, as applicable) of any licensed
product in any of the major market countries specified in the Immunomedics License, we agreed to use commercially reasonable efforts to commercialize such licensed product in each major market country where it has been approved. Under the
Immunomedics License, Immunomedics would have the right to exercise a co-promotion option to provide up to 50% of the sales efforts for the commercialization of IMMU-132 in the United States, subject to certain parameters set forth in the
Immunomedics License. We may terminate the Immunomedics License for convenience upon at least two hundred seventy (270) days prior written notice to Immunomedics. Either we or Immunomedics may terminate the Immunomedics License if the other
party is in material breach of the Immunomedics License and fails to cure such breach within specified cure periods. Upon a termination of the Immunomedics License by us for convenience or by Immunomedics for our material breach, all licenses
granted by Immunomedics to us terminate (other than specified exceptions), and all payment obligations that accrued prior to the date of such termination shall survive the termination, among other effects of termination. The Immunomedics License
also provides us the right to terminate specified portions of the Immunomedics License in the event of certain fundamental breaches by Immunomedics that are not cured in accordance with specified cure periods and procedures. In connection with our
entry into the Immunomedics License, we purchased 3,000,000 shares of Immunomedics common stock from Immunomedics at an aggregate purchase price of $14.7 million, and also received a warrant from Immunomedics to purchase up to 8,655,804 additional
shares of Immunomedics common stock.
The closing
of the transactions contemplated by the Immunomedics License is subject to customary closing conditions, including the expiration of the applicable waiting period under the HSR Act, there being no pending court or administrative challenges to the
Immunomedics License and there being no court or administrative orders blocking the closing. On February 20, 2017, Immunomedics and we entered into a letter agreement pursuant to which Immunomedics irrevocably waived to the extent applicable to
Immunomedics the condition precedent to the closing and effectiveness of the Immunomedics License that there be no pending court or administrative challenges to the transaction. Additionally, under the terms of the Immunomedics License, Immunomedics
had the right to continue discussions with a small number of parties that previously expressed interest in licensing IMMU-132 until 11:59 p.m. New York City time on February 19, 2017. If a third party had provided Immunomedics with a
financially superior licensing offer, we would have had the right to match any such offer, and if we had decided not to match, Immunomedics would have had the right to accept the superior offer and terminate the Immunomedics License upon payment of
a termination fee to us. We have not received notice from Immunomedics of any such third party offers during this limited time period, and on February 21, 2017, Immunomedics announced that it is subject to customary no-shop restrictions
on its and its representatives ability to solicit, discuss or negotiate alternative licensing agreement proposals from third parties with regard to IMMU-132. On February 13, 2017, we were named a co-defendant in a lawsuit filed by venBio
in the Delaware Chancery Court against the members of the board of directors of Immunomedics pursuant to which, among other things, venBio seeks to enjoin the closing of the transactions contemplated by the Immunomedics License. As a result of the
pending litigation challenging the transactions contemplated by the Immunomedics License, Immunomedics and we have committed to the Court not to close the transactions contemplated by the Immunomedics License prior to March 10, 2017. We cannot
predict the timing or outcome of this lawsuit or the impact it may have on the Immunomedics License or the closing of the transactions contemplated by the Immunomedics License. However, it is possible that, in connection with this lawsuit, the
Immunomedics License could be rescinded or reformed in a way that is disadvantageous to us, including by requiring us to increase the transaction consideration payable to Immunomedics under the Immunomedics License, or that otherwise adversely
affects the anticipated benefits to us of the Immunomedics License.
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Patents and Proprietary Technology
Our owned and licensed patents and patent applications are directed to ADCETRIS, our product candidates,
monoclonal antibodies, our ADC and SEA technologies and other antibody-based and/or enabling technologies. We commonly seek patent claims directed to compositions of matter, including antibodies, ADCs, and drug-linkers containing highly potent
cell-killing agents, as well as methods of using such compositions. When appropriate, we also seek claims to related technologies, such as methods of using certain sugar analogs utilized in our SEA technology. For ADCETRIS and each of our product
candidates, we have filed or expect to file multiple patent applications. We maintain patents and prosecute applications worldwide for technologies that we have out-licensed, such as our ADC technology. Similarly, for partnered products and product
candidates, such as ADCETRIS, ASG-22ME, and ASG-15ME, we seek to work closely with our development partners to coordinate patent efforts, including patent application filings, prosecution, term extension, defense and enforcement. As ADCETRIS and our
development product candidates advance through research and development, we seek to diligently identify and protect new inventions, such as combination therapies, improvements to methods of manufacturing, and methods of treatment. We also work
closely with our scientific personnel to identify and protect new inventions that could eventually add to our development pipeline.
For ADCETRIS and our related ADC technology, we own nine patents in the United States and Europe that will expire between 2020 and 2031.
For SGN-CD33A and our related ADC technology, we own, co-own or have licensed rights to six patents in the United States and Europe that will expire between 2027 and 2032. For ASG-22ME and our related ADC technology, we own, co-own or have licensed
rights to nine patents in the United States and Europe that will expire between 2022 and 2031. Of these nine patents, we own or co-own seven patents and have licensed rights to two patents. For SGN-LIV1A and our related ADC technology, we own or
have licensed rights to seven patents in the United States and Europe that will expire between 2020 and 2032. Of these seven patents, we own rights to five patents and have licensed rights to two patents. Of these six patents, we own or co-own four
patents and have licensed rights to two patents. For SGN-CD19A and our related ADC technology, we own eleven patents in the United States and Europe that will expire between 2024 and 2029. For SEA-CD40 and our related SEA technology, we own or have
licensed rights to eleven patents in the United States and Europe that will expire between 2020 and 2030. Of these eleven patents, we own eight patents and have licensed rights to three patents. For ASG-15ME and our related ADC technology, we own or
co-own five patents in the United States and Europe that will expire between 2022 and 2033. In some cases, our U.S. patents may be eligible for patent term extension, and our European patents may be eligible for supplemental protection in one or
more countries. The length of any such extension would vary by country.
Patents expire, on a country by country basis, at various times depending on various factors, including the filing date of the corresponding patent application(s), the availability of patent term
extension and supplemental protection certificates and requirements for terminal disclaimers. Although we believe our owned and licensed patents and patent applications provide us with a competitive advantage, the patent positions of biotechnology
and pharmaceutical companies can be uncertain and involve complex legal and factual questions. We and our corporate collaborators may not be able to develop patentable products or processes or obtain patents from pending patent applications. Even if
patent claims are allowed, the claims may not issue. In the event of issuance, the patents may not be sufficient to protect the proprietary technology owned by or licensed to us or our corporate collaborators. Our or our collaborators current
patents, or patents that issue on pending applications, may be challenged, invalidated, infringed or circumvented. In addition, changes to patent laws in the United States or other countries may limit our ability to defend or enforce our patents, or
may applied retroactively to affect the term of our patents. Our patents have been and may in the future be challenged by third parties in post-issuance administrative proceedings or in litigation as invalid, not infringed or unenforceable under
U.S. or foreign laws, or they may be infringed by third parties. As a result, we are or may be from time to time involved in the defense and enforcement of our patent or other intellectual property rights in a court of law, U.S. Patent and Trademark
Office inter partes review or reexamination proceeding, foreign opposition proceeding or related legal and administrative proceeding in the United States and elsewhere. The costs of defending our patents or enforcing our proprietary rights in
post-issuance administrative proceedings or litigation may be substantial and
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the outcome can be uncertain. An adverse outcome may allow third parties to use our proprietary technologies without a license from us or our collaborators. Our and our collaborators
patents may also be circumvented, which may allow third parties to use similar technologies without a license from us or our collaborators.
Our commercial success depends significantly on our ability to operate without infringing patents and proprietary rights of third parties.
Organizations such as pharmaceutical and biotechnology companies, universities and research institutions may have filed patent applications or may have been granted patents that cover technologies similar to the technologies owned, optioned by or
licensed to us or to our collaborators. In addition, we are monitoring the progress of multiple pending patent applications of other organizations that, if granted, may require us to license or challenge their validity or enforceability in order to
continue commercializing ADCETRIS or to commercialize our product candidates. Our challenges to patents of other organizations may not be successful, which may affect our ability to commercialize ADCETRIS or our product candidates. We cannot
determine with certainty whether patents or patent applications of other parties may materially affect our or our collaborators ability to make, use or sell ADCETRIS or any other products.
We require our scientific personnel to maintain laboratory
notebooks and other research records in accordance with our policies, which are designed to strengthen and support our intellectual property protection. In addition to our patented intellectual property, we also rely on trade secrets and other
proprietary information, especially when we do not believe that patent protection is appropriate or can be obtained. Our policy is to require each of our employees, consultants and advisors to execute a proprietary information and inventions
assignment agreement before beginning their employment, consulting or advisory relationship with us. These agreements provide that the individual must keep confidential and not disclose to other parties any confidential information developed or
learned by the individual during the course of their relationship with us except in limited circumstances. These agreements also provide that we will own all inventions conceived or reduced to practice by the individual in the course of rendering
services to us. Our agreements with collaborators require them to have a similar policy and agreements with their employees, consultants and advisors. Our policy and agreements and those of our collaborators may not sufficiently protect our
confidential information, or third parties may independently develop equivalent information.
Government Regulation
The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, pre-market approval, manufacture,
marketing and distribution of biopharmaceutical products. These agencies and other regulatory agencies regulate research and development activities and the testing, approval, manufacture, quality control, safety, efficacy, labeling, storage,
distribution, import, export, recordkeeping, advertising and promotion of products and product candidates. Failure to comply with applicable FDA or other requirements may result in Warning Letters, civil or criminal penalties, suspension or delays
in clinical development, recall or seizure of products, partial or total suspension of production or withdrawal of a product from the market. The development and approval process requires substantial time, effort and financial resources, and we
cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all. We must obtain approval of our product candidates from the FDA before we can begin marketing them in the United States. Similar approvals
are also required in other countries.
Product
development and approval within this regulatory framework is uncertain, can take many years and requires the expenditure of substantial resources. The nature and extent of the governmental review process for our product candidates will vary,
depending on the regulatory categorization of particular product candidates and various other factors.
The necessary steps before a new biopharmaceutical product may be sold in the United States ordinarily include:
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preclinical
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in vivo
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submission to the FDA of an IND which must become effective before clinical trials may commence, and which must be updated at least annually with a
report on development;
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development of a drug formulation and manufacture of the drug product for clinical trials, and commercial sale, if approved;
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completion of adequate and well controlled human clinical trials to establish the safety and efficacy of the product candidate for its intended use;
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submission to the FDA of a marketing authorization application in the form of a BLA, which must be accompanied by a substantial user fee unless the fee
is waived;
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FDA pre-approval inspection of manufacturing facilities for current Good Manufacturing Practices, or GMP, compliance and FDA inspection of select
clinical trial sites for Good Clinical Practice, or GCP, compliance; and
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FDA review and approval of the marketing authorization application and product prescribing information prior to any commercial sale.
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The results of preclinical
tests (which include laboratory evaluation as well as preclinical GLP studies to evaluate toxicity) for a particular product candidate, together with related manufacturing information and analytical data, and a clinical protocol are submitted as
part of an IND to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30 day time period, raises concerns or questions about the conduct of the clinical trial, including concerns that human
research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. IND submissions may be authorized by the FDA, for example, to
commence a clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development. Further, an independent institutional review board, or IRB, for each medical center
proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center and it must monitor the study until completed. The FDA, the IRB or the sponsor may suspend a clinical trial at any
time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive GCP regulations and regulations for informed consent and privacy of
individually-identifiable information.
Clinical
trials generally are conducted in three sequential phases that may overlap or in some instances, be skipped. In phase 1, the initial introduction of the product into humans, the product candidate is tested to assess safety, metabolism,
pharmacokinetics and pharmacological actions associated with increasing doses. Phase 2 usually involves trials in a limited patient population to evaluate the efficacy of the potential product for specific, targeted indications, determine dosage
tolerance and optimum dosage and further identify possible adverse reactions and safety risks. Phase 3 and pivotal trials are undertaken to evaluate further clinical efficacy and safety often in comparison to standard therapies within a broader
patient population, generally at geographically dispersed clinical sites. Phase 4, or post-marketing, trials may be required as a condition of commercial approval by the FDA and may also be voluntarily initiated by us or our collaborators. Since we
received accelerated approval for ADCETRIS from the FDA for the relapsed sALCL indication, we are subject to certain post-approval requirements pursuant to which we are conducting an additional confirmatory phase 3 trial, the ECHELON-2 trial, to
verify and describe the clinical benefit of ADCETRIS in the relapsed sALCL indication. Phase 1, phase 2 or phase 3 testing may not be completed successfully within any specific period of time, if at all, with respect to any of our product
candidates. Similarly, suggestions of safety, tolerability or efficacy in earlier stage trials do not necessarily predict findings of safety and efficacy in subsequent trials. Furthermore, the FDA, an IRB or we may suspend a clinical trial at any
time for various reasons, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Clinical trials are subject to central registration and results reporting requirements, such as on www.clinicaltrials.gov.
The results of preclinical studies,
pharmaceutical development and clinical trials, together with information on a products chemistry, manufacturing, and controls, are submitted to the FDA in the form of a BLA, for approval of the manufacture, marketing and commercial shipment
of the pharmaceutical product. Data from
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clinical trials are not always conclusive and the FDA may interpret data differently than we or our collaborators interpret data. The FDA may also convene an Advisory Committee of external
advisors to answer questions regarding the approvability and labeling of an application. The FDA is not obligated to follow the Advisory Committees recommendation. The submission of a BLA is required to be accompanied by a substantial user
fee, with few exceptions or waivers. The user fee is administered under the Prescription Drug User Fee Act, or PDUFA, which sets goals for the timeliness of the FDAs review. A standard review period is twelve months from submission of the
application, while priority review is eight months from submission of the application. The testing and approval process is likely to require substantial time, effort and resources, and there can be no assurance that any approval will be granted on a
timely basis, if at all. The FDA may deny review of an application by refusing to file the application or not approve an application by issuance of a complete response letter if applicable regulatory criteria are not satisfied, require additional
testing or information, or require post-market testing and surveillance to monitor the safety or efficacy of the product. Approval may occur with significant Risk Evaluation and Mitigation Strategies, or REMS, that limit the clinical use in the
prescribing information, distribution or promotion of a product. Accelerated approval of ADCETRIS for relapsed sALCL additionally requires the pre-submission of marketing materials to the FDA for the product until such time as the accelerated
approval requirements have been fulfilled. Once an approval is issued, the FDA may require safety-related labeling changes or withdraw product approval if ongoing regulatory requirements are not met or if safety problems occur after the product
reaches the market. In addition, the FDA may require further testing of ADCETRIS, including phase 4 clinical trials, and surveillance programs to monitor the safety of ADCETRIS, and the FDA has the power to prevent or limit further marketing of
ADCETRIS based on the results of these post-marketing programs or other information.
Products manufactured or distributed pursuant to FDA approvals are subject to continuing regulation by the FDA, including manufacture, labeling, distribution, advertising, promotion, recordkeeping, annual
product quality review and reporting requirements. Adverse event experience with the product must be reported to the FDA in a timely fashion and pharmacovigilance programs to proactively look for these adverse events are mandated by the FDA.
Manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing
regulatory requirements, including cGMPs, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Following such inspections, the FDA may issue notices on Form FDA 483 and Warning Letters that could
cause us to modify certain activities. A Form FDA 483 notice, if issued at the conclusion of an FDA inspection, can list conditions the FDA investigators believe may have violated cGMP or other FDA regulations or guidance. Failure to adequately and
promptly correct the observations(s) can result in further regulatory enforcement action. In addition to Form FDA 483 notices and Warning Letters, failure to comply with the statutory and regulatory requirements can subject a manufacturer to
possible legal or regulatory action, such as suspension of manufacturing, seizure of product, injunctive action or possible civil penalties. We cannot be certain that we or our present or future third-party manufacturers or suppliers will be able to
comply with the cGMP regulations and other ongoing FDA regulatory requirements. If we or our present or future third-party manufacturers or suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, not approve
our products, require us to recall a product from distribution or withdraw approval of the BLA for that product. Failure to comply with ongoing regulatory obligations can result in delay of approval or Warning Letters, product seizures, criminal
penalties, and withdrawal of approved products, among other enforcement remedies.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. These regulations include standards and restrictions for direct-to-consumer
advertising, industry-sponsored scientific and educational activities, promotional activities involving the internet, and off-label promotion. While physicians may prescribe products for off label uses, manufacturers may only promote products for
the approved indications and in accordance with the provisions of the approved label. The FDA has very broad enforcement authority under the Federal Food, Drug and Cosmetic Act, and failure to abide by these regulations can result in penalties,
including the issuance of a Warning Letter directing entities to correct deviations from FDA standards, and state and federal civil and criminal investigations and prosecutions.
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FDA Regulation of Companion Diagnostics
ADCETRIS and certain of our product candidates may rely upon
in vitro companion diagnostics for use in selecting the patients that we believe will respond to our therapeutics. If safe and effective use of a therapeutic product depends on an in vitro diagnostic, the FDA generally will require approval or
clearance of the diagnostic at the same time that FDA approves the therapeutic product. This policy is described in an August 2014 FDA guidance document. The review of these in vitro companion diagnostics in conjunction with the review of our cancer
treatments involves coordination of review by FDAs Center for Drug Evaluation and Research and by FDAs Center for Devices and Radiological Health. For example, we and Takeda have formed a collaboration with Ventana under which Ventana is
working to develop, manufacture and commercialize a molecular companion diagnostic test with the goal of identifying patients who might respond to treatment with ADCETRIS based on CD30 expression levels in their tissue specimens, which companion
diagnostic may be required by regulatory authorities to support regulatory approval of ADCETRIS in other CD30-expressing malignancies.
Regulation Outside of the United States
In addition to regulations in the U.S., we and our collaborators are and will be subject to regulations of other countries governing
clinical trials and commercial sales, manufacturing and distribution of our products. We must obtain approval by the regulatory authorities of countries outside of the U.S. before we can commence clinical trials in such countries and approval of the
regulators of such countries or economic areas, such as Canada, before we may market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement
vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
Healthcare Regulation
Federal and state healthcare laws and regulations, including fraud and abuse and health information privacy and security laws and regulations, may also be applicable to our business. If we fail to comply
with those laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected. The healthcare laws and regulations that may affect our ability to operate include, without
limitation, anti-kickback and false claims laws, data privacy and security laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, to induce, or in return for, purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility, item, or service reimbursable, in whole or in
part, under a federal healthcare program, such as the Medicare and Medicaid programs. The term remuneration has been broadly interpreted to include anything of value. Although there are a number of statutory exceptions and regulatory
safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be
subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the
Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statutes intent requirement to mean
that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the Anti-Kickback Statute has been violated. Additionally, the intent standard under the Anti-Kickback Statute was
amended by the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, collectively PPACA, to a stricter standard such that a person or entity no longer needs to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, PPACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
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The federal civil and criminal false claims laws, including the federal civil False Claims
Act, prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment to or approval by the federal government, including the Medicare, and Medicaid programs, or knowingly making, using,
or causing to be made or used a false record or statement material to a false or fraudulent claim or to avoid, decrease, or conceal an obligation to pay money to the federal government.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal
criminal statutes that prohibit, among other actions, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third party payors, knowingly and willfully embezzling or stealing
from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits, items, or services. Like the Anti-Kickback Statute, PPACA amended the intent standard for certain healthcare fraud under HIPAA such that a person or entity no longer
needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
The civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have
presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
HIPAA, as amended by the Health Information Technology for
Economic and Clinical Health Act, or HITECH, and their implementing regulations, imposes certain requirements on certain types of individuals and entities relating to the privacy and security of individually identifiable health information. Among
other things, HITECH makes HIPAAs security standards directly applicable to business associates, independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service
for or on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to
file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys fees and costs associated with pursuing federal civil actions.
The federal Physician Payments Sunshine Act, created under PPACA and its implementing regulations, requires
certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid, or the Childrens Health Insurance Program to annually report information related to certain payments or other
transfers of value provided to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals, and to report annually certain ownership and investment interests
held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties of
up to an aggregate of $150,000 per year and up to an aggregate of $1 million per year for knowing failures. Covered manufacturers are required to submit reports on aggregate payment data to the Secretary of the U.S. Department of Health
and Human Services on an annual basis.
Many
states have similar statutes or regulations to the above federal laws and regulations that may be broader in scope than the aforementioned federal versions and apply regardless of payor, and many of which differ from each other in significant ways
and may not have the same effect, further complicating compliance efforts. Additionally, our business operations in foreign countries and jurisdictions, including Canada and the European Union, may subject us to additional regulation.
Because of the breadth of these laws and the narrowness of
the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the
health regulatory laws described above or any other laws that apply to us, we may be subject to penalties, including potentially
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significant criminal and civil and/or administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractual damages,
reputational harm, administrative burdens, diminished profits and future earnings additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance
with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Coverage and Reimbursement
Sales of ADCETRIS and any future products depend, in
significant part, on the extent to which the costs of our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. Patients who are prescribed treatment for their
conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients and providers are unlikely to use our products unless coverage is provided and
reimbursement is adequate to cover a significant portion of the cost of our products. Pharmaceutical products are typically reimbursed based on FDA labeled indications, recognized compendia listings, available medical literature and determination of
medical necessity.
Additionally, a third-party
payors decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors.
Therefore, coverage and reimbursement for products can differ significantly from payor to payor. Decisions regarding the extent of coverage and amount of reimbursement to be provided for each of our product candidates is individual to each insurer,
can vary based on provider contract, and will be affected by state and federal laws providing for reimbursement formulas based on acquisition cost. Third party payors continue to work diligently to control their spending on prescription drugs and
medical service. The containment of healthcare costs has become a priority of the U.S. government and abroad, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown
significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of
more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Payors, commercial and public in the U.S. and abroad, must review the therapeutics value of our products before
extending coverage under their plans to reimburse our products If third-party payors do not find a product to be of therapeutic value, they may not cover it or, if they do, the level of payment may not be sufficient to allow us to sell our products
on a profitable basis.
Many of the patients in
the U.S. who seek treatment with ADCETRIS may be eligible for Medicare or Medicaid benefits. The Medicare and Medicaid programs are administered by the Centers for Medicare and Medicaid Services, or CMS, and coverage and reimbursement for products
and services under these programs are subject to changes in CMS regulations and interpretive policy determinations, in addition to statutory changes made by Congress. Federal budget decisions have and may result in reduced Medicare payment rates. In
addition, as a condition of federal funds being made available to cover our products under Medicaid, we are required to participate in the Medicaid drug rebate program. The rebate amount under this program varies by quarter, and is based on pricing
data we report to CMS. In addition, because we participate in the Medicaid drug rebate program, we must make ADCETRIS available to authorized users of the Federal Supply Schedule of the General Services Administration. This requires compliance with
additional laws and requirements, including offering ADCETRIS at a reduced price to federal agencies including the United States Department of Veterans Affairs and United States Department of Defense, the Public Health Service and the Indian Health
Service. We are also required to offer discounted pricing to certain eligible not for profit entities that are eligible for 340B pricing under the Public Health Services Act. Participation in these programs requires submission of pricing data and
calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations and the guidance governing such calculations is not always clear.
Compliance with such requirements can require significant investment in
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personnel, systems and resources, but failure to properly calculate our prices, or offer required discounts or rebates could subject us to substantial criminal, civil and/or administrative
penalties, as well as, administrative burdens and exclusion from or contract termination regarding these programs. The terms of these government programs could change in the future which may increase the discounts or rebates we are required to
offer, possibly reducing the revenue derived from sales of ADCETRIS to these entities.
The requirements governing drug pricing vary widely from country to country. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products
will allow favorable reimbursement and pricing arrangements for any of our products.
Healthcare Reform
PPACA substantially changes the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry. PPACA aims to, among other things, expand
coverage for the uninsured while at the same time containing overall healthcare costs. With regard to biopharmaceutical products, PPACA is expected to, among other things, expand and increase industry rebates for products covered under Medicaid
programs and make changes to the coverage requirements under the Medicare Part D program. We cannot yet predict the full impact of PPACA at this time for many reasons including that many of its provisions require the promulgation of detailed
implementing regulations, which has not yet occurred.
Many provisions of PPACA may impact the biopharmaceutical industry, including that in order for a biopharmaceutical product to receive federal reimbursement under the Medicare Part B and Medicaid programs
or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the drug pricing program under the Public Health Services Act, or PHS. The required PHS discount on a given product is
calculated based on the Average Manufacturers Price, or AMP, and Medicaid rebate amounts reported by the manufacturer. PPACA expanded the types of entities eligible to receive discounted PHS pricing, although, under the current state of the law,
with the exception of childrens hospitals, these newly eligible entities will not be eligible to receive discounted PHS pricing on orphan drugs when used for the orphan indication. In addition, as PHS drug pricing is determined based on AMP
and Medicaid rebate data, revisions, including the recently published AMP rule, to the Medicaid rebate formula and AMP definition described above could cause the required PHS discount to increase.
Since its enactment, there have been judicial and
Congressional challenges to certain aspects of PPACA. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of PPACA.
The Budget Resolution is not a law; however, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of PPACA. Further, on January 20, 2017, President Trump signed an Executive Order directing
federal agencies with authorities and responsibilities under PPACA to waive, defer, grant exemptions from, or delay the implementation of any provision of PPACA that would impose a fiscal or regulatory burden on states, individuals, healthcare
providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The potential impact of these efforts to repeal or defer and delay enforcement of PPACA on our business remains unclear. Congress also could consider subsequent
legislation to replace elements of PPACA that are repealed. Because of the continued uncertainty about the implementation of the PPACA, including the potential for further legal challenges or repeal of PPACA, we cannot quantify or predict with any
certainty the likely impact of the PPACA or its repeal on our business, prospects, financial condition or results of operations.
In addition, other legislative changes have been proposed and adopted since PPACA was enacted. The Budget Control Act of 2011, among other
things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through
2021, triggering the legislations automatic reduction to several government programs. This includes reductions to Medicare payments to providers, which went into effect in April 2013 and, following passage of the Bipartisan Budget Act of 2015,
will remain in effect
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through 2025 unless additional congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers and increased the
statute of limitations period for the government to recover overpayments to providers from three to five years.
Further, the recently enacted Drug Supply Chain Security Act imposes on manufacturers of certain pharmaceutical products new obligations
related to product tracking and tracing, among others, which will be phased in over several years beginning in 2015. Among the requirements of this new legislation, manufacturers subject to this federal law will be required to provide certain
information regarding the drug product to individuals and entities to which product ownership is transferred, label drug product with a product identifier, and keep certain records regarding the drug product. The transfer of information to
subsequent product owners by manufacturers will eventually be required to be done electronically. Covered manufacturers will also be required to verify that purchasers of the manufacturers products are appropriately licensed. Further, under
this new legislation, covered manufacturers will have drug product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products that
are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.
Additionally, there has been increasing legislative and enforcement interest in the United States with respect
to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under
Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs.
We cannot predict what healthcare reform initiatives may be adopted in the future. However, we anticipate that Congress, state
legislatures, and third-party payors may continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations effecting additional fundamental
changes in the healthcare delivery system. We also expect ongoing initiatives to increase pressure on drug pricing. We cannot assure you as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact
of any such potential legislation; however, such changes or the ultimate impact of changes could negatively affect our revenue or sales of ADCETRIS or any future approved products.
Competition
The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense
competition and a strong emphasis on proprietary products. Many third parties compete with us in developing various approaches to treating cancer. They include pharmaceutical companies, biotechnology companies, academic institutions and other
research organizations.
Many of our competitors
have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approval and marketing than we do. In addition, many of these competitors
are active in seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology that they have developed. Smaller or early-stage companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring technologies complementary to our
programs.
With respect to ADCETRIS, there are
several other FDA-approved drugs for the treatment of relapsed or refractory Hodgkin lymphoma or sALCL, including Bristol-Myers Squibbs Opdivo for Hodgkin lymphoma after failure of auto-HSCT and ADCETRIS and Celgenes Istodax and Spectrum
Pharmaceuticals Folotyn for relapsed or refractory peripheral T-cell lymphoma. Merck is also developing a PD-1 inhibitor, pembrolizumab,
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and is conducting a clinical trial in relapsed or refractory classical Hodgkin lymphoma comparing pembrolizumab with ADCETRIS. In addition, we are aware of multiple investigational agents that
are currently being studied, including Pfizers crizotinib, AbbVies ibrutinib, Kyowas mogamulizumab, and Gileads idelalisib, which, if successful, may compete with ADCETRIS in the future. Data have also been presented on
several developing technologies, including bispecific antibodies and CAR modified T-cell therapies that may compete with ADCETRIS in the future. Further, there are many competing approaches used in the treatment of patients in ADCETRIS three
approved indications, including auto-HSCT, conventional therapies, combination chemotherapy, clinical trials with experimental agents and single-agent regimens.
With respect to SGN-CD33A, there are several investigational agents that, if approved, could be competitive with our product candidate,
including AbbVies venetoclax, which received breakthrough therapy designation from the FDA in January 2016 for use in combination with HMAs in treatment-naïve patients with AML who are not eligible for standard high-dose induction
treatment, Jazzs Vyxeos, Pfizers Mylotarg, Astexs guadecitabine (SGI-110), and agents targeting biomarkers such as FLT3 and IDH1/2.
Many other pharmaceutical and biotechnology companies are developing and/or marketing therapies for the same types of cancer that our
product candidates are designed and being developed to treat. For example, we believe that companies including AbbVie, ADC Therapeutics, Affimed, Agios, Amgen, Astellas, Bayer, Biogen, Bristol-Myers Squibb, Celgene, Eisai, Genentech, GSK, Gilead,
ImmunoGen, Immunomedics, Infinity, Karyopharm, MedImmune, MEI Pharma, Merck, Novartis, Pfizer, Sanofi-Aventis, Spectrum Pharmaceuticals, Takeda, Teva, and Xencor are developing and/or marketing products or technologies that may compete with ours. In
addition, our ADC collaborators may develop compounds utilizing our technology that may compete with product candidates that we are developing.
We are aware of other companies that have technologies that may be competitive with ours, including Astellas, AstraZeneca, Bristol-Myers
Squibb, ImmunoGen, Immunomedics, MedImmune, Mersana, and Pfizer, all of which have ADC technology. ImmunoGen has several ADCs in development that may compete with our product candidates. ImmunoGen has also established partnerships with other
pharmaceutical and biotechnology companies to allow those other companies to utilize ImmunoGens technology, including Sanofi-Aventis, Genentech, Novartis, Takeda and Lilly. We are also aware of a number of companies developing monoclonal
antibodies directed at the same antigen targets or for the treatment of the same diseases as our product candidates. For example, we believe Bristol-Myers Squibb has an anti-CD30 antibody program that may be competitive with ADCETRIS, and Amgen and
Xencor have anti-CD19 programs that may be competitive with our product candidates.
In addition, in the United States, the Biologics Price Competition and Innovation Act of 2009 created an abbreviated approval pathway for biological products that are demonstrated to be highly
similar or biosimilar to or interchangeable with an FDA-approved biological product. This pathway allows competitors to reference the FDAs prior approvals regarding innovative biological products and data
submitted with a BLA to obtain approval of a biosimilar application 12 years after the time of approval of the innovative biological product. The 12-year exclusivity period runs from the initial approval of the innovator product and not from
approval of a new indication. In addition, the 12-year exclusivity period does not prevent another company from independently developing a product that is highly similar to the innovative product, generating all the data necessary for a full BLA and
seeking approval. Exclusivity only assures that another company cannot rely on the FDAs prior approvals in approving a BLA for an innovators biological product to support the biosimilar products approval. Further, under the
FDAs current interpretation, it is possible that a biosimilar applicant could obtain approval for one or more of the indications approved for the innovator product by extrapolating clinical data from one indication to support approval for
other indications. The FDA approved the first biosimilar product in the United States in May 2015. In the European Union, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product
class-specific guidelines for biosimilar approvals issued since 2005. We are aware of many pharmaceutical and biotechnology and other companies that are actively engaged in research and development of biosimilars or interchangeable products.
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With respect to our current and potential future product candidates, we believe that our
ability to compete effectively and develop products that can be manufactured cost-effectively and marketed successfully will depend on our ability to:
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advance our technology platforms;
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license additional technology;
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complete clinical trials which position our products for regulatory and commercial success;
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maintain a proprietary position in our technologies and products;
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obtain required government and other public and private approvals on a timely basis;
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attract and retain key personnel;
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commercialize effectively;
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obtain reimbursement for our products in approved indications;
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comply with applicable laws, regulations and regulatory requirements and restrictions with respect to the commercialization of our products, including
with respect to any changed or increased regulatory restrictions; and
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enter into additional collaborations to advance the development and commercialization of our product candidates.
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Manufacturing
We do not currently have the internal ability to manufacture
the drug products that we sell or need to conduct our clinical trials, and we therefore rely on corporate collaborators and contract manufacturing organizations to supply drug product for commercial supply and our IND-enabling studies and clinical
trials. For the monoclonal antibody used in ADCETRIS, we have contracted with AbbVie for clinical and commercial supplies. For the drug linker used in ADCETRIS, we have contracted with Sigma Aldrich Fine Chemicals, or SAFC, for clinical and
commercial supplies. We have multiple contract manufacturers for conjugating the drug linker to the antibody and producing the ADCETRIS product. For our ADC product candidates, multiple contract manufacturers, including AbbVie and SAFC, perform
antibody and drug-linker manufacturing and several other contract manufacturers perform conjugation of the drug-linker to the antibody and fill/finish of the drug product. In addition, we rely on other third parties to perform additional steps in
the manufacturing process, including shipping and storage of ADCETRIS and our product candidates.
We established our commercial scale supply chain for ADCETRIS prior to commercial launch. For the foreseeable future, we expect to continue to rely on contract manufacturers and other third parties to
produce, vial and store sufficient quantities of ADCETRIS for use in our clinical trials and for commercial sale. In addition, we depend on outside vendors for the supply of raw materials used to produce ADCETRIS. For our pipeline programs, we
believe that our existing supplies of drug product and our contract manufacturing relationships will be sufficient to accommodate clinical trials through phase 3. However, we may need to obtain additional manufacturing arrangements or increase our
own manufacturing capability to meet our future commercial needs, both of which could require significant capital investment. In addition, we have committed to provide Takeda with their needs of certain parts of the ADCETRIS supply chain for a
limited period of time, which may require us to arrange for additional manufacturing supply. We may also enter into collaborations with pharmaceutical or larger biotechnology companies to enhance the manufacturing capabilities for our product
candidates.
AbbVie
Biotechnology
. In February 2004, we entered into a development and supply agreement with AbbVie (formerly a part of Abbott Laboratories) to manufacture developmental, clinical and commercial quantities of anti-CD30
monoclonal antibody, which is a component of ADCETRIS. The agreement generally
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provides for the supply by AbbVie and the purchase by us of such anti-CD30 monoclonal antibody. Under terms of the supply agreement, we may purchase a portion of our required anti-CD30 monoclonal
antibody from a second source third-party supplier. We are required to make a minimum annual purchase. The anti-CD30 monoclonal antibody is purchased by us based upon a rolling forecast. The supply agreement will continue until 2025 with an
automatic one-year term extension unless either party provides written termination notice to the other party. Either party has the right to terminate the supply agreement if the other party materially breaches its obligations thereunder.
SAFC
. In December 2010,
we entered into a commercial supply agreement with SAFC to manufacture commercial quantities of drug linker that is a component of ADCETRIS. The agreement generally provides for the supply by SAFC and the purchase by us of drug linker. Under terms
of the supply agreement, we may purchase a portion of our required drug linker from a second source third-party supplier. We are required to make a minimum annual purchase. The drug linker is purchased by us based upon a rolling forecast. The supply
agreement was made effective as of December 1, 2010 and will continue until the completion of the tenth contract year following the initial commercial order with automatic term extension unless either party provides written termination notice
to the other party. Either party has the right to terminate the supply agreement if the other party materially breaches its obligations thereunder.
Commercial Operations and Information About Geographic Areas
We have allocated commercial resources, including sales,
marketing, supply chain management and reimbursement capabilities, to commercialize ADCETRIS in the United States and Canada. We believe the U.S. and Canadian markets for ADCETRIS in the approved indications are addressable with a targeted sales and
marketing organization, and we intend to continue promoting ADCETRIS ourselves in the United States and Canada for these and any additional indications we may obtain in the future. Takeda has commercial rights in the rest of the world. ADCETRIS was
granted conditional marketing authorization in the European Union in October 2012 for patients with relapsed Hodgkin lymphoma or relapsed sALCL. As of January 31, 2017, we and Takeda had received marketing authorizations by regulatory
authorities in 66 countries, and Takeda continues to pursue marketing authorizations in multiple other countries.
We sell ADCETRIS through a limited number of pharmaceutical distributors. Health care providers order ADCETRIS through these distributors.
We receive orders from distributors and generally ship product directly to the health care provider. Three of our major distributors, together with entities under their common controlAmerisourceBergen Corporation, Cardinal Health, Inc., and
McKesson Corporationeach accounted for 10% or more of our total revenue in 2016 and 2015, respectively. Our net product sales of ADCETRIS for the years ended December 31, 2016, 2015, and 2014, were $265.8 million, $226.1 million, and
$178.2 million, respectively. Revenues generated outside the United States as determined by customer location were less than 10% of total revenues for the years ended December 31, 2016, 2015, and 2014. Substantially all of our long-lived assets
are located in the United States.
Employees
As of December 31, 2016, we had 890 employees. Of these
employees, 634 were engaged in or support research, development and clinical activities, 140 were in administrative and business related positions, and 116 were in sales and marketing. Each of our employees has signed confidentiality and inventions
assignment agreements and none are covered by a collective bargaining agreement. We have never experienced employment-related work stoppages and consider our employee relations to be good.
Corporate Information
We were incorporated in Delaware on July 15, 1997. Our principal executive offices are located at 21823
30
th
Drive SE, Bothell, Washington 98021. Our telephone
number is (425) 527-4000. Seattle Genetics
®
and
are our registered trademarks in the United States. All other trademarks, tradenames and service marks included in this Annual Report on Form 10-K are the property of their respective owners.
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We file electronically with the Securities and Exchange Commission our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make available on our website at
www.seattlegenetics.com, free of charge, through a hyperlink on our website, copies of these reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing them to, the Securities and Exchange Commission. The
information contained in, or that can be accessed through, our website is not part of, and is not incorporated into, this Annual Report on Form 10-K.
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Item 1A. Risk Factors
You should carefully consider the following risk factors, in
addition to the other information contained in this Annual Report on Form 10-K, including our condensed consolidated financial statements and related notes. If any of the events described in the following risk factors occurs, our business,
operating results and financial condition could be seriously harmed. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in
the forward-looking statements as a result of factors that are described below and elsewhere in this Annual Report on Form 10-K.
Risks Related to Our Business
Our near-term prospects are substantially dependent on ADCETRIS. If we and/or Takeda are unable to effectively commercialize ADCETRIS for the
treatment of patients in its approved indications and to continue to expand its labeled indications of use, our ability to generate significant revenue or potentially achieve profitability will be adversely affected.
ADCETRIS
®
, or brentuximab vedotin, is now approved by the United States Food and Drug Administration, or FDA, and the European
Commission for three indications, encompassing several settings for the treatment of relapsed Hodgkin lymphoma and relapsed systemic anaplastic large cell lymphoma, or sALCL. ADCETRIS is our only product approved for marketing and our ability to
generate revenue from product sales and potentially achieve profitability is substantially dependent on our continued ability to effectively commercialize ADCETRIS for the treatment of patients in its approved indications and our ability to continue
to expand its labeled indications of use. We may not be able to fully realize the commercial potential of ADCETRIS for a number of reasons, including:
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we may not be able to obtain and maintain regulatory approvals to market ADCETRIS for any additional indications, including for relapsed cutaneous
T-cell lymphoma, or CTCL, frontline Hodgkin lymphoma or frontline mature T-cell lymphoma, or MTCL, or to otherwise continue to expand its labeled indications of use;
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negative or inconclusive results in our ECHELON-1 and ECHELON-2 phase 3 trials would negatively impact, or preclude altogether, our ability to obtain
regulatory approval and commercialize ADCETRIS in the frontline Hodgkin lymphoma and frontline MTCL indications, respectively, either of which could limit our sales of, and the commercial potential of, ADCETRIS;
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we may fail to obtain regulatory approval and commercialize ADCETRIS in the ALCANZA treatment setting notwithstanding the positive data we reported
from our ALCANZA trial, which would also limit our sales of, and the commercial potential of, ADCETRIS;
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results from our required post-approval study, the ECHELON-2 trial, may fail to verify the clinical benefit of ADCETRIS in relapsed sALCL, which could
result in the withdrawal of approval of ADCETRIS in the relapsed sALCL indication and which could negatively impact our potential future product sales for the relapsed sALCL indication;
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new competitive therapies, including immuno-oncology agents such as PD-1 inhibitors (e.g., nivolumab and pembrolizumab), have been approved by
regulatory authorities (as in the case of nivolumab) or may be submitted in the near term to regulatory authorities for approval in ADCETRIS labeled indications in relapsed Hodgkin lymphoma, and these competitive products could negatively
impact our commercial sales of ADCETRIS;
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our commercial sales of ADCETRIS could be lower than our projections due to a lower market penetration rate, increased competition by alternative
products or biosimilars, or a shorter duration of therapy in patients in ADCETRIS approved indications;
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we may be unable to effectively commercialize ADCETRIS in any new indications for which we receive marketing approval;
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there may be additional changes to the label for ADCETRIS, including ADCETRIS boxed warning, that further restrict how we market and sell
ADCETRIS, including as a result of data collected from our required post-approval study, or as the result of adverse events observed in that study or in other studies, including in the post-approval confirmatory studies that Takeda is required to
conduct as a condition to the conditional marketing authorization of ADCETRIS by the European Commission or in investigator-sponsored studies;
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we may not be able to establish or demonstrate in the medical community the safety and efficacy of ADCETRIS and its potential advantages over and side
effects compared to existing and future therapeutics;
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physicians may be reluctant to prescribe ADCETRIS until results from our required post-approval study are available or other long term efficacy and
safety data exist;
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the estimated incidence rate of new patients in ADCETRIS approved indications may be lower than our projections;
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there may be adverse results or events reported in any of the clinical trials that we and/or Takeda are conducting or may in the future conduct for
ADCETRIS;
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we may be unable to continue to effectively market, sell and distribute ADCETRIS;
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ADCETRIS may be impacted by adverse reimbursement and coverage policies from government and private payers such as Medicare, Medicaid, insurance
companies, health maintenance organizations and other plan administrators, or may be subject to pricing pressures enacted by industry organizations or state and federal governments, including as a result of increased scrutiny over drug-pricing
strategies by pharmaceutical companies or otherwise;
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the relative price of ADCETRIS may be higher than alternative treatment options;
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there may be changed or increased regulatory restrictions;
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we may not have adequate financial or other resources to effectively commercialize ADCETRIS; and
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we may not be able to obtain adequate commercial supplies of ADCETRIS to meet demand or at an acceptable cost.
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In December 2009, we entered into an agreement with Takeda to
develop and commercialize ADCETRIS, under which we have commercial rights in the United States and its territories and Canada, and Takeda has commercial rights in the rest of the world. The success of this collaboration and the activities of Takeda
will significantly impact the commercialization of ADCETRIS in countries other than the United States and in Canada. In October 2012, Takeda announced that it had received conditional marketing authorization for ADCETRIS from the European Commission
for patients with relapsed Hodgkin lymphoma or relapsed sALCL, and has since obtained marketing approvals for ADCETRIS in many other countries. Conditional marketing authorization by the European Commission includes obligations to provide additional
clinical data at a later stage to confirm the positive benefit-risk balance. In July 2016, Takeda announced that it had received marketing authorization for ADCETRIS from the European Commission for the treatment of adult patients with CD30-positive
Hodgkin lymphoma at increased risk of relapse or progression following autologous stem cell transplant. We cannot control the amount and timing of resources that Takeda dedicates to the commercialization of ADCETRIS, or to its marketing and
distribution, and our ability to generate revenues from ADCETRIS product sales by Takeda depends on Takedas ability to achieve market acceptance of, and to otherwise effectively market, ADCETRIS for its approved indications in Takedas
territory.
We believe that the level of our
ongoing ADCETRIS sales in the United States is largely attributable to the incidence flow of patients eligible for treatment with ADCETRIS. We also believe that the incidence rate of new patients in ADCETRIS approved indications is relatively
low, particularly when compared to many other oncology indications. For these and other reasons, we expect that our ability to accelerate ADCETRIS sales
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growth, if at all, will depend primarily on our ability to continue to expand ADCETRIS labeled indications of use. Accordingly, we are exploring the use of ADCETRIS as a single agent and in
combination therapy regimens earlier in the treatment of Hodgkin lymphoma and MTCL, including sALCL, and in a range of CD30-expressing hematologic malignancies, including CD30-expressing relapsed CTCL. This will continue to require additional time
and investment in clinical trials and there can be no assurance that we and/or Takeda will obtain and maintain the necessary regulatory approvals to market ADCETRIS for any additional indications. In particular, negative or inconclusive results in
our ECHELON-1 and ECHELON-2 trials would negatively impact, or preclude altogether, our ability to obtain regulatory approval in the frontline Hodgkin lymphoma and frontline MTCL, indications, respectively, either of which could limit our sales of,
and the commercial potential of, ADCETRIS. For example, in accordance with the terms of their respective SPA, the ECHELON-1 and ECHELON-2 trials are designed to continue until a specified number of events designated for each trial have occurred
(i.e. progressions or deaths). If events do not occur at the rate which was anticipated in one or both of these trials, the final data analysis for the applicable trial could be delayed beyond the predicted ranges. In addition, we may choose for a
variety of reasons to complete the applicable trial with fewer events than planned. If we choose to complete a trial with fewer events than planned, the FDA may treat the applicable SPA as rescinded and the statistical power of that trial based on
the original statistical analysis plan could be negatively impacted, making it more difficult for us to demonstrate that ADCETRIS is safe and effective and to successfully obtain regulatory approval for the specific indication studied in that trial.
We may also undertake additional discussions with regulatory authorities or amend the protocol for one or both of these trials, and we cannot predict the outcome of those discussions or whether we would be able to reach agreement with the regulatory
authorities. Should this situation occur, there could be a delay in our ability to obtain data from the applicable trial or impact the ability of the applicable trial to support approval of ADCETRIS for the specific indication studied in that trial.
In addition, although we reported in August 2016
that the ALCANZA trial evaluating ADCETRIS in patients with relapsed CTCL met its primary endpoint demonstrating a statistically significant improvement in the rate of objective response lasting at least four months and we plan to submit a
supplemental Biologics License Application, or sBLA, to the FDA to seek approval for a new indication in CD30-expressing relapsed CTCL, there can be no assurance that the FDA will accept our planned sBLA for filing or that we will ultimately obtain
approval of our planned sBLA in a timely manner or at all. Our failure to obtain regulatory approval and commercialize ADCETRIS in the ALCANZA treatment setting would also limit our sales of, and the commercial potential of, ADCETRIS. In addition,
while ADCETRIS product sales grew from 2014 to 2015 and from 2015 to 2016, and our future plans assume that sales of ADCETRIS will increase, we cannot assure you that ADCETRIS sales will continue to grow or that we can maintain sales of ADCETRIS at
or near current levels.
We and Takeda have formed
a collaboration with Ventana Medical Systems, Inc., or Ventana, under which Ventana is working to develop, manufacture and commercialize a molecular companion diagnostic test with the goal of identifying patients who might respond to treatment with
ADCETRIS based on CD30 expression levels in their tissue specimens. However, Ventana may not be able to successfully develop and obtain regulatory approval for a molecular companion diagnostic that may be required by regulatory authorities to
support regulatory approval of ADCETRIS in other CD30-expressing malignancies in a timely manner or at all.
Even if we and Takeda receive the required regulatory approvals to market ADCETRIS for any additional indications or in additional
jurisdictions, we and Takeda may not be able to effectively commercialize ADCETRIS, including for the reasons set forth above. Our ability to grow ADCETRIS product sales in future periods is also dependent on price increases and we periodically
increase the price of ADCETRIS. Price increases on ADCETRIS and negative publicity regarding drug pricing and price increases generally, whether on ADCETRIS or products distributed by other pharmaceutical companies, could negatively affect market
acceptance of, and sales of, ADCETRIS. In any event, we cannot assure you that price increases we have taken or may take in the future will not in the future negatively affect ADCETRIS sales.
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Reports of adverse events or safety concerns involving ADCETRIS or our product candidates could delay
or prevent us from obtaining or maintaining regulatory approvals, or could negatively impact sales of ADCETRIS or the prospects for our product candidates.
Reports of adverse events or safety concerns involving
ADCETRIS could interrupt, delay or halt clinical trials of ADCETRIS, including the ongoing FDA-required ADCETRIS post-approval confirmatory study as well as the post-approval confirmatory studies that Takeda is required to conduct as a condition to
the conditional marketing authorization of ADCETRIS by the European Commission. For example, during 2013 concerns regarding pancreatitis caused an investigator conducting an independent study involving ADCETRIS to temporarily halt enrollment in the
trial and to amend the eligibility criteria and monitoring for the trial. Subsequently, we have revised our prescribing information to add pancreatitis as a known adverse event. In addition, reports of adverse events or safety concerns involving
ADCETRIS could result in regulatory authorities denying or withdrawing approval of ADCETRIS for any or all indications, including the use of ADCETRIS for the treatment of patients in its approved indications. There are no assurances that patients
receiving ADCETRIS will not experience serious adverse events in the future. Further, there are no assurances that patients receiving ADCETRIS with co-morbid diseases not previously studied, such as autoimmune diseases, will not experience new or
different serious adverse events in the future.
Adverse events may negatively impact the sales of ADCETRIS. We may be required to further update the ADCETRIS prescribing information,
including boxed warnings, based on reports of adverse events or safety concerns or implement a Risk Evaluation and Mitigation Strategy, or REMS, which could adversely affect ADCETRIS acceptance in the market, make competition easier or make it
more difficult or expensive for us to distribute ADCETRIS. For example, the prescribing information for ADCETRIS includes pancreatitis, impaired hepatic function, impaired renal function, pulmonary toxicity, and gastrointestinal complications as
known adverse events as well as a boxed warning related to the risk that JC virus infection resulting in progressive multifocal leukoencephalopathy, or PML, and death can occur in patients receiving ADCETRIS. Further, based on the identification of
future adverse events, we may be required to further revise the prescribing information, including ADCETRIS boxed warning, which could negatively impact sales of ADCETRIS or adversely affect ADCETRIS acceptance in the market.
Likewise, reports of adverse events or safety concerns
involving ADCETRIS or our product candidates could interrupt, delay or halt clinical trials of such product candidates, or could result in our inability to obtain regulatory approvals for any of our product candidates. For example, on December 27,
2016, we announced that we had received notice from the FDA that a full clinical hold or partial clinical hold had been placed on several early stage trials of SGN-CD33A in AML to evaluate the potential risk of hepatotoxicity following adverse
medical events, including fatal events. We may be unable to submit to the FDA all required clinical follow-up information to respond to the clinical holds. Even if we are able to provide such information, the FDA may not deem the information to be
sufficient to lift any or all of the clinical holds. In addition, we may encounter delays in reaching an agreement with the FDA regarding the terms under which these trials may be resumed, or we may elect to discontinue one or more of these trials
for safety or any other reasons. Furthermore, the FDA may require us to implement additional, potentially burdensome pharmacovigilance procedures or conduct additional pre-clinical studies before it will consider lifting the clinical holds, if at
all. In addition, although the FDA has not placed a clinical hold on the CASCADE trial or our phase 1/2 trial in MDS and we continue to enroll patients in these trials, we cannot assure you that the FDA or another regulatory authority will not place
a clinical hold on one or both of these trials. If we are unable to submit required information to the FDA in a timely manner, or at all; if the FDA does not lift the clinical holds in a timely manner, or at all; if the FDA does not permit us to
initiate additional trials of SGN-CD33A and/or the FDA imposes clinical holds on the CASCADE trial or our phase 1/2 trial in MDS; or if there are additional safety results, including from our ongoing trials of SGN-CD33A, that alter the benefit-risk
profile of SGN-CD33A or cause it to become unacceptable, we would be further delayed or prevented from advancing the clinical development of SGN-CD33A, which would adversely affect our business, results of operations and prospects.
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Concerns regarding the safety of ADCETRIS or our product candidates as a result of
undesirable side effects identified during clinical testing or otherwise could cause the FDA to order us to cease further development or commercialization of ADCETRIS or the applicable product candidate. Undesirable side effects caused by ADCETRIS
or our product candidates could also result in denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications, the requirement of additional trials or the inclusion of unfavorable information in our
product labeling, and in turn delay or prevent us from commercializing ADCETRIS or the applicable product candidate. In addition, actual or potential drug-related side effects could affect patient recruitment or the ability of enrolled patients to
complete a trial for ADCETRIS or our product candidates or result in potential product liability claims. Any of these events could prevent us from developing or commercializing ADCETRIS or the particular product candidate, and could significantly
harm our business, results of operations and prospects.
Even though we have obtained approval to market ADCETRIS in three indications, we are subject to extensive ongoing regulatory obligations and
review, including post-approval requirements that could result in the withdrawal of ADCETRIS from the market for certain indications if such requirements are not met.
ADCETRIS is approved for treating patients in one
indication, the relapsed sALCL indication, under accelerated approval regulations in the U.S. and approval with conditions in two indications in Canada, which allow for approval of products for cancer or other serious or life threatening illnesses
based on a surrogate endpoint or on a clinical endpoint other than survival or irreversible morbidity. Under these types of approvals, we are subject to certain post-approval requirements pursuant to which we are conducting an additional
confirmatory phase 3 trial to verify and describe the clinical benefit of ADCETRIS. Our failure to complete this required post-approval study, or to confirm a clinical benefit during this post-approval study, could result in the withdrawal of
approval of ADCETRIS in the relapsed sALCL indication in the U.S. and both indications in Canada, which would seriously harm our business. In addition, under the FDAs accelerated approval regulations, the labeling, packaging, adverse event
reporting, storage, advertising and promotion of ADCETRIS for the treatment of patients with relapsed sALCL is subject to extensive regulatory requirements all of which entails significant expense and may limit our ability to commercialize ADCETRIS
for the relapsed sALCL indication. Similarly, the conditional marketing authorization of ADCETRIS for two indications by the European Commission includes obligations to provide additional clinical data at a later time to confirm the results of the
two pivotal studies. Takedas failure to provide these additional clinical data or to confirm the results of the pivotal studies, could result in the European Commission withdrawing approval of ADCETRIS in the European Union, which would
negatively impact anticipated royalty revenue from ADCETRIS sales by Takeda in the European Union and could adversely affect our results of operations. In addition, we are subject to extensive ongoing obligations and continued regulatory review from
applicable regulatory agencies with respect to any product for which we have obtained regulatory approval, including ADCETRIS in each of its approved indications, such as continued adverse event reporting requirements and the requirement to have
some of our promotional materials pre-cleared by the FDA. There may also be additional post-marketing obligations, all of which may result in significant expense and limit our ability to commercialize ADCETRIS in the United States, Canada or
potentially other jurisdictions.
We and the
manufacturers of ADCETRIS are also required to comply with current Good Manufacturing Practices, or cGMP, regulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records
and documentation. Further, regulatory agencies must approve these manufacturing facilities before they can be used to manufacture ADCETRIS, and these facilities are subject to ongoing regulatory inspections. In addition, regulatory agencies subject
an approved product, its manufacturer and the manufacturers facilities to continual review and inspections, including periodic unannounced inspections. The subsequent discovery of previously unknown problems with ADCETRIS, including adverse
events of unanticipated severity or frequency, or problems with the facilities where ADCETRIS is manufactured, may result in restrictions on the marketing of ADCETRIS, up to and including withdrawal of ADCETRIS from the market. If our manufacturing
facilities or those of our suppliers fail to comply with applicable regulatory requirements, such noncompliance could result in regulatory action and additional costs to us.
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Failure to comply with applicable FDA and other regulatory requirements may subject us to
administrative or judicially imposed sanctions, including:
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issuance of Form FDA 483 notices or Warning Letters by the FDA or other regulatory agencies;
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imposition of fines and other civil penalties;
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injunctions, suspensions or revocations of regulatory approvals;
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suspension of any ongoing clinical trials;
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total or partial suspension of manufacturing;
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delays in commercialization;
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refusal by the FDA to approve pending applications or supplements to approved applications submitted by us;
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refusals to permit drugs to be imported into or exported from the United States;
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restrictions on operations, including costly new manufacturing requirements; and
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product recalls or seizures.
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The policies of the FDA and other regulatory agencies may change and additional government regulations may be enacted that could prevent
or delay regulatory approval of ADCETRIS in any additional indications or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future
legislation or administrative action, either in the United States or abroad. If we are not able to maintain regulatory compliance, we or Takeda might not be permitted to market ADCETRIS and our business would suffer.
If we or our collaborators are not able to obtain or maintain required
regulatory approvals, we or our collaborators will not be able to successfully commercialize ADCETRIS or our product candidates.
The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive
regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. Neither we nor our collaborators are permitted to market our product candidates in the United States
or foreign countries until we obtain marketing approval from the FDA or other foreign regulatory authorities, and we or our collaborators may never receive regulatory approval for the commercial sale of any of our product candidates. In addition,
part of our strategy is to continue to explore the use of ADCETRIS earlier in the treatment of Hodgkin lymphoma and MTCL and in other CD30-expressing malignancies, including CTCL, and we are currently conducting multiple clinical trials for
ADCETRIS. However, we and/or Takeda may be unable to obtain or maintain any regulatory approvals for the commercial sale of ADCETRIS for any additional indications. Obtaining marketing approval is a lengthy, expensive and uncertain process and
approval is never assured, and we have only limited experience in preparing and submitting the applications necessary to gain regulatory approvals. Further, the FDA and other foreign regulatory agencies have substantial discretion in the approval
process, and determining when or whether regulatory approval will be obtained for any product candidate we develop, including any regulatory approvals for the potential commercial sale of ADCETRIS in additional indications or in any additional
territories. In this regard, even if we believe the data collected from clinical trials of ADCETRIS and our product candidates are promising, such data may not be sufficient to support approval by the FDA or any other foreign regulatory authority.
In addition, the FDA or their advisors may disagree with our interpretations of data from preclinical studies and clinical trials. In this regard, based on the positive data we reported from the ALCANZA trial, we plan to submit an sBLA to the FDA to
seek approval for a new indication in CD30-expressing relapsed CTCL. Even if the FDA accepts our planned sBLA for filing, the FDA may disagree with our interpretations of the data from the ALCANZA trial and/or may otherwise determine not to approve
our planned sBLA in a timely manner
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or at all. Moreover, even though our ALCANZA, ECHELON-1 and ECHELON-2 trials are being conducted under SPA agreements with the FDA, this is not a guarantee or indication of approval, and we
cannot be certain that the design of, or data collected from, any of our current or potential future clinical trials that were or are being conducted under SPAs with the FDA will be sufficient to support FDA approval. Further, an SPA agreement is
not binding on the FDA if public health concerns unrecognized at the time the SPA agreement is entered into become evident, other new scientific concerns regarding product safety or efficacy arise, new drugs are approved in the same indication, or
if we have failed to comply with the agreed upon trial protocols. In addition, an SPA agreement may be changed by us or the FDA on written agreement of both parties, and the FDA retains significant latitude and discretion in interpreting the terms
of an SPA agreement and the data and results from the applicable clinical trial. For example, even though we believe that the data from the ALCANZA trial are supportive of approval of ADCETRIS in the ALCANZA treatment setting, our SPA with the FDA
covering the ALCANZA trial is not a guarantee or indication of approval of ADCETRIS in the ALCANZA treatment setting (or in any other indication). Regulatory agencies also may approve a product candidate for fewer indications than requested or may
grant approval subject to the performance of post-approval studies or REMS for a product candidate. Similarly, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of ADCETRIS
in additional indications, including any indications in the ALCANZA treatment setting.
In addition, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols and/or related SPA agreements to reflect these changes. Amendments may require us
to resubmit our clinical trial protocols to institutional review boards, or IRBs, for reexamination, which may impact the costs, timing or successful completion of a clinical trial. In addition, as part of the U.S. Prescription Drug User Fee Act, or
PDUFA, the FDA has a goal to review and act on a percentage of all regulatory submissions in a given time frame. However, the FDA does not always meet its PDUFA targeted action dates and if the FDA were to fail to meet a PDUFA targeted action date
in the future for ADCETRIS or any of our product candidates, including in connection with our planned sBLA submission to seek approval to market ADCETRIS in the ALCANZA treatment setting, the commercialization of the affected product candidate or of
ADCETRIS in any additional indications could be delayed or impaired. Due to these and other factors, ADCETRIS and our product candidates could take a significantly longer time to gain regulatory approvals than we expect or may never gain new
regulatory approvals, which could delay or eliminate any potential product revenue from sales of our product candidates or of ADCETRIS in any additional indications, which could significantly delay or prevent us from achieving profitability.
The successful commercialization of ADCETRIS and product
candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement levels and pricing policies.
Successful sales of ADCETRIS and any future products will depend, in part, on the extent to which coverage and
reimbursement for our products will be available from government and health administration authorities, private health insurers and other third-party payors. To manage healthcare costs, many governments and third-party payors increasingly scrutinize
the pricing of new products and require greater levels of evidence of favorable clinical outcomes and cost-effectiveness before extending coverage. In light of such challenges to prices, we cannot be sure that we will achieve and continue to have
coverage available for ADCETRIS and any other product candidate that we commercialize and, if available, that the reimbursement rates will be adequate. If we are unable to obtain adequate levels of coverage and reimbursement for our product
candidates, their marketability will be negatively and materially impacted.
Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and
distribution. In addition, obtaining and maintaining adequate coverage and reimbursement status is time-consuming and costly. Third-party payors may deny coverage and reimbursement status altogether of a given drug product, or cover the product but
may also establish prices at levels that are too low to enable us to realize an appropriate return on our investment in product development. Further, one payors determination to provide coverage for a product does
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not assure that other payors will also provide coverage for the product. Because the rules and regulations regarding coverage and reimbursement change frequently, in some cases at short notice,
even when there is favorable coverage and reimbursement, future changes may occur that adversely impact the favorable status.
The unavailability or inadequacy of third-party coverage and reimbursement could have a material adverse effect on the market acceptance
of ADCETRIS and any of our future products and the future revenues we may expect to receive from those products. In addition, we are unable to predict what additional legislation or regulation relating to the healthcare industry or third-party
coverage and reimbursement may be enacted in the future, or what effect such legislation or regulation would have on our business. Recent negative publicity regarding pharmaceutical prices and the results of the 2016 United States presidential and
congressional elections create significant uncertainty regarding regulation of the healthcare industry and third party coverage and reimbursement.
Healthcare law and policy changes may have a material adverse effect on us.
In March 2010, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and
Education Reconciliation Act of 2010, or collectively PPACA, became law in the United States. PPACA substantially changed the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry.
The provisions of PPACA of greatest importance to the pharmaceutical industry include increased Medicaid rebates, expanded Medicaid eligibility, extension of Public Health Service eligibility, annual fees payable by manufacturers and importers of
branded prescription drugs, annual reporting of financial relationships with physicians and teaching hospitals, and a new Patient-Centered Outcomes Research Institute. Many of these provisions have had the effect of reducing the revenue generated by
our sales of ADCETRIS and will have the effect of reducing any revenue generated by sales of any future commercial products we may have. Further, there have been judicial and Congressional challenges to certain aspects of PPACA In January 2017,
Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of PPACA. The Budget Resolution is not a law; however, it is widely viewed as
the first step toward the passage of legislation that would repeal certain aspects of PPACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under PPACA to
waive, defer, grant exemptions from, or delay the implementation of any provision of PPACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical
devices. Congress also could consider subsequent legislation to replace elements of PPACA that are repealed. Because of the continued uncertainty about the implementation of PPACA, including the potential for further legal challenges or repeal of
PPACA, we cannot quantify or predict with any certainty the likely impact of the PPACA or its repeal on our business, prospects, financial condition or results of operations.
In addition, we anticipate that PPACA, as well as other
healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and an additional downward pressure on the price that we receive for ADCETRIS or any future approved product, which may harm our business.
For example, increased discounts, rebates or chargebacks may be mandated by governmental or private insurers or fee caps and pricing pressures could be enacted by industry organizations or state and federal governments, any of which could
significantly affect the revenue generated by sales of our products, including ADCETRIS. In addition, drug- pricing strategies by pharmaceutical companies have recently come under increased scrutiny. Specifically, there have been several recent U.S.
Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs and
reform government program reimbursement methodologies for drugs. We expect further federal and state proposals and healthcare reforms to continue to be proposed to control increasing healthcare costs and to control the rising cost of prescription
drugs. These proposals, if implemented, could limit the price for ADCETRIS or any future approved products. Commercial opportunity could be negatively impacted by legislative action that controls pricing, mandates price negotiations, or increases
government discounts and rebates. For example, in March 2016, the Centers for Medicare and Medicaid Services, or CMS, proposed to conduct a demonstration project that would reduce the Medicare
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payment rates for most Part B drugs for approximately half of all providers. If implemented, this project could potentially limit our ability to change pricing for ADCETRIS and all drugs
reimbursed under Medicare Part B. Implementation could negatively impact future revenue from sales of ADCETRIS. We cannot predict how this initiative will be affected by the change in U.S. presidential administrations.
Also, price increases on ADCETRIS and negative publicity
regarding drug pricing and price increases generally, whether on ADCETRIS or products distributed by other pharmaceutical companies, could negatively affect market acceptance of, and sales of, ADCETRIS. In addition, although ADCETRIS is approved in
the European Union, Japan and other countries outside of the United States, government austerity measures or further healthcare reform measures and pricing pressures in other countries could adversely affect demand and pricing for ADCETRIS, which
would negatively impact anticipated royalty revenue from ADCETRIS sales by Takeda.
Other legislative changes have also been proposed and adopted since PPACA was enacted. The Budget Control Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to
recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislations automatic reduction to
several government programs. This includes a 2% reduction in Medicare provider payments paid under Medicare Part B to physicians for physician-administered drugs, such as certain oral oncology drugs, which went into effect in April 2013 and,
following passage of the Bipartisan Budget Act of 2015, will remain in effect through 2025 unless additional congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers
and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. In addition, legislation has been proposed to shorten the period of biologic data and market exclusivity granted by the
FDA. If such legislation is enacted, we may face competition from biosimilars of ADCETRIS or any future approved products earlier than otherwise would have occurred.
We cannot predict what healthcare reform initiatives may be
adopted in the future. However, we anticipate that Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation or
policy changes or implementations effecting additional fundamental changes in the healthcare delivery system. We also expect ongoing initiatives to increase pressure on drug pricing. We cannot assure you as to the ultimate content, timing, or effect
of changes, nor is it possible at this time to estimate the impact of any such potential legislation; however, such changes or the ultimate impact of changes could negatively affect our revenue or sales of ADCETRIS or any future approved products.
Clinical trials are expensive and time consuming, may take
longer than we expect or may not be completed at all, and their outcome is uncertain.
We are currently conducting multiple clinical trials for ADCETRIS and our product candidates and we plan to commence additional trials of ADCETRIS and our product candidates in the future. We are also
conducting a phase 3 clinical trial for our product candidate SGN-CD33A, or the CASCADE trial, designed to evaluate SGN-CD33A in combination with hypomethylating agents, or HMAs, in previously untreated older AML patients. We initiated the CASCADE
trial based on interim data presented at the December 2015 American Society of Hematology annual meeting from a cohort of a phase 1 trial that evaluated SGN-CD33A in combination with HMAs. While the interim phase 1 data may be promising, SGN-CD33A
has not previously been evaluated in a randomized trial with other active agents and we cannot be certain that the design of, or data collected from, the CASCADE trial will be adequate to demonstrate the safety and efficacy of SGN-CD33A for the
treatment of patients with AML, or will otherwise be sufficient to support FDA or any foreign regulatory approvals. In this regard, on December 27, 2016, we announced that we had received notice from the FDA that a full clinical hold or partial
clinical hold had been placed on several early stage trials of SGN-CD33A in AML to evaluate the potential risk of hepatotoxicity following adverse medical events, including fatal events. We may be unable to submit to the FDA all required clinical
follow-up information to respond to the clinical holds. Even if we are able
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to provide such information, the FDA may not deem the information to be sufficient to lift any or all of the clinical holds. In addition, we may encounter delays in reaching an agreement with the
FDA regarding the terms under which these trials may be resumed, or we may elect to discontinue one or more of these trials for safety or any other reasons. Furthermore, the FDA may require us to implement additional, potentially burdensome
pharmacovigilance procedures or conduct additional pre-clinical studies before it will consider lifting the clinical holds, if at all. In addition, although the FDA has not placed a clinical hold on the CASCADE trial or our phase 1/2 trial in MDS
and we continue to enroll patients in these trials, we cannot assure you that the FDA or another regulatory authority will not place a clinical hold on one or both of these trials. If we are unable to submit required information to the FDA in a
timely manner, or at all; if the FDA does not lift the clinical holds in a timely manner, or at all; if the FDA does not permit us to initiate additional trials of SGN-CD33A and/or the FDA imposes clinical holds on the CASCADE trial or our phase 1/2
trial in MDS; or if there are additional safety results, including from our ongoing trials of SGN-CD33A, that alter the benefit-risk profile of SGN-CD33A or cause it to become unacceptable, we would be further delayed or prevented from advancing the
clinical development of SGN-CD33A, which would adversely affect our business, results of operations and prospects.
Each of our clinical trials requires the investment of substantial expense and time and the timing of the commencement, continuation and
completion of these clinical trials may be subject to significant delays relating to various causes, including scheduling conflicts with participating clinicians and clinical institutions, difficulties in identifying and enrolling patients who meet
trial eligibility criteria, failure of patients to complete the clinical trial, delays in accumulating the required number of clinical events for data analyses, delay or failure to obtain IRB approval to conduct a clinical trial at a prospective
site, and shortages of available drug supply. For example, in accordance with the terms of their respective SPA, the ECHELON-1 and ECHELON-2 trials are designed to continue until a specified number of events designated for each trial have occurred
(i.e. progressions or deaths). If events do not occur at the rate which was anticipated in one or both of these trials, the final data analysis for the applicable trial could be delayed beyond the predicted ranges. In addition, we may choose for a
variety of reasons to complete the applicable trial with fewer events than planned. If we choose to complete a trial with fewer events than planned, the FDA may treat the applicable SPA as rescinded and/or the statistical power of that trial based
on the original statistical analysis plan could be negatively impacted, making it more difficult for us to demonstrate that ADCETRIS is safe and effective and to successfully obtain regulatory approval for the specific indication studied in that
trial. We may also undertake additional discussions with regulatory authorities or amend the protocol for one or both of these trials, and we cannot predict the outcome of those discussions or whether we would be able to reach agreement with the
regulatory authorities. Should this situation occur, there could be a delay in our ability to obtain data from the applicable trial or impact the ability of the applicable trial to support approval of ADCETRIS for the specific indication studied in
that trial.
Additionally, patient enrollment is a
function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials, perceived side effects and the availability of
alternative or new treatments. Many of our future and ongoing ADCETRIS clinical trials are being or will be coordinated with Takeda, which may delay the commencement or affect the continuation or completion of these trials. From time to time, we
have experienced enrollment-related delays in clinical trials and we will likely continue to experience similar delays in our current and future trials. We depend on medical institutions and clinical research organizations, or CROs, to conduct some
of our clinical trials in compliance with Good Clinical Practice, or GCP, and to the extent they fail to enroll patients for our clinical trials, fail to conduct our trials in accordance with GCP, or are delayed for a significant time in achieving
full enrollment, we may be affected by increased costs, program delays or both, which may harm our business. In addition, we conduct clinical trials in foreign countries which may subject us to further delays and expenses as a result of increased
drug shipment costs, additional regulatory requirements and the engagement of foreign CROs, as well as expose us to risks associated with less experienced clinical investigators who are unknown to the FDA, different standards of medical care, and
foreign currency transactions insofar as changes in the relative value of the U.S. dollar to the foreign currency where the trial is being conducted may impact our actual costs.
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Clinical trials must be conducted in accordance with FDA or other applicable foreign
government guidelines and are subject to oversight by the FDA, other foreign governmental agencies, the data safety monitoring boards for such trials and the IRBs for the institutions in which such trials are being conducted. In addition, clinical
trials must be conducted with supplies of ADCETRIS or our product candidates produced under cGMP and other requirements in foreign countries, and may require large numbers of test patients. We, the FDA, other foreign governmental agencies or the
applicable data safety monitoring boards and IRBs could delay, suspend, halt or modify our clinical trials of ADCETRIS or any of our product candidates, and we and/or the FDA could terminate or modify any related special protocol assessment, or SPA,
agreements, for numerous reasons, including:
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ADCETRIS or the applicable product candidate may have unforeseen safety issues or adverse side effects, including fatalities, or a determination may be
made that a clinical trial presents unacceptable health risks;
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deficiencies in the conduct of the clinical trial, including failure to conduct the clinical trial in accordance with regulatory requirements, GCP or
clinical protocols;
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deficiencies in the clinical trial operations or trial sites resulting in the imposition of a clinical hold;
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the time required to determine whether ADCETRIS or the applicable product candidate is effective may be longer than expected;
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fatalities or other adverse events arising during a clinical trial due to medical problems that may not be related to clinical trial treatments;
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ADCETRIS or the applicable product candidate may not appear to be more effective than current therapies;
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the quality or stability of ADCETRIS or the applicable product candidate may fall below acceptable standards;
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our inability to produce or obtain sufficient quantities of ADCETRIS or the applicable product candidate to complete the trials;
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our inability to reach agreement on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different CROs and trial sites;
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our inability to obtain IRB approval to conduct a clinical trial at a prospective site;
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changes in governmental regulations or administrative actions that adversely affect our ability to continue to conduct or to complete clinical trials;
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lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct
additional trials and studies and increased expenses associated with the services of our CROs and other third parties;
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our inability to recruit and enroll patients to participate in clinical trials for reasons including competition from other clinical trial programs for
the same or similar indications;
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our inability to retain patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of
efficacy or personal issues, or who are lost to further follow-up; or
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our inability to ensure adequate statistical power to detect statistically significant treatment effects, whether through our inability to enroll or
retain patients in trials or as a result of our determination to choose to complete trials with fewer events than planned.
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In addition, we may experience significant setbacks in advanced clinical trials, even after promising results in earlier trials, including
unexpected adverse events that may occur when our product candidates are combined with other therapies. For example, on December 27, 2016, we announced that we had received notice from the
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FDA that a full clinical hold or partial clinical hold had been placed on several early stage trials of SGN-CD33A in AML to evaluate the potential risk of hepatotoxicity following adverse medical
events, including fatal events. We may be unable to submit to the FDA all required clinical follow-up information to respond to the clinical holds, or even if we are able to provide such information, the FDA may not deem the information to be
sufficient to lift any or all of the clinical holds. In addition, we may encounter delays in reaching an agreement with the FDA regarding the terms under which these trials may be resumed, or we may elect to discontinue one or more of these trials
for safety or any other reasons. Furthermore, the FDA may require us to implement additional, potentially burdensome pharmacovigilance procedures or conduct additional pre-clinical studies before it will consider lifting the clinical holds, if at
all. In addition, although the FDA has not placed a clinical hold on the CASCADE trial or our phase 1/2 trial in MDS and we continue to enroll patients in these trials, we cannot assure you that the FDA or another regulatory authority will not place
a clinical hold on one or both of these trials. If we are unable to submit required information to the FDA in a timely manner, or at all; if the FDA does not lift the clinical holds in a timely manner, or at all; if the FDA does not permit us to
initiate additional trials of
SGN-CD33A
and/or the FDA imposes clinical holds on the CASCADE trial or our phase 1/2 trial in MDS; or if there are additional safety results, including from our ongoing trials of
SGN-CD33A, that alter the benefit-risk profile of SGN-CD33A or cause it to become unacceptable, we would be further delayed or prevented from advancing the clinical development of SGN-CD33A, which would adversely affect our business, results of
operations and prospects.
Negative or
inconclusive clinical trial results could adversely affect our ability to obtain regulatory approvals of our product candidates or to market ADCETRIS and/or expand ADCETRIS into other indications. In particular, negative or inconclusive results in
our ECHELON-1 and ECHELON-2 trials would negatively impact or preclude altogether, our ability to obtain regulatory approval in the frontline Hodgkin lymphoma and frontline MTCL indications, respectively, either of which could limit our sales of,
and the commercial potential of, ADCETRIS. Likewise, the imposition of a clinical hold on, or the termination of, or otherwise negative or inconclusive results in our CASCADE trial, would negatively impact or preclude altogether, our ability to
obtain regulatory approval of SGN-CD33A. In addition, clinical trial results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. For example, although we reported that our ALCANZA trial met
its primary endpoint and we plan to submit an sBLA to the FDA to seek approval for a new indication in CD30-expressing relapsed CTCL, regulatory agencies, including the FDA, or their advisors, may disagree with our interpretations of data from the
ALCANZA trial and may not approve the expansion of ADCETRIS labeled indications of use based on the results of the ALCANZA trial or any other of our clinical trials. Adverse medical events during a clinical trial, including patient
fatalities, such as those hepatotoxicity events and patient fatalities observed in certain of our early stage trials of SGN-CD33A resulting in the imposition by the FDA of clinical holds on those trials, could cause a trial to be redone or
terminated, curtail or end the development of a product candidate, and may result in other negative consequences to us. Further, some of our clinical trials, including the CASCADE trial, are overseen by an independent data monitoring committee, or
IDMC, and an IDMC may determine to delay or suspend one or more of these trials due to safety or futility findings based on events occurring during a clinical trial.
We face intense competition and rapid technological change, which may
result in others discovering, developing or commercializing competing products before or more successfully than we do.
The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong
emphasis on proprietary products. Many third parties compete with us in developing various approaches to treating cancer. They include pharmaceutical companies, biotechnology companies, academic institutions and other research organizations.
Many of our competitors have significantly
greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approval and marketing than we do. In addition, many of these competitors are active in
seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology that they have developed. Smaller or early-stage companies may also prove to be significant competitors, particularly through
collaborative
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arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring
technologies complementary to our programs.
With
respect to ADCETRIS, there are several other FDA-approved drugs for the treatment of relapsed or refractory Hodgkin lymphoma or sALCL, including Bristol-Myers Squibbs Opdivo for Hodgkin lymphoma after failure of auto-HSCT and ADCETRIS and
Celgenes Istodax and Spectrum Pharmaceuticals Folotyn for relapsed or refractory peripheral T-cell lymphoma. Merck is also developing a PD-1 inhibitor, pembrolizumab, and is conducting a clinical trial in relapsed or refractory classical
Hodgkin lymphoma comparing pembrolizumab with ADCETRIS. In addition, we are aware of multiple investigational agents that are currently being studied, including Pfizers crizotinib, AbbVies ibrutinib, Kyowas mogamulizumab, and
Gileads idelalisib, which, if successful, may compete with ADCETRIS in the future. Data have also been presented on several developing technologies, including bispecific antibodies and CAR modified T-cell therapies that may compete with
ADCETRIS in the future. Further, there are many competing approaches used in the treatment of patients in ADCETRIS three approved indications, including auto-HSCT, conventional therapies, combination chemotherapy, clinical trials with
experimental agents and single-agent regimens.
With respect to SGN-CD33A, there are several investigational agents that, if approved, could be competitive with our product candidate,
including AbbVies venetoclax, which received breakthrough therapy designation from the FDA in January 2016 for use in combination with HMAs in treatment-naïve patients with AML who are not eligible for standard high-dose induction
treatment, Jazzs Vyxeos, Pfizers Mylotarg, Astexs guadecitabine (SGI-110), and agents targeting biomarkers such as FLT3 and IDH1/2.
Many other pharmaceutical and biotechnology companies are developing and/or marketing therapies for the same types of cancer that our
product candidates are designed and being developed to treat. For example, we believe that companies including AbbVie, ADC Therapeutics, Affimed, Agios, Amgen, Astellas, Bayer, Biogen, Bristol-Myers Squibb, Celgene, Eisai, Genentech, GSK, Gilead,
ImmunoGen, Immunomedics, Infinity, Karyopharm, MedImmune, MEI Pharma, Merck, Novartis, Pfizer, Sanofi-Aventis, Spectrum Pharmaceuticals, Takeda, Teva, and Xencor are developing and/or marketing products or technologies that may compete with ours. In
addition, our ADC collaborators may develop compounds utilizing our technology that may compete with product candidates that we are developing.
We are aware of other companies that have technologies that may be competitive with ours, including Astellas, AstraZeneca, Bristol-Myers
Squibb, ImmunoGen, Immunomedics, MedImmune, Mersana and Pfizer, all of which have ADC technology. ImmunoGen has several ADCs in development that may compete with our product candidates. ImmunoGen has also established partnerships with other
pharmaceutical and biotechnology companies to allow those other companies to utilize ImmunoGens technology, including Sanofi-Aventis, Genentech, Novartis, Takeda and Lilly. We are also aware of a number of companies developing monoclonal
antibodies directed at the same antigen targets or for the treatment of the same diseases as our product candidates. For example, we believe Bristol-Myers Squibb has an anti-CD30 antibody program that may be competitive with ADCETRIS, and Amgen and
Xencor have anti-CD19 programs that may be competitive with our product candidates.
In addition, in the United States, the Biologics Price Competition and Innovation Act of 2009 created an abbreviated approval pathway for biological products that are demonstrated to be highly
similar or biosimilar to or interchangeable with an FDA-approved biological product. This pathway allows competitors to reference the FDAs prior approvals regarding innovative biological products and data
submitted with a BLA to obtain approval of a biosimilar application 12 years after the time of approval of the innovative biological product. The 12-year exclusivity period runs from the initial approval of the innovator product and not from
approval of a new indication. In addition, the 12-year exclusivity period does not prevent another company from independently developing a product that is highly similar to the innovative product, generating all the data necessary for a full BLA and
seeking approval. Exclusivity only assures that another company cannot rely on the FDAs prior
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approvals in approving a BLA for an innovators biological product to support the biosimilar products approval. Further, under the FDAs current interpretation, it is possible
that a biosimilar applicant could obtain approval for one or more of the indications approved for the innovator product by extrapolating clinical data from one indication to support approval for other indications. The FDA approved the first
biosimilar product in the United States in May 2015. In the European Union, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar
approvals issued since 2005. We are aware of many pharmaceutical and biotechnology and other companies that are actively engaged in research and development of biosimilars or interchangeable products.
It is possible that our competitors will succeed in
developing technologies that are more effective than ADCETRIS, SGN-CD33A or our other product candidates or that would render our technology obsolete or noncompetitive, or will succeed in developing biosimilar or interchangeable products for
ADCETRIS, SGN-CD33A or our other product candidates. We anticipate that we will face increased competition in the future as new companies enter our market and scientific developments surrounding biosimilars and other cancer therapies continue to
accelerate. We cannot predict to what extent the entry of biosimilars or other competing products will impact potential future sales of ADCETRIS, SGN-CD33A or our other product candidates.
Our operating results are difficult to predict and may fluctuate. If our operating results are below the expectations of
securities analysts or investors, the trading price of our stock could decline.
Our operating results are difficult to predict and may fluctuate significantly from quarter to quarter and year to year. In addition, although we provide sales guidance for ADCETRIS from time to time, you
should not rely on ADCETRIS sales results in any period as being indicative of future performance. Such guidance is based on assumptions that may be incorrect or that may change from quarter to quarter. Sales of ADCETRIS have, on occasion, been
below the expectations of securities analysts and investors and have been below prior period sales, and sales of ADCETRIS in the future may also be below prior period sales, our own guidance and/or the expectations of securities analysts and
investors. To the extent that we do not meet our guidance or the expectations of analysts or investors, our stock price may be adversely impacted, perhaps significantly. We believe that our quarterly and annual results of operations may be affected
by a variety of factors, including:
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customer ordering patterns for ADCETRIS, which may vary significantly from period to period;
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the overall level of demand for ADCETRIS including the impact of any competitive or biosimilar products and the duration of therapy for patients
receiving ADCETRIS;
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the extent to which coverage and reimbursement for ADCETRIS is available from government and health administration authorities, private health
insurers, managed care programs and other third-party payers;
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changes in the amount of deductions from gross sales, including government-mandated rebates, chargebacks and discounts that can vary because of changes
to the government discount percentage, including increases in the government discount percentage resulting from price increases we have taken or may take in the future, or due to different levels of utilization by entities entitled to government
rebates and discounts and changes in patient demographics;
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increases in the scope of eligibility for customers to purchase ADCETRIS at the discounted government price or to obtain government-mandated rebates on
purchases of ADCETRIS;
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changes in our cost of sales;
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the incidence rate of new patients in ADCETRIS approved indications;
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the timing, cost and level of investment in our sales and marketing efforts to support ADCETRIS sales;
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the timing, cost and level of investment in our research and development and other activities involving ADCETRIS, SGN-CD33A and our other product
candidates by us or our collaborators;
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expenditures we will or may incur to develop and/or commercialize any additional products, product candidates, or technologies that we may develop,
in-license, or acquire.
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In addition, we have entered into licensing and collaboration agreements with other
companies that include development funding and milestone payments to us, and we expect that amounts earned from our collaboration agreements will continue to be an important source of our revenues. Accordingly, our revenues will also depend on
development funding and the achievement of development and clinical milestones under our existing collaboration and license agreements, including, in particular, our ADCETRIS collaboration with Takeda, as well as entering into potential new
collaboration and license agreements. These upfront and milestone payments may vary significantly from quarter to quarter and any such variance could cause a significant fluctuation in our operating results from one quarter to the next.
Further, changes in our operations, such as increased
development, manufacturing and clinical trial expenses in connection with our expanding pipeline programs, including several phase 3 trials, or our undertaking of additional programs, business activities or entry into strategic transactions,
including potential additional acquisitions of products, technologies or businesses, such as our anticipated in-licensing of IMMU-132, may also cause significant fluctuations in our expenses. In addition, we measure compensation cost for stock-based
awards made to employees at the grant date of the award, based on the fair value of the award, and recognize the cost as an expense over the employees requisite service period. As the variables that we use as a basis for valuing these awards
change over time, including our underlying stock price, the magnitude of the expense that we must recognize may vary significantly. Additionally, we have implemented long-term incentive plans for our employees, and the incentives provided under
these plans are contingent upon the achievement of certain regulatory milestones. Costs of performance-based compensation under our long-term incentive plans are not recorded as an expense until the achievement of the applicable milestones is deemed
probable of being met, which may result in large fluctuations to the expense we must recognize in any particular period.
For these and other reasons, it is difficult for us to accurately forecast future sales of ADCETRIS, collaboration and license agreement
revenues, royalty revenues, operating expenses or future profits or losses. As a result, our operating results in future periods could be below our guidance or the expectations of securities analysts or investors, which could cause the trading price
of our common stock to decline, perhaps substantially.
We
have a history of net losses. We expect to continue to incur net losses and may not achieve profitability for some time, if at all.
We have incurred substantial net losses in each of our years of operation. We have incurred these losses principally from costs incurred
in our research and development programs and from our selling, general and administrative expenses. We expect to continue to spend substantial amounts on research and development, including amounts for conducting required post-approval and other
clinical trials of, and seeking additional regulatory approvals for, ADCETRIS as well as commercializing ADCETRIS for the treatment of patients in its three approved indications. In addition, we expect to make substantial expenditures to further
develop and potentially commercialize SGN-CD33A and our other product candidates. Likewise, in connection with our anticipated in-licensing of IMMU-132, we expect to incur substantial upfront and milestone payment obligations and to make to make
substantial expenditures to potentially further develop and potentially commercialize IMMU-132. Accordingly, we expect to continue to incur net losses and may not achieve profitability for some time, if at all. Although we recognize revenue from
ADCETRIS product sales and we continue to earn amounts under our collaboration agreements, our revenue and profit potential is unproven and our limited commercialization history makes our future operating results difficult to predict. Even if we do
achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline.
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We depend on collaborative relationships with other companies to assist in the research and
development of ADCETRIS and for the development and commercialization of product candidates utilizing or incorporating our technologies. If we are not able to locate suitable collaborators or if our collaborators do not perform as expected, this may
negatively affect our ability to commercialize ADCETRIS, develop other product candidates and/or generate revenues through technology licensing, or may otherwise negatively affect our business.
We have established collaborations with third parties to
develop and market ADCETRIS and some of our current and future product candidates. For example, we entered into a collaboration agreement with Takeda in December 2009 that granted Takeda rights to develop and commercialize ADCETRIS outside of the
United States and Canada. In addition, we have entered into a 50/50 co-development agreement with Astellas for the development of ADCs, including ASG-22ME. We also have ADC collaborations with AbbVie, Bayer, Celldex, Genentech, GSK, Pfizer and
Progenics, and an ADC co-development agreement with Genmab. In addition, we have entered into a collaboration agreement with Unum to develop and commercialize novel antibody-coupled
T-cell
receptor, or ACTR,
therapies incorporating our antibodies for cancer. Our dependence on collaborative arrangements to assist in the development and commercialization of ADCETRIS and for the development and commercialization of product candidates utilizing or
incorporating our technologies subjects us to a number of risks, including:
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we are not able to control the amount and timing of resources that our collaborators or co-development partners devote to the development or
commercialization of products and product candidates utilizing or incorporating our technologies, or to their marketing and distribution;
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disputes may arise between us and our collaborators or co-development partners that result in the delay or termination of the research, development or
commercialization of the applicable products and product candidates or that result in costly litigation or arbitration that diverts managements attention and resources;
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with respect to collaboration and co-development arrangements under which we have an active role, such as our ADCETRIS collaboration and our 50/50
co-development agreement with Astellas, we may have differing opinions or priorities than our collaborators or co-development partners, or we may encounter challenges in joint decision making, which may result in the delay or termination of the
research, development or commercialization of the applicable products and product candidates, including ADCETRIS and ASG-22ME;
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our current and potential future collaborators and co-development partners may delay clinical trials, provide insufficient funding for a clinical trial
program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
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significant delays in the development of product candidates by current and potential collaborators and co-development partners could allow competitors
to bring products to market before product candidates utilizing or incorporating our technologies are approved and impair the ability of current and potential future collaborators and co-development partners to effectively commercialize these
product candidates;
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our relationships with our collaborators and co-development partners may divert significant time and effort of our scientific staff and management team
and require the effective allocation of our resources to multiple internal, collaborative and co-development projects;
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our current and potential future collaborators and co-development partners may not be successful in their efforts to obtain regulatory approvals in a
timely manner, or at all;
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our current and potential future collaborators and co-development partners may receive regulatory sanctions relating to other aspects of their business
that could adversely affect the development, approval or commercialization of the applicable products or product candidates;
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our current and potential future collaborators and co-development partners may not properly maintain or defend our intellectual property rights or may
use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;
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business combinations or significant changes in a collaborators or co-development partners business strategy may adversely affect such
partys willingness or ability to complete its obligations under any arrangement;
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a collaborator or co-development partner could independently move forward with competing products, therapeutic approaches or technologies to develop
treatments for the diseases targeted by us or our collaborators or co-development partners that are developed by such collaborator or co-development partner either independently or in collaboration with others, including our competitors;
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our current and potential collaborators and co-development partners may experience financial difficulties; and
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our collaborations and co-development agreements may be terminated, breached or allowed to expire, or our collaborators or co-development partners may
reduce the scope of our agreements with them, which could have a material adverse effect on our financial position by reducing or eliminating the potential for us to receive technology access and license fees, milestones and royalties, and/or
reimbursement of development costs, and which could require us to devote additional efforts and to incur the additional costs associated with pursuing internal development and commercialization of the applicable products and product candidates.
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If our collaborative or
co-development arrangements are not successful as a result of any of the above factors, or any other factors, then our ability to advance the development and commercialization of the applicable products and product candidates and to otherwise
generate revenue from these arrangements and to become profitable will be adversely affected, and our business and business prospects may be materially harmed. In particular, if Takeda were to terminate the ADCETRIS collaboration, we would not
receive milestone payments, co-funded development payments or royalties for the sale of ADCETRIS outside the United States and Canada. As a result of such termination, we may have to engage another collaborator to complete the ADCETRIS development
process and to commercialize ADCETRIS outside the United States and Canada, or to complete the development process and undertake commercializing ADCETRIS outside the United States and Canada ourselves, either of which could significantly delay the
continued development and commercialization of ADCETRIS and increase our costs. In turn, this could significantly harm our financial position, adversely affect our stock price and require us to incur all the costs of developing and commercializing
ADCETRIS, which are now being co-funded by Takeda.
In the future, we may not be able to locate third-party collaborators or co-development partners to develop and market products and
product candidates utilizing or incorporating our technologies, and we may lack the capital and resources necessary to develop and market these products and product candidates alone.
We have engaged in, and may in the future engage in strategic transactions that increase our capital requirements, dilute
our stockholders, cause us to incur debt or assume contingent liabilities and subject us to other risks.
We actively evaluate various strategic transactions on an ongoing basis, including licensing or otherwise acquiring complementary
products, technologies or businesses, and we recently announced our entry into the Immunomedics License pursuant to which, if consummated, we would be granted an exclusive worldwide license to IMMU-132. Any potential acquisitions or in-licensing
transactions, such as our anticipated in-licensing of IMMU-132, may entail numerous risks, including but not limited to:
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risks associated with satisfying the closing conditions relating to such transactions and realizing their anticipated benefits;
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increased operating expenses and cash requirements;
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difficulty integrating acquired technologies, products, operations, and personnel with our existing business;
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diversion of managements attention in connection with both negotiating the acquisition or license and integrating the business, technology or
product;
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retention of key employees;
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uncertainties in our ability to maintain key business relationships of any acquired entities;
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strain on managerial and operational resources;
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difficulty implementing and maintaining effective internal control over financial reporting at businesses that we acquire, particularly if they are not
located near our existing operations;
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exposure to unforeseen liabilities of acquired companies or companies in which we invest; and
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potential costly and time-consuming litigation, including stockholder lawsuits.
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As a result of these or other problems and risks, businesses,
technologies or products we acquire or invest in or obtain licenses to may not produce the revenues, earnings or business synergies that we anticipated, acquired or licensed technologies may not result in regulatory approvals, and acquired or
licensed products may not perform as expected. As a result, we may incur higher costs and realize lower revenues than we had anticipated. We cannot assure you that any acquisitions or investments we have made or may make in the future, including our
anticipated in-licensing of IMMU-132, will be completed or that, if completed, the acquired business, licenses, investments, products, or technologies will generate sufficient revenue to offset the negative costs or other negative effects on our
business. Failure to manage effectively our growth through acquisition or in-licensing transactions could adversely affect our growth prospects, business, results of operations, financial condition, and cash flow.
In addition, we may spend significant amounts, issue dilutive
securities, assume or incur significant debt obligations, incur large one-time expenses and acquire intangible assets in connection with acquisitions and in-licensing transactions that could result in significant future amortization expense and
write-offs. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business. Even if
appropriate opportunities are available, we may not be able to successfully identify them or we may not have the financial resources necessary to pursue them, and if pursued, we may be unable to structure and execute transactions in the anticipated
timeframe, or at all. Other pharmaceutical companies, many of which may have substantially greater financial, marketing and sales resources, compete with us for these opportunities.
Even if we are able to successfully identify and acquire complementary products, technologies or businesses, we
cannot assure you that we will be able to successfully manage the risks associated with integrating acquired products, technologies or businesses or the risks arising from anticipated and unanticipated problems in connection with an acquisition or
in-licensing transaction. Further, while we seek to mitigate risks and liabilities of potential acquisitions and in-licensing transactions through, among other things, due diligence, there may be risks and liabilities that such due diligence efforts
fail to discover, that are not disclosed to us, or that we inadequately assess. Any failure in identifying and managing these risks and uncertainties effectively, including in connection with the anticipated in-licensing of IMMU-132, would have a
material adverse effect on our business. Additionally, we may not realize the anticipated benefits of such transactions, including the possibility that expected synergies and accretion will not be realized or will not be realized within the expected
time frame.
Our current product candidates are in various
stages of clinical development, and it is possible that none of these product candidates will ever become commercial products.
Our current product candidates are in various stages of clinical development, and other than SGN-CD33A, our product candidates are in
relatively early stages of development. Our product candidates will require significant further development, financial resources and personnel to obtain regulatory approval and develop into commercially viable products, if at all. In 2016, we
initiated the CASCADE trial, which is designed to evaluate SGN-CD33A in combination with HMAs in previously untreated older AML patients. SGN-CD33A has not
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previously been evaluated in a randomized trial with other active agents and we cannot be certain that the design of, or data collected from, the CASCADE trial will be adequate to demonstrate the
safety and efficacy of SGN-CD33A for the treatment of patients with AML, or will otherwise be sufficient to support FDA or any foreign regulatory approvals. In addition, certain early stage trials of SGN-CD33A are currently under clinical holds to
evaluate the potential risk of hepatotoxicity following adverse medical events, including fatal events. We may be unable to submit to the FDA all required clinical follow-up information to respond to the clinical holds. Even if we are able to
provide such information, the FDA may not deem the information to be sufficient to lift any or all of the clinical holds. In addition, we may encounter delays in reaching an agreement with the FDA regarding the terms under which these trials may be
resumed, or we may elect to discontinue one or more of these trials for safety or any other reasons. Furthermore, the FDA may require us to implement additional, potentially burdensome pharmacovigilance procedures or conduct additional pre-clinical
studies before it will consider lifting the clinical holds, if at all. In addition, although the FDA has not placed a clinical hold on the CASCADE trial or our phase 1/2 trial in MDS and we continue to enroll patients in these trials, we cannot
assure you that the FDA or another regulatory authority will not place a clinical hold on one or both of these trials. If we are unable to submit required information to the FDA in a timely manner, or at all; if the FDA does not lift the clinical
holds in a timely manner, or at all; if the FDA does not permit us to initiate additional trials of SGN-CD33A and/or the FDA imposes clinical holds on the CASCADE trial or our phase 1/2 trial in MDS, or if there are additional safety results,
including from our ongoing trials of SGN-CD33A that alter the benefit-risk profile of SGN-CD33A or cause it to become unacceptable, we would be further delayed or prevented from advancing the clinical development of SGN-CD33A, which would adversely
affect our business, results of operations and prospects.
Currently, our other clinical-stage product candidates include seven ADC programs, which consist of ASG-22ME, SGN-LIV1A, SGN-CD19A, SGN-CD19B, SGN-CD123A, SGN-352A, and ASG-15ME, as well as two
immuno-oncology agents, SEA-CD40, which is based on our sugar-engineered antibody, or SEA, technology, and SGN-2FF, which is a novel small molecule. If a product candidate fails at any stage of development or we otherwise determine to discontinue
development of that product candidate, we will not have the anticipated revenues from that product candidate to fund our operations, and we may not receive any return on our investment in that product candidate. Moreover, we still have only limited
data from our phase 1 trials of our product candidates. In this regard, preclinical studies and any encouraging or positive preliminary and interim data from our clinical trials of our product candidates may not necessarily be predictive of the
results of ongoing or later clinical trials. Even if we are able to complete our planned clinical trials of our product candidates according to our current development timeline, the encouraging or positive results from clinical trials of our product
candidates in earlier stage trials may not be replicated in subsequent clinical trial results. As a result, we may conduct lengthy and expensive clinical trials of our product candidates only to learn that a product candidate is not an effective
treatment or is not superior to existing approved therapies, or has an unacceptable safety profile, which could prevent or significantly delay regulatory approval for such product candidate. Also, our later-stage clinical trials could differ in
significant ways from earlier stage clinical trials, which could cause the outcome of the later-stage trials to differ from our earlier stage clinical trials. For instance, though we reported phase 1 interim efficacy data that supported our decision
to initiate the CASCADE trial, we may not receive positive results for SGN-CD33A even if we complete the CASCADE trial. Differences in earlier and later stage clinical trials may include changes to inclusion and exclusion criteria, efficacy
endpoints and statistical design. Many companies in the pharmaceutical and biotechnology industries, including us, have suffered significant setbacks in late-stage clinical trials after achieving encouraging or positive results in early-stage
development. We cannot be certain that we will not face similar setbacks in our ongoing clinical trials, for instance, in the CASCADE trial. We have not yet completed any late-stage clinical trials for our current product candidates, and if we fail
to produce positive results in our ongoing or planned clinical trials of any of our product candidates, the development timeline and regulatory approval and commercialization prospects for our product candidates, and, correspondingly, our business
and financial prospects, would be materially adversely affected.
Due to the uncertain and time-consuming clinical development and regulatory approval process, we may not successfully develop any of our product candidates and it is possible that none of our current
product candidates will ever become commercial products. In addition, we expect that much of our effort and many of our
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expenditures over the next few years will be devoted to the additional clinical development of and commercialization activities associated with ADCETRIS, which may restrict or delay our ability
to develop our clinical and preclinical product candidates.
To date, we have depended on a small number of collaborators for a substantial portion of our revenue. The loss of any one of these collaborators or
changes in their product development or business strategy could result in a material decline in our revenue.
We have collaborations with a limited number of companies. To date, a substantial portion of our revenue has resulted from payments made
under agreements with our corporate collaborators, and although ADCETRIS sales currently comprise a greater proportion of our revenue, we expect that a portion of our revenue will continue to come from corporate collaborations. Even though we market
ADCETRIS in the United States and Canada, our revenues still depend in part on Takedas ability and willingness to market ADCETRIS outside of the United States and Canada. The loss of our collaborators, especially Takeda, changes in product
development or business strategies of our collaborators, or the failure of our collaborators to perform their obligations under their agreements with us for any reason, including paying license or technology fees, milestone payments, royalties or
reimbursements, could have a material adverse effect on our financial performance. Payments under our existing and potential future collaboration agreements are also subject to significant fluctuations in both timing and amount, which could cause
our revenue to fall below the expectations of securities analysts and investors and cause a decrease in our stock price.
We are dependent upon a small number of distributors for a significant portion of our net sales, and the loss of, or significant reduction or
cancellation in sales to, any one of these distributors could adversely affect our operations and financial condition.
In the United States and Canada, we sell ADCETRIS through a limited number of pharmaceutical distributors. Customers order ADCETRIS
through these distributors. We generally receive orders from distributors and ship product directly to the customer. We do not promote ADCETRIS to these distributors and they do not set or determine demand for ADCETRIS; however, our ability to
effectively commercialize ADCETRIS will depend, in part, on the performance of these distributors. Although we believe we can find alternative distributors on relatively short notice, the loss of a major distributor could materially and adversely
affect our results of operations and financial condition.
We currently rely on third-party manufacturers and other third parties for production of our drug products and our dependence on these manufacturers
may impair the continued development and commercialization of ADCETRIS.
We do not currently have the internal ability to manufacture the drug products that we sell or need to conduct our clinical trials, and we therefore rely on corporate collaborators and contract
manufacturing organizations to supply drug product for commercial supply and our IND-enabling studies and clinical trials. For the monoclonal antibody used in ADCETRIS, we have contracted with AbbVie for clinical and commercial supplies. For the
drug linker used in ADCETRIS, we have contracted with Sigma Aldrich Fine Chemicals, or SAFC, for clinical and commercial supplies. We have multiple contract manufacturers for conjugating the drug linker to the antibody and producing the ADCETRIS
product. For our ADC product candidates, multiple contract manufacturers, including AbbVie and SAFC, perform antibody and drug-linker manufacturing and several other contract manufacturers perform conjugation of the drug-linker to the antibody and
fill/finish of the drug product. In addition, we rely on other third parties to perform additional steps in the manufacturing process, including shipping and storage of ADCETRIS and our product candidates. For the foreseeable future, we expect to
continue to rely on contract manufacturers and other third parties to produce, vial and store sufficient quantities of ADCETRIS for use in our clinical trials and for commercial sale. If our contract manufacturers or other third parties fail to
deliver ADCETRIS for clinical use or sale on a timely basis, with sufficient quality, and at commercially reasonable prices, and we fail to find replacement manufacturers or to develop our own manufacturing capabilities, we may be required to delay
or suspend clinical trials or otherwise discontinue development, production and sale of ADCETRIS. Moreover, contract manufacturers have a limited number of
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facilities in which ADCETRIS can be produced and any interruption of the operation of those facilities due to events such as equipment malfunction or failure or damage to the facility by natural
disasters or as the result of regulatory actions could result in the cancellation of shipments, loss of product in the manufacturing process, a shortfall in ADCETRIS supply, or the inability to sell our products in the U.S. or abroad. In addition,
we have committed to provide Takeda with their needs of certain parts of the ADCETRIS supply chain for a limited period of time, which may require us to arrange for additional manufacturing supply. Moreover, we depend on outside vendors for the
supply of raw materials used to produce ADCETRIS. If the third-party suppliers were to cease production or otherwise fail to supply us with quality raw materials and we were unable to contract on acceptable terms for these raw materials with
alternative suppliers, our ability to have ADCETRIS manufactured to meet commercial and clinical requirements would be adversely affected.
We are subject to various state and federal laws and regulations, including healthcare laws and regulations, that may impact our business and could
subject us to significant fines and penalties or other negative consequences.
Our operations may be directly or indirectly subject to various state and federal healthcare laws, including, without limitation, the federal Anti-Kickback Statute, federal civil and criminal false claims
laws, HIPAA/HITECH, the federal civil monetary penalties statute, and the federal transparency requirements under the PPACA. These laws may impact, among other things, the sales, marketing and education programs for ADCETRIS.
The federal Anti-Kickback Statute prohibits persons and
entities from knowingly and willingly soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for
which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. Several courts have interpreted the statutes intent requirement to mean that if any one purpose of an arrangement involving remuneration
is to induce referrals of federal healthcare covered business, the statute has been violated. Additionally, PPACA amended the intent requirement of the federal Anti-Kickback Statute such that a person or entity no longer needs to have actual
knowledge of the statute or specific intent to violate it. The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Penalties for violations of the federal
Anti-Kickback Statute include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs.
The federal civil and criminal false claims laws, including the civil False Claims Act, prohibit, among other
things, persons or entities from knowingly presenting, or causing to be presented, a false claim to, or the knowing use of false statements to obtain payment from or approval by the federal government, including the Medicare and Medicaid programs,
or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim or to avoid, decrease, or conceal an obligation to pay money to the federal government. PPACA provides that the government
may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. Suits filed under the civil False Claims Act,
known as qui tam actions, can be brought by any individual on behalf of the government and such individuals, commonly known as whistleblowers, may share in any amounts paid by the entity to the government in fines or
settlement. Many pharmaceutical and other healthcare companies have recently been investigated or subject to lawsuits by whistleblowers and have reached substantial financial settlements with the federal government under the False Claims Act for a
variety of alleged improper marketing or other activities, including providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees, grants, free travel, and other
benefits to physicians to induce them to prescribe the companys products; and inflating prices reported to private price publication services, which are used to set drug reimbursement rates under government healthcare programs.
The federal Health Insurance Portability and Accountability
Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to
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execute, a scheme to defraud any healthcare benefit program, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a
healthcare offense, and knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false, fictitious, or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items,
or services. Similar to the Anti-Kickback Statute, PPACA amended the intent requirement of the criminal healthcare fraud statutes such that a person or entity no longer needs to have actual knowledge of the statute or intent to violate it.
HIPAA, as amended by the Health Information
Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, governs certain types of individuals and entities with respect to the conduct of certain electronic healthcare transactions and imposes certain obligations
with respect to the security and privacy of protected health information.
The federal civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health
program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
The federal transparency requirements under PPACA, the Physician Payments Sunshine Act, require certain manufacturers of drugs, devices,
biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Childrens Health Insurance Program to annually report to the U.S. Department of Health and Human Services Centers for Medicare &
Medicaid Services information related to payments and other transfers of value to physicians and teaching hospitals, and physician ownership and investment interests.
There are foreign and state law equivalents of these laws and
regulations, such as anti-kickback, false claims, and data privacy and security laws, to which we are currently and/or may in the future, be subject. We may also be subject to state laws that require manufacturers to report information related to
payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Many of these state laws differ from each other in significant ways, thus complicating compliance efforts.
The FDA and other governmental authorities also actively
investigate allegations of off-label promotion activities in order to enforce regulations prohibiting these types of activities. In recent years, private whistleblowers have also pursued False Claims Act cases against a number of pharmaceutical
companies for causing false claims to be submitted as a result of off-label promotion. If we are found to have promoted an approved product, including ADCETRIS, for off-label uses we may be subject to significant liability, including civil and
administrative financial penalties and other remedies as well as criminal financial penalties and other sanctions. Even when a company is not determined to have engaged in off-label promotion, the allegation from government authorities or market
participants that a company has engaged in such activities could have a significant impact on the companys sales, business and financial condition. The U.S. government has also required companies to enter into complex corporate integrity
agreements and/or non-prosecution agreements that impose significant reporting and other burdens on the affected companies.
We are also subject to numerous other laws and regulations that are not specific to the healthcare industry. For instance, the U.S.
Foreign Corrupt Practices Act, or FCPA, prohibits companies and individuals from engaging in specified activities to obtain or retain business or to influence a person working in an official capacity. Under the FCPA, it is illegal to pay, offer to
pay, or authorize the payment of anything of value to any foreign government official, governmental staff members, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an
official capacity. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.
The number and complexity of both U.S. federal
and state laws continue to increase. In addition to enforcement by governmental agencies, we also expect a continuation of the trend of private plaintiff lawsuits
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against pharmaceutical manufacturers under the whistleblower provisions of the False Claims Act and state equivalents or other laws and regulations such as securities rules and the evolution of
new theories of liability under those statutes. Government agencies will likely continue to intervene in such private whistleblower lawsuits and such intervention typically raises the companys cost significantly. For example, federal
enforcement agencies have recently scrutinized product and patient assistance programs, including manufacturer reimbursement support services as well as relationships with specialty pharmacies. Several investigations have resulted in government
enforcement authorities intervening in related whistleblower lawsuits and obtaining significant civil and criminal settlements.
In order to comply with these laws, we have implemented a comprehensive compliance program to actively identify, prevent and mitigate risk
through the implementation of compliance policies and systems and by promoting a culture of compliance. Although we take our obligation to maintain our compliance with these various laws and regulations seriously and our compliance program is
designed to prevent the violation of these laws and regulations, we cannot guarantee that our compliance program will be sufficient or effective, that our employees will comply with our policies and that our employees will notify us of any violation
of our policies, that we will have the ability to take appropriate and timely corrective action in response to any such violation, or that we will make decisions and take actions that will necessarily limit or avoid liability for whistleblower
claims that individuals, such as employees or former employees, may bring against us or that governmental authorities may prosecute against us based on information provided by individuals. If we are found to be in violation of any of the laws and
regulations described above or other applicable state and federal healthcare laws, we may be subject to penalties, including civil and criminal penalties, damages, fines, disgorgement, contractual damages, reputational harm, imprisonment, diminished
profits and future earnings, exclusion from government healthcare reimbursement programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of
non-compliance with these laws, and/or the curtailment or restructuring of our operations, any of which could have a material adverse effect on our business, results of operations and growth prospects. Any action against us for violation of these
laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our managements attention from the operation of our business. Moreover, achieving and sustaining compliance with
applicable federal, state and foreign healthcare laws is costly and time-consuming for our management.
As we expand our operations internationally, we are subject to an increased risk of conducting activities in a manner that violates applicable anti-bribery or anti-corruption laws. We are also
subject to foreign laws and regulations covering data privacy and the protection of health-related and other personal information. These laws and regulations could create liability for us or increase our cost of doing business, any of which could
have a material adverse effect on our business, results of operations and growth prospects.
We are expanding our operations internationally, and we currently have subsidiaries in the U.K., Switzerland and Canada. Though we are at
an early stage with our international expansion, our business activities outside of the United States are subject to the FCPA, which is described above, and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in
which we currently and may in the future operate, including the U.K. Bribery Act. The U.K. Bribery Act prohibits giving, offering, or promising bribes to any person, including non-U.K. government officials and private persons, as well as requesting,
agreeing to receive, or accepting bribes from any person. In addition, under the U.K. Bribery Act, companies which carry on a business or part of a business in the U.K. may be held liable for bribes given, offered or promised to any person,
including non-U.K. government officials and private persons, by employees and persons associated with such company in order to obtain or retain business or a business advantage for such company. In the course of expanding our operations
internationally, we will need to establish and expand business relationships with various third parties, such as independent contractors, distributors, vendors, advocacy groups and physicians, and we will interact more frequently with foreign
officials, including regulatory authorities and physicians employed by state-run healthcare institutions who may be deemed to be foreign officials under the FCPA, U.K. Bribery Act or similar laws of other countries that may govern our activities.
Any interactions with any such parties or individuals where compensation is provided that are found to be in violation of such laws could result in substantial fines and penalties and could materially harm our business. Furthermore, any finding of a
violation
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under one countrys laws may increase the likelihood that we will be prosecuted and be found to have violated another countrys laws. If our business practices outside the United States
are found to be in violation of the FCPA, U.K. Bribery Act or other similar laws, we may be subject to significant civil and criminal penalties which could have a material adverse effect on our business, results of operations and growth prospects.
We are also subject to foreign laws and regulations covering data privacy and the protection of health-related and other personal information. In this regard, European Union member states and other foreign jurisdictions, including Switzerland, have
adopted data protection laws and regulations which impose significant compliance obligations. Failure to comply with these laws could lead to government enforcement actions and significant penalties against us, which could have a material adverse
effect on our business, results of operations and growth prospects.
Any failures or further setbacks in our ADC development program would negatively affect our business and financial position.
ADCETRIS and our SGN-CD33A, ASG-22ME, SGN-LIV1A, SGN-CD19A,
SGN-CD19B, SGN-CD123A, SGN-CD352A, and ASG-15ME product candidates are all based on our ADC technology, which utilizes proprietary stable linkers and potent cell-killing synthetic agents. Our ADC technology is also the basis of our collaborations
with AbbVie, Astellas, Bayer, Celldex, Genentech, GSK, Pfizer, and Progenics, and our co-development agreements with Takeda, Astellas, and Genmab. Although ADCETRIS has received marketing approval in the United States, Canada, the European Union,
Japan and other countries, ADCETRIS is our first and only ADC product that has been approved for commercial sale in any jurisdiction. Any failures or further setbacks in our ADC development program, including adverse effects resulting from the use
of this technology in human clinical trials and/or the imposition of additional clinical holds on our trials of SGN-CD33A or any of our other product candidates, could have a detrimental impact on the continued commercialization of ADCETRIS in its
current or any potential future approved indications and on our internal product candidate pipeline, as well as our ability to maintain and/or enter into new corporate collaborations regarding our ADC technology, which would negatively affect our
business and financial position.
We have been named a
defendant in a purported securities class action lawsuit and a lawsuit in connection with the Immunomedics License. This, and potential similar or related litigation, could result in substantial damages and may divert managements time and
attention from our business.
On
January 10, 2017, a purported securities class action lawsuit was commenced in the United States District Court for the Western District of Washington, naming as defendants us and certain of our officers. The lawsuit alleges material
misrepresentations and omissions in public statements regarding our business, operational and compliance policies, violations by all named defendants of Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, as well as violations of
Section 20(a) of the Exchange Act. The complaint seeks compensatory damages of an undisclosed amount. The plaintiff alleges, among other things, that we made false and/or misleading statements and/or failed to disclose that SGN-CD33A presents a
significant risk of fatal hepatotoxicity and that we had therefore overstated the viability of SGN-CD33A as a treatment for AML. It is possible that additional suits will be filed, or allegations received from stockholders, with respect to these
same matters and also naming us and/or our officers and directors as defendants.
In addition, on February 13, 2017, we were named a co-defendant in a lawsuit filed by venBio in the Delaware Chancery Court against the members of the board of directors of Immunomedics. The lawsuit, or
the venBio lawsuit, alleges that the members of the Immunomedics board breached their fiduciary duties toward their stockholders by hastily licensing
IMMU-132
to us. We are alleged to have aided and abetted
the breach of fiduciary duties. Among other things, venBio seeks to enjoin the closing of the transactions contemplated by the Immunomedics License. As a result of the pending litigation challenging the transactions contemplated by the Immunomedics
License, Immunomedics and we have committed to the Court not to close the transactions contemplated by the Immunomedics License prior to March 10, 2017. We cannot predict the timing or outcome of the venBio lawsuit or the impact it may have on the
Immunomedics License or the closing of the transactions contemplated by the Immunomedics License. However, it is possible that, in connection with the venBio lawsuit, the Immunomedics License could be rescinded or reformed in a way that is
disadvantageous to us, including by
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requiring us to increase the transaction consideration payable to Immunomedics under the Immunomedics License, or that otherwise adversely affects the anticipated benefits to us of the
Immunomedics License.
We believe that we have
meritorious defenses and intend to defend these lawsuits vigorously. These lawsuits and any other related lawsuits are subject to inherent uncertainties, and the actual costs to be incurred relating to the lawsuits will depend upon many unknown
factors. The outcome of the litigation is necessarily uncertain, and we could be forced to expend significant resources in the defense of these suits, and we may not prevail. Monitoring and defending against legal actions is time-consuming for our
management and detracts from our ability to fully focus our internal resources on our business activities, which could result in delays of our clinical trials or our development and commercialization efforts. In addition, we may incur substantial
legal fees and costs in connection with the litigation. We are also generally obligated, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these and similar lawsuits. We are not
currently able to estimate the possible cost to us from this matter, as these lawsuits are currently at an early stage and we cannot be certain how long it may take to resolve these matters or the possible amount of any damages that we may be
required to pay. We have not established any reserves for any potential liability relating to these lawsuits. It is possible that we could, in the future, incur judgments or enter into settlements of claims for monetary damages. Decisions adverse to
our interests in these lawsuits could result in the payment of substantial damages, or possibly fines, and could have a material adverse effect on our cash flow, results of operations and financial position. Decisions adverse to our interests in the
venBio lawsuit could also result in the termination of the Immunomedics License or otherwise frustrate our ability to, or increase our costs to, consummate the transactions contemplated by the Immunomedics License. In addition, the uncertainty of
the currently pending litigation could lead to increased volatility in our stock price.
We may need to raise significant amounts of additional capital that may not be available to us.
We expect to make additional capital outlays and to increase operating expenditures over the next several years as we hire additional
employees, support our preclinical development, manufacturing and clinical trial activities for ADCETRIS and our other pipeline programs, and expand internationally, as well as commercialize ADCETRIS and position ADCETRIS for potential additional
regulatory approvals. In addition, we anticipate committing substantial capital resources to the transactions contemplated by the Immunomedics License and the anticipated transfer, integration and development activities related to IMMU-132,
including with respect to our upfront and milestone payment obligations to Immunomedics. Our commitment of resources to the continuing development, regulatory and commercialization activities for ADCETRIS, the transactions contemplated by the
Immunomedics License and the anticipated transfer, integration and development activities related to IMMU-132, and the research, continued development and manufacturing of our product candidates will likely require us to raise substantial amounts of
additional capital. In addition, we actively evaluate various strategic transactions on an ongoing basis, including licensing or otherwise acquiring complementary products, technologies or businesses, such as our anticipated in-licensing of
IMMU-132, and we may require significant additional capital in order to complete or otherwise provide funding for any additional acquisitions. We may seek additional funding 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, we may be required to delay, reduce the scope of, or eliminate one or more of our development programs, which may adversely affect our business and operations. Our future capital requirements will
depend upon a number of factors, including:
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the level of sales and market acceptance of ADCETRIS;
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the rate of progress and cost of the confirmatory post-approval study that we are required to conduct as a condition to the FDAs accelerated
approval of ADCETRIS in the relapsed sALCL indication;
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the time and costs involved in obtaining regulatory approvals of ADCETRIS in additional indications, if any;
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the size, complexity, timing, progress and number of our clinical programs;
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the timing, receipt and amount of milestone-based payments or other revenue from our collaborations or license arrangements, including royalty revenue
generated from commercial sales of ADCETRIS by Takeda;
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the cost of establishing and maintaining clinical and commercial supplies of ADCETRIS;
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the costs associated with acquisitions or licenses of additional technologies, products, or companies, as well as licenses we may need to commercialize
our products, including the actual costs to us of our anticipated in-licensing of IMMU-132;
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the terms and timing of any future collaborative, licensing and other arrangements that we may establish;
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expenses associated with the pending and potential additional related purported securities class action lawsuits, as well as any other potential
litigation;
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the potential costs associated with international, state and federal taxes; and
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competing technological and market developments.
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In addition, changes in our spending rate may occur that
would consume available capital resources sooner, such as increased development, manufacturing and clinical trial expenses in connection with our expanding pipeline programs, including several phase 3 trials, or our undertaking of additional
programs, business activities or entry into strategic transactions, including potential additional acquisitions of products, technologies or businesses such as our anticipated in-licensing of IMMU-132. To the extent that we raise additional capital
by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights to our technologies or
product candidates, or grant licenses on terms that are not favorable to us.
During the past several years, domestic and international financial markets have experienced extreme disruption from time to time, including, among other things, high volatility and significant declines
in stock prices and severely diminished liquidity and credit availability for both borrowers and investors. For example, in June 2016, the electorate in the U.K. voted in favor of leaving the European Union (commonly referred to as
Brexit). The withdrawal of the U.K. from the European Union will take effect either on the effective date of the withdrawal agreement or, in the absence of agreement, two years after the United Kingdom provides a notice of withdrawal
pursuant to the EU Treaty. The U.K. government has announced that it intends to deliver a notice of withdrawal by the end of March 2017. It is likely that the withdrawal of the U.K. from the European Union will involve a process of lengthy
negotiations between the U.K and European Union member states to determine the future terms of the U.K.s relationship with the European Union. This could lead to a period of considerable uncertainty, particularly in relation to global
financial markets which in turn could adversely affect our ability to raise additional capital. Such adverse capital and credit market conditions could make it more difficult to obtain additional capital on favorable terms, or at all, which could
have a material adverse effect on our business and growth prospects.
We rely on license agreements for certain aspects of ADCETRIS and our ADC technology. Failure to maintain these license agreements or to secure any required new licenses could prevent us from
continuing to develop and commercialize ADCETRIS and our product candidates.
We have entered into agreements with third-party commercial and academic institutions to license technology for use in ADCETRIS and our ADC technology. Currently, we have license agreements with
Bristol-Myers Squibb and the University of Miami, among others. In addition to royalty provisions, some of these license agreements contain diligence and milestone-based termination provisions, in which case our failure to meet any agreed upon
royalty or diligence requirements or milestones may allow the licensor to terminate the agreement. Many of our license agreements grant us exclusive licenses to the underlying technologies. If our licensors terminate our license agreements or if we
are unable to maintain the exclusivity of our exclusive license agreements, we may be unable to continue to develop and commercialize ADCETRIS or our product candidates.
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Further, we have had in the past, and may in the future have, disputes with our licensors, which may impact our ability to develop and commercialize ADCETRIS or our product candidates or require
us to enter into additional licenses. An adverse result in potential future disputes with our licensors may impact our ability to develop and commercialize ADCETRIS and our product candidates, or may require us to enter into additional licenses or
to incur additional costs in litigation or settlement. In addition, continued development and commercialization of ADCETRIS and our product candidates will likely require us to secure licenses to additional technologies. We may not be able to secure
these licenses on commercially reasonable terms, if at all.
If we are unable to enforce our intellectual property rights or if we fail to sustain and further build our intellectual property rights, we may not
be able to successfully commercialize ADCETRIS or future products and competitors may be able to develop competing therapies.
Our success depends, in part, on obtaining and maintaining patent protection and successfully enforcing these patents and defending them
against third-party challenges in the United States and other countries. We own multiple U.S. and foreign patents and pending patent applications for our technologies. We also have rights to issued U.S. patents, patent applications, and their
foreign counterparts, relating to our monoclonal antibody, linker and drug-based technologies. Our rights to these patents and patent applications are derived in part from worldwide licenses from third parties. In addition, we have licensed certain
of our U.S. and foreign patents and patent applications to third parties.
The standards that the U.S. Patent and Trademark Office and foreign patent offices use to grant patents are not always applied predictably or uniformly and can change. Consequently, our pending patent
applications may not be allowed and, if allowed, may not contain the type and extent of patent claims that will be adequate to conduct our business as planned. Additionally, any issued patents we currently own or obtain in the future may have a
shorter patent term than expected or may not contain claims that will permit us to stop competitors from using our technology or similar technology or from copying our products. Similarly, the standards that courts use to interpret patents are not
always applied predictably or uniformly and may evolve, particularly as new technologies develop. In addition, changes to patent laws in the United States or other countries may be applied retroactively to affect the validation enforceability, or
term of our patent. For example, the U.S. Supreme Court has recently modified some legal standards applied by the U.S. Patent and Trademark Office in examination of U.S. patent applications, which may decrease the likelihood that we will be able to
obtain patents and may increase the likelihood of challenges to patents we obtain or license. In addition, changes to the U.S. patent system have come into force under the Leahy-Smith America Invents Act, or the America Invents Act, including
changes from a first-to-invent system to a first to file system, changes to examination of U.S. patent applications and changes to the processes for challenging issued patents. These changes include provisions that affect the
way patent applications are being filed, prosecuted and litigated. For example, the America Invents Act enacted proceedings involving post-issuance patent review procedures, such as inter partes review, or IPR, and post-grant review and covered
business methods. These proceedings are conducted before the Patent Trial and Appeal Board, or PTAB, of the U.S. Patent and Trademark Office, or USPTO. Each proceeding has different eligibility criteria and different patentability challenges that
can be raised. In this regard, the IPR process permits any person (except a party who has been litigating the patent for more than a year) to challenge the validity of some patents on the grounds that it was anticipated or made obvious by prior art.
As a result, non-practicing entities associated with hedge funds, pharmaceutical companies who may be our competitors and others have challenged certain valuable pharmaceutical U.S. patents based on prior art through the IPR process. A decision in
such a proceeding adverse to our interests could result in the loss of valuable patent rights which would have a material adverse effect on our business, financial condition, results of operations and growth prospects. In any event, the America
Invents Act and any other potential future changes to the U.S. patent system could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could
have a material adverse effect on our business, financial condition, results of operations and growth prospects.
We rely on trade secrets and other proprietary information where we believe patent protection is not appropriate or obtainable. However,
trade secrets and other proprietary information are difficult to protect. We
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have taken measures to protect our unpatented trade secrets and know-how, including the use of confidentiality and assignment of inventions agreements with our employees, consultants and certain
contractors. It is possible, however, that these persons may breach the agreements or that our competitors may independently develop or otherwise discover our trade secrets or other proprietary information. Our research collaborators may publish
confidential data or other restricted information to which we have rights. If we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborations, then our ability to receive patent
protection or protect our proprietary information may be impaired.
We may incur substantial costs and lose important rights or may not be able to continue to commercialize ADCETRIS or to commercialize any of our
product candidates that may be approved for commercial sale as a result of litigation or other proceedings relating to patent and other intellectual property rights, and we may be required to obtain patent and other intellectual property rights from
others.
We may face potential lawsuits
by companies, academic institutions or others alleging infringement of their intellectual property. Because patent applications can take a few years to publish, there may be currently pending applications of which we are unaware that may later
result in issued patents that adversely affect the continued commercialization of ADCETRIS or future commercialization of our product candidates in development. In addition, we are monitoring the progress of multiple pending patent applications of
other organizations that, if granted, may require us to license or challenge their enforceability in order to continue commercializing ADCETRIS or to commercialize our product candidates that may be approved for commercial sale. Our challenges to
patents of other organizations may not be successful, which may affect our ability to commercialize ADCETRIS or our product candidates. As a result of the patent infringement lawsuits that have been filed or may be filed against us in the future by
third parties alleging infringement by us of patent or other intellectual property rights, we may be required to pay substantial damages, including lost profits, royalties, treble damages, attorneys fees and costs, for past infringement if it
is ultimately determined that our products infringe a third partys intellectual property rights. Even if infringement claims against us are without merit, the results may be unpredictable. In addition, defending lawsuits takes significant
time, may be expensive and may divert managements attention from other business concerns. Further, we may be stopped from developing, manufacturing or selling our products until we obtain a license from the owner of the relevant technology or
other intellectual property rights, or be forced to undertake costly design-arounds, if feasible. If such a license is available at all, it may require us to pay substantial royalties or other fees.
We are or may be from time to time involved in the defense
and enforcement of our patent or other intellectual property rights in a court of law, USPTO interference, IPR, post-grant review or reexamination proceeding, foreign opposition proceeding or related legal and administrative proceeding in the United
States and elsewhere. In addition, if we choose to go to court to stop a third party from infringing our patents, that third party has the right to ask the court to rule that these patents are invalid, not infringed and/or should not be enforced.
Under the America Invents Act, a third party may also have the option to challenge the validity of certain patents at the PTAB, whether they are accused of infringing our patents or not, and certain entities associated with hedge funds,
pharmaceutical companies and other entities have challenged valuable pharmaceutical patents through the IPR process. These lawsuits and administrative proceedings are expensive and consume time and other resources, and we may not be successful in
these proceedings or in stopping infringement. In addition, there is a risk that a court will decide that these patents are not valid or not infringed or otherwise not enforceable, or that the PTAB will decide that certain patents are not valid or
should have a shorter term, and that we do not have the right to stop a third party from using the patented subject matter. Successful challenges to our patent or other intellectual property rights through these proceedings could result in a loss of
rights in the relevant jurisdiction and may allow third parties to use our proprietary technologies without a license from us or our collaborators, which may also result in loss of future royalty payments. Furthermore, if such challenges to our
rights are not resolved promptly in our favor, our existing business relationships may be jeopardized and we could be delayed or prevented from entering into new collaborations or from commercializing potential products, which could adversely affect
our business and results of operations. In addition, we may challenge the patent or other intellectual property rights of third parties and if we are unsuccessful in actions we bring against the rights of such parties, through litigation or
otherwise, and it is
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determined that we infringe the intellectual property rights of such parties, we may be prevented from commercializing potential products in the relevant jurisdiction, or may be required to
obtain licenses to those rights or develop or obtain alternative technologies, any of which could harm our business.
If we lose our key personnel or are unable to attract and retain additional qualified personnel, our future growth and ability to compete would
suffer.
We are highly dependent on the
efforts and abilities of the principal members of our senior management. Additionally, we have scientific personnel with significant and unique expertise in monoclonal antibodies, ADCs and related technologies. The loss of the services of any one of
the principal members of our managerial or scientific staff may prevent us from achieving our business objectives.
In addition, the competition for qualified personnel in the biotechnology field is intense, and our future success depends upon our
ability to attract, retain and motivate highly skilled scientific, technical and managerial employees. In order to commercialize ADCETRIS, we have been required to expand our workforce, particularly in the areas of manufacturing, clinical trials
management, regulatory affairs, business development, sales and marketing. These activities required the addition of new personnel, including sales and marketing management, and the development of additional expertise by existing management
personnel. We continue to face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, as well as academic and other research institutions. To the extent we are not able to retain these individuals on
favorable terms or attract any additional personnel that may be required, our business may be harmed.
If we are unable to manage our growth, our business, financial condition, results of operations and prospects may be adversely affected.
We have experienced and expect to continue to experience
significant growth in the number of our employees and in the scope of our operations. This growth places significant demands on our management, operational and financial resources, and our current and planned personnel, systems, procedures and
controls may not be adequate to support our growth. To effectively manage our growth, we must continue to improve existing, and implement new, operational and financial systems, procedures and controls and must expand, train and manage our growing
employee base, and there can be no assurance that we will effectively manage our growth without experiencing operating inefficiencies or control deficiencies. We expect that we may need to increase our management personnel to oversee our expanding
operations, and recruiting and retaining qualified individuals is difficult. In addition, the physical expansion of our operations may lead to significant costs and may divert our management and capital resources. If we are unable to manage our
growth effectively, or are unsuccessful in recruiting qualified management personnel, our business, financial condition, results of operations and prospects may be adversely affected.
Product liability and product recalls could harm our business, and we may not be able to obtain adequate insurance to
protect us against product liability losses.
The current and future use of ADCETRIS by us and our corporate collaborators in clinical trials and the sale of ADCETRIS, expose us to product liability claims. These claims have and may in the future be
made directly by consumers or healthcare providers or indirectly by pharmaceutical companies, our corporate collaborators or others selling such products. We may experience substantial financial losses in the future due to product liability claims.
We have obtained product liability coverage, including coverage for human clinical trials and product sold commercially. However, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against
all losses. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured amounts, our assets may not be sufficient to cover such claims and our business operations could be
impaired.
Product recalls may be issued at our
discretion, or at the discretion of government agencies and other entities that have regulatory authority for pharmaceutical sales. Any recall of ADCETRIS could materially adversely affect our business by rendering us unable to sell ADCETRIS for
some time and by adversely affecting our reputation.
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Risks associated with operating in foreign countries could materially adversely affect our business.
We are expanding our operations
internationally, and we currently have subsidiaries in the U.K., Switzerland and Canada. Consequently, we are, and will continue to be, subject to risks related to operating in foreign countries. Risks associated with conducting operations in
foreign countries include:
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diverse regulatory, financial and legal requirements, and any future changes to such requirements, in one or more countries where we are located or do
business;
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adverse tax consequences, including changes in applicable tax laws and regulations;
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applicable trade laws, tariffs, export quotas, custom duties or other trade restrictions and any changes to them;
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economic weakness, including inflation, or political or economic instability in particular foreign economies and markets;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign currency fluctuations, which could result in increased operating expenses or reduced revenues, and other obligations incident to doing business
or operating in another country;
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liabilities for activities of, or related to, our international operations;
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workforce uncertainty in countries where labor unrest is more common than in the United States; and
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laws and regulations relating to data security and the unauthorized use of, or access to, commercial and personal information.
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For example, since a
significant proportion of the regulatory framework in the U.K. is derived from European Union directives and regulations, Brexit could materially change the regulatory regime applicable to our operations and those of our collaborators, including
with respect to marketing authorizations for ADCETRIS and our product candidates. We may also face new regulatory costs and challenges as result of Brexit that could have a material adverse effect on our operations. Depending on the terms of Brexit,
the U.K. could lose the benefits of global trade agreements negotiated by the European Union on behalf of its members, which may result in increased trade barriers which could make our doing business in Europe more difficult. In addition, currency
exchange rates for the British Pound and the Euro with respect to each other and the U.S. dollar have already been affected by Brexit. Should this foreign exchange volatility continue, it could cause volatility in our quarterly financial results. In
any event, we cannot predict to what extent these changes will impact our business or results of operations, or our ability to conduct operations in Europe.
These and other risks described elsewhere in these risk factors associated with expanding our international operations could materially
adversely affect our business.
Our operations involve
hazardous materials and are subject to environmental, health and safety controls and regulations.
We are subject to environmental, health and safety laws and regulations, including those governing the use of hazardous materials, and we
spend considerable time complying with such laws and regulations. Our business activities involve the controlled use of hazardous materials and although we take precautions to prevent accidental contamination or injury from these materials, we
cannot completely eliminate the risk of using these materials. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may materially harm our business, financial condition and results of
operations.
If any of our facilities are damaged or our
clinical, research and development or other business processes are interrupted, our business could be seriously harmed.
We conduct most of our business in a limited number of facilities in a single geographical location in Bothell, Washington. Damage or
extended periods of interruption to our corporate, development or research
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facilities due to fire, natural disaster, power loss, communications failure, unauthorized entry or other events could cause us to cease or delay development of some or all of our product
candidates or interrupt the sales process for ADCETRIS. Although we maintain property damage and business interruption insurance coverage on these facilities, our insurance might not cover all losses under such circumstances and our business may be
seriously harmed by such delays and interruption.
If we
experience a significant disruption in our information technology systems or breaches of data security, our business could be adversely affected.
We rely on information technology systems to keep financial records, capture laboratory data, maintain clinical trial data and corporate
records, communicate with staff and external parties and operate other critical functions. Our information technology systems are potentially vulnerable to disruption due to breakdown, malicious intrusion and computer viruses or other disruptive
events including but not limited to natural disaster. If we were to experience a prolonged system disruption in our information technology systems or those of certain of our vendors, it could delay or negatively impact the development and
commercialization of ADCETRIS and our product candidates, which could adversely impact our business. Although we maintain offsite back-ups of our data, if operations at our facilities were disrupted, it may cause a material disruption in our
business if we are not capable of restoring function on an acceptable timeframe. In addition, our information technology systems are potentially vulnerable to data security breacheswhether by employees or otherswhich may expose sensitive
data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information (including sensitive personal information) of our
employees, customers and others, any of which could have a material adverse effect on our business, financial condition and results of operations. Moreover, a security breach or privacy violation that leads to disclosure or modification of,
personally identifiable information, could harm our reputation, compel us to comply with federal and/or state breach notification laws, subject us to mandatory corrective action, require us to verify the correctness of database contents and
otherwise subject us to liability under laws and regulations that protect personal data, resulting in increased costs or loss of revenue. In addition, a data security breach could result in loss of clinical trial data or damage to the integrity of
that data. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and other negative consequences
because of lost or misappropriated information. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.
Increasing use of social media could give rise to liability.
We are increasingly relying on social
media tools as a means of communications. To the extent that we continue to use these tools as a means to communicate about ADCETRIS and our product candidates or about the diseases that ADCETRIS and our product candidates are intended to treat,
there are significant uncertainties as to either the rules that apply to such communications, or as to the interpretations that health authorities will apply to the rules that exist. As a result, despite our efforts to comply with applicable rules,
there is a significant risk that our use of social media for such purposes may cause us to nonetheless be found in violation of them. Such uses of social media could have a material adverse effect on our business, financial condition and results of
operations.
Legislative actions and new accounting
pronouncements are likely to impact our future financial position or results of operations.
Future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our financial position or
results of operations. New pronouncements and varying interpretations of pronouncements have occurred with frequency in the past and are expected to occur again in the future and as a result we may be required to make changes in our accounting
policies. Those changes could adversely affect our reported revenues and expenses, future profitability or financial position. Compliance with new regulations regarding corporate governance and public disclosure may result in additional expenses.
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For example, in May 2014, the Financial Accounting Standards Board, or FASB, issued an
Accounting Standards Update entitled ASU 2014-09, Revenue from Contracts with Customers which will replace the existing revenue recognition guidance in U.S. GAAP when it becomes effective for us on January 1, 2018. Our preliminary
assessment of this new standard is that it will generally not change the way in which we recognize product revenue from sales of ADCETRIS. However, we expect that sales-based royalties will be recorded in the period of the related sale based on
estimates, rather than recording them as reported by the customer. In addition, the achievement of development milestones under our collaborations will be recorded in the period their achievement becomes probable, which may result in their
recognition earlier than under current accounting principles. We are continuing to evaluate the impact of the new standard on all of our revenues, including those mentioned above, and our assessments may change in the future based on our continuing
evaluation. In any event, the application of existing or future financial accounting standards, particularly those relating to the way we account for revenues and costs, could have a significant impact on our reported results. In addition,
compliance with new regulations regarding corporate governance and public disclosure may result in additional expenses. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment may
result in increased general and administrative expenses and a diversion of management time and attention from science and business activities to compliance activities.
Risks Related to the Immunomedics License
Failure to consummate the transactions contemplated by the
Immunomedics License could negatively impact our stock price and our future business and financial results.
We announced on February 10, 2017 that we had entered into the Immunomedics License pursuant to which, upon the terms and subject to the
conditions set forth in the Immunomedics License, we would receive exclusive worldwide rights to develop and commercialize IMMU-132. The closing of the transactions contemplated by the Immunomedics License, which has not yet occurred, is subject to
customary closing conditions, including expiration of the applicable waiting period under the HSR Act, there being no pending court or administrative challenges to the Immunomedics License and there being no court or administrative orders blocking
the closing. On February 20, 2017, Immunomedics and we entered into a letter agreement pursuant to which Immunomedics irrevocably waived to the extent applicable to Immunomedics the condition precedent to the closing and effectiveness of the
Immunomedics License that there be no pending court or administrative challenges to the transaction. Additionally, under the terms of the Immunomedics License, Immunomedics had the right to continue discussions with a small number of parties that
previously expressed interest in licensing IMMU-132 until 11:59 p.m. New York City time on February 19, 2017. If a third party had provided Immunomedics with a financially superior licensing offer, we would have had the right to match any such
offer, and if we had decided not to match, Immunomedics would have had the right to accept the superior offer and terminate the Immunomedics License upon payment of a termination fee to us. We have not received notice from Immunomedics of any such
third party offers during this limited time period, and on February 21, 2017, Immunomedics announced that it is subject to customary no-shop restrictions on its and its representatives ability to solicit, discuss or negotiate
alternative licensing agreement proposals from third parties with regard to IMMU-132. On February 13, 2017, we were named a co-defendant in a lawsuit filed by venBio in the Delaware Chancery Court against the members of the board of directors
of Immunomedics, pursuant to which, among other things, venBio seeks to enjoin the closing of the transactions contemplated by the Immunomedics License. venBio has also initiated a proxy contest with respect the Immunomedics annual meeting to be
held on March 3, 2017, seeking to have its nominees elected to the Immunomedics board of directors in lieu of Immunomedics management nominees. As a result of the pending litigation challenging the transactions contemplated by the
Immunomedics License, Immunomedics and we have committed to the Court not to close the transactions contemplated by the Immunomedics License prior to March 10, 2017. We cannot predict the timing or outcome of the venBio lawsuit or the impact it
may have on the Immunomedics License or the closing of the transactions contemplated by the Immunomedics License. Likewise, we cannot predict the effect a potential change in the board of directors of Immunomedics could have on our ability to
consummate the transactions contemplated by the Immunomedics License. However, it is possible that, in connection with the venBio lawsuit and/or the proxy contest, the Immunomedics License could be rescinded or reformed in a way
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that is disadvantageous to us, including by requiring us to increase the transaction consideration payable to Immunomedics under the Immunomedics License, or that otherwise adversely affects the
anticipated benefits to us of the Immunomedics License. If the transactions contemplated by the Immunomedics License are not consummated, our ongoing business may be adversely affected and, without realizing any of the benefits of having consummated
the transactions contemplated by the Immunomedics License, we will be subject to a number of risks, including the following:
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the current price of our common stock may reflect a market assumption that the closing of the transactions contemplated by the Immunomedics License
will occur, such that a failure to complete such transactions could result in a decline in our stock price;
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we have made an equity investment of approximately $14.7 million in Immunomedics (which investment may never result in a financial return to us) in
contemplation of securing exclusive development and commercialization rights to IMMU-132 without realizing any of the benefits of securing such rights;
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matters relating to the Immunomedics License have required and will continue to require substantial commitments of time and resources by our management
and other employees, which could otherwise have been devoted to other opportunities that may have been beneficial to us;
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we may be required to reimburse Immunomedics for certain expenses incurred by Immunomedics in connection with the Immunomedics License if it is not
consummated; and
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we may incur significant costs and potential additional harms in connection with the lawsuit brought by venBio.
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We also could be subject to additional litigation related to
any failure to consummate the transactions contemplated by the Immunomedics License or to perform our obligations under the Immunomedics License. If the transactions contemplated by the Immunomedics License are not consummated, these risks may
materialize and may adversely affect our business, financial results and stock price.
Obtaining required approvals necessary to satisfy the conditions to the closing of the transactions contemplated by the Immunomedics License and the effect of the venBio lawsuit and the outcome of
the Immunomedics proxy contest may delay or prevent completion of the closing of the transactions contemplated by the Immunomedics License, result in additional expenditures of money and resources and/or reduce or eliminate the anticipated benefits
to us of the Immunomedics License.
The
closing of the transactions contemplated by the Immunomedics License is subject to customary closing conditions. These closing conditions include, among others, the expiration of the applicable waiting period under the HSR Act, compliance with
antitrust-related filing requirements in certain other countries, there being no pending court or administrative challenges to the Immunomedics License and there being no court or administrative orders blocking the closing. On February 20, 2017,
Immunomedics and we entered into a letter agreement pursuant to which Immunomedics irrevocably waived to the extent applicable to Immunomedics the condition precedent to the closing and effectiveness of the Immunomedics License that there be no
pending court or administrative challenges to the transaction. Additionally, under the terms of the Immunomedics License, Immunomedics had the right to continue discussions with a small number of parties that previously expressed interest in
licensing IMMU-132 until 11:59 p.m. New York City time on February 19, 2017. If a third party had provided Immunomedics with a financially superior licensing offer, we would have had the right to match any such offer, and if we had decided not
to match, Immunomedics would have had the right to accept the superior offer and terminate the Immunomedics License upon payment of a termination fee to us. We have not received notice from Immunomedics of any such third party offers during this
limited time period, and on February 21, 2017, Immunomedics announced that it is subject to customary no-shop restrictions on its and its representatives ability to solicit, discuss or negotiate alternative licensing agreement
proposals from third parties with regard to IMMU-132. The governmental agencies from which the parties will seek approvals have broad discretion in administering the governing regulations. As a condition to their approval, agencies may impose
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requirements, limitations or costs or require divestitures or place restrictions on the conduct of our IMMU-132 activities after the closing. These requirements, limitations, costs, divestitures
or restrictions could jeopardize or delay the closing of the transactions contemplated by the Immunomedics License or may reduce the anticipated benefits to us of the Immunomedics License. If we and Immunomedics agree to any material requirements,
limitations, costs or restrictions in order to obtain any approvals required to consummate the transactions contemplated by the Immunomedics License, these requirements, limitations, costs or restrictions could adversely affect the anticipated
benefits of the Immunomedics License. In addition, it is possible that, in connection with the venBio lawsuit and/or the proxy contest, the Immunomedics License could be rescinded or reformed in a way that is disadvantageous to us, including by
requiring us to increase the transaction consideration payable to Immunomedics under the Immunomedics License, or that otherwise adversely affects the anticipated benefits to us of the Immunomedics License. Any of these factors could result in a
failure to consummate these transactions or have a material adverse effect on our business and results of operations.
We may not be able to successfully integrate IMMU-132 or any other potential future product candidates we may acquire or license rights to, or we
may otherwise fail to realize their full potential.
We actively evaluate various strategic transactions on an ongoing basis, including licensing or otherwise acquiring complementary products, technologies or businesses, and we recently announced our entry
into the Immunomedics License with Immunomedics pursuant to which, if consummated, we would be granted an exclusive worldwide license to IMMU-132. However, we cannot ensure that we would be able to manage the risks associated with the transfer of
development, regulatory and manufacturing activities for IMMU-132 from Immunomedics to us or manage the risks associated with integrating IMMU-132 into our existing business and infrastructure. We may encounter unexpected difficulties during the
transfer, integration or further development of IMMU-132, any of which may cause us to expend greater funds and efforts or may slow, delay or limit the progress of IMMU-132s development. Unexpected difficulties may further be disruptive to our
ongoing development and commercialization efforts, put a strain on our existing personnel, infrastructure and business and divert managements time and attention. As a result of these or other problems and risks, even if the transactions
contemplated by the Immunomedics License are consummated, we may never receive regulatory approval for IMMU-132, we may not realize the full potential of IMMU-132 or we may never generate significant value or revenues from IMMU-132.
In addition, the market price of our common stock may decline
if the integration or further development of IMMU-132 is unsuccessful, takes longer than expected or fails to result in benefits to the extent anticipated by financial analysts or investors, or the effect of our license of IMMU-132 on our financial
position and results of operations is otherwise not consistent with the expectations of financial analysts or investors.
Risks Related to Our Common Stock
Our stock price is volatile and our shares may suffer a decline in value.
The market price of our stock has in the past been, and is likely to continue in the future to be, very
volatile. During the year ended December 31, 2016, our closing stock price fluctuated between $26.87 and $73.71 per share. As a result of fluctuations in the price of our common stock, you may be unable to sell your shares at or above the price
you paid for them. The market price of our common stock may be subject to substantial volatility in response to many risk factors listed in this section, and others beyond our control, including:
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the level of ADCETRIS sales in the United States, Canada, the European Union, Japan and other countries in which Takeda has received approval by
relevant regulatory authorities;
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announcements regarding the results of discovery efforts and preclinical, clinical and commercial activities by us, or those of our competitors;
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announcements of FDA or foreign regulatory approval or non-approval of ADCETRIS, or specific label indications for or restrictions, warnings or
limitations in its use, or delays in the regulatory review or approval process, including in connection with our planned sBLA submission to the FDA to seek approval of ADCETRIS in the ALCANZA treatment setting;
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announcements regarding the results of the clinical trials we and/or Takeda are conducting or may in the future conduct for ADCETRIS, including our
ECHELON-1 and ECHELON-2 phase 3 trials;
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announcements regarding, or negative publicity concerning, adverse events associated with the use of ADCETRIS or our product candidates, including
announcements similar to our December 2016 announcement that the FDA had placed a clinical hold or a partial clinical hold on several early stage trials of SGN-CD33A in AML to evaluate the potential risk of hepatotoxicity following adverse medical
events, including fatal events;
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issuance of new or changed analysts reports and recommendations regarding us or our competitors;
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termination of or changes in our existing collaborations or licensing arrangements, especially our ADCETRIS collaboration with Takeda or establishment
of new collaborations or licensing arrangements;
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announcements regarding the Immunomedics License, or the termination of or other changes to the Immunomedics License and the related lawsuit brought by
venBio;
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our entry into additional material strategic transactions including licensing or acquisition of products, businesses or technologies;
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actions taken by regulatory authorities with respect to our product candidates, our clinical trials or our regulatory filings, including the imposition
or lifting of clinical trial holds on trials of SGN-CD33A and our product candidates;
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our raising of additional capital and the terms upon which we may raise any additional capital;
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market conditions for equity investments in general, or the biotechnology or pharmaceutical industries in particular;
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developments or disputes concerning our proprietary rights;
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developments regarding the pending and potential additional related purported securities class action lawsuits, as well as any other potential
litigation;
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share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
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changes in government regulations; and
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economic or other external factors.
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The stock markets in general, and the markets for biotechnology and pharmaceutical stocks in particular, have historically experienced
significant volatility that has often been unrelated or disproportionate to the operating performance of particular companies. For example, negative publicity regarding drug pricing and price increases by pharmaceutical companies has negatively
impacted, and may continue to negatively impact, the markets for biotechnology and pharmaceutical stocks. Likewise, as a result of Brexit and/or significant changes in U.S. social, political, regulatory and economic conditions or in laws and
policies governing foreign trade and health care spending and delivery, including the potential repeal and/or replacement of all or portions of PPACA or greater restrictions on free trade stemming from Trump Administration policies, the financial
markets could experience significant volatility that could also negatively impact the markets for biotechnology and pharmaceutical stocks. These broad market fluctuations have adversely affected and may in the future adversely affect the trading
price of our common stock.
In the past, class
action or derivative litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. In this regard, we have become, and may in the future again become, subject to claims and litigation
alleging violations of the securities laws or other related claims, which could harm our business and require us to incur significant costs. The pending purported securities class action lawsuit and any additional lawsuits brought against us could
result in substantial costs, which would hurt our financial condition and results of operations and divert managements attention and resources, which could result in delays of our clinical trials or our development and commercialization
efforts.
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Substantial future sales of shares of our common stock or equity-related securities could cause the
market price of our common stock to decline.
Sales of a substantial number of shares of our common stock into the public market, including sales by members of our management or board of directors or entities affiliated with such members, could occur
at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock and could impair our ability to raise capital through the sale of
additional equity or equity-related securities. We are unable to predict the effect that such sales may have on the prevailing market price of our common stock. As of February 16, 2017, we had 142,493,676 shares of common stock outstanding, all
of which shares are eligible for sale in the public market, subject in some cases to the volume limitations and manner of sale and other requirements under Rule 144. In addition, we may issue a substantial number of shares of our common stock or
equity- related securities, including convertible debt, to meet our capital needs, including in connection with funding acquisition or licensing opportunities, capital expenditures or product development costs, which issuances could be substantially
dilutive and could adversely affect the market price of our common stock. Likewise, future issuances by us of our common stock upon the exercise, conversion or settlement of equity-based awards or other equity-related securities would dilute
existing stockholders ownership interest in our company and any sales in the public market of these shares, or the perception that these sales might occur, could also adversely affect the market price of our common stock.
Moreover, we have in the past and may in the future grant
rights to some of our stockholders that require us to register the resale of our common stock or other securities on behalf of these stockholders and/or facilitate public offerings of our securities held by these stockholders, including in
connection with potential future acquisition or capital-raising transactions. For example, in connection with our September 2015 public offering of common stock, we entered into a registration rights agreement with entities affiliated with Baker
Bros. Advisors LP, or the Baker Entities, that together, based on information available to us, collectively beneficially owned approximately 32.1% of our common stock as of February 16, 2017. Under the registration rights agreement, if at any
time and from time to time the Baker Entities demand that we register their shares of our common stock for resale under the Securities Act of 1933, we would be obligated to effect such registration. On October 12, 2016, pursuant to the
registration rights agreement, we registered for resale, from time to time, up to 44,059,594 shares of our common stock held by the Baker Entities. Our registration obligations under the registration rights agreement cover all shares now held or
hereafter acquired by the Baker Entities, will continue in effect for up to ten years, and include our obligation to facilitate certain underwritten public offerings of our common stock by the Baker Entities in the future. If the Baker Entities, by
its exercise of these registration and/or underwriting rights in the future, or otherwise, sell a large number of our shares, or the market perceives that the Baker Entities intend to sell a large number of our shares, including in connection with
our October 2016 registration of shares held by the Baker Entities for resale, this could adversely affect the market price of our common stock. We have also filed registration statements to register the sale of our common stock reserved for
issuance under our equity incentive and employee stock purchase plans. Accordingly, these shares will be able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements.
Our existing stockholders have significant control of our management
and affairs.
Our executive officers and
directors and holders of greater than five percent of our outstanding voting stock, together with entities that may be deemed affiliates of, or related to, such persons or entities, beneficially owned approximately 68.1% of our voting power as of
February16, 2017. As a result, these stockholders, acting together, are able to control our management and affairs and matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions,
such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership may have the effect of delaying, deferring or preventing a change in control, including a merger, consolidation, takeover
or other business combination involving us or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control, which might affect the market price of our common stock.
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Anti-takeover provisions could make it more difficult for a third party to acquire us.
Our Board of Directors has the authority
to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders, which authority could
be used to adopt a poison pill that could act to prevent a change of control of Seattle Genetics that has not been approved by our Board of Directors. The rights of the holders of common stock may be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control of Seattle Genetics without further action
by the stockholders and may adversely affect the voting and other rights of the holders of common stock. Further, certain provisions of our charter documents, including provisions eliminating the ability of stockholders to take action by written
consent and limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or management of Seattle Genetics, which could have an
adverse effect on the market price of our stock. In addition, our charter documents provide for a classified board, which may make it more difficult for a third party to gain control of our Board of Directors. Similarly, state anti-takeover laws in
Delaware and Washington related to corporate takeovers may prevent or delay a change of control of Seattle Genetics.