2019 ANNUAL REPORT
T R A NSF O R M AT I V E
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T R A NSF O R M AT I V E
Medicines
Cancer isn’t a single disease, and people with cancer need safe and effective
therapies that target their specific disease biology. Seattle Genetics is building
a diversified commercial portfolio and advancing a robust development pipeline
of programs that are based on innovative science and rigorous clinical evidence
that address diverse cancer indications.
ON THE COVER
Sandy, a mother and grandmother, was diagnosed with
urothelial cancer. After multiple rounds and types of
treatment failed, her oncologist gave her two options:
hospice or participating in a clinical trial. She chose
to enroll in a PADCEV clinical trial and responded to
treatment. Today she has resumed many of her fa-
vorite activities and is thinking about traveling and
playing tennis again.
Michael was training to be a firefighter and had been
married three months before he discovered he had
Hodgkin lymphoma. Michael received treatment with
ADCETRIS and is now doing well, enjoying hiking as
well as other outdoor activities.
DE AR SHAREHOLDERS,
2019 was a transformational year for Seattle Genetics
as we launched our second drug and realized our
goal of becoming a multi-product company. The FDA
approved PADCEV™ for certain types of metastatic
urothelial (bladder) cancer in December, expanding
our commercial portfolio into solid tumors and posi-
tioning us to bring another meaningful new medicine
to cancer patients. Tucatinib, for metastatic breast
cancer, is on the horizon in 2020 as a potential third
drug approval based on remarkable clinical data re-
ported in 2019. These accomplishments are in ad-
dition to progress with ADCETRIS, which is a grow-
ing franchise globally that is approved in more than
70 countries and has been used in the treatment of
more than 60,000 patients with lymphoma worldwide.
Behind these three agents, we are advancing a robust
pipeline of proprietary programs that we believe have
the potential to give more patients transformative
moments in their cancer care.
PADCEV is now approved in the United States
for patients with locally advanced or metastatic
urothelial cancer who have previously received both
a PD-1 or PD-L1 inhibitor and a platinum-containing
chemotherapy. This is an area of high unmet medi-
cal need and PADCEV is the first drug approved in
this setting. Clinical data presented in 2019, which
supported FDA accelerated approval, demonstrat-
ed that PADCEV could change the treatment par-
adigm for these patients. Seattle Genetics and our
partner Astellas are jointly selling
PADCEV in the United States, and
we are pleased by our progress in
the early stage of product launch.
We believe that PADCEV has
substantial clinical and commercial
potential across the spectrum of
bladder cancer. Under our collabo-
ration with Astellas, we plan to build
upon the initial approval of PADCEV in advanced
urothelial cancer by evaluating earlier lines of meta-
static disease as well as non-metastatic bladder can-
cer. We have completed enrollment in a randomized
phase 3 trial (EV-301) in advanced metastatic urothe-
lial cancer that is intended to serve as a confirmatory
trial in the United States and support global applica-
tions for approval. We have also initiated, in collabo-
ration with Astellas and Merck, a global randomized
phase 3 trial (EV-302) studying the combination of
PADCEV with Merck’s PD-1 inhibitor Keytruda®, ei-
ther with or without chemotherapy, for treatment of
first-line metastatic urothelial cancer. Encouraging
phase 1 data from the combination of PADCEV and
Keytruda in this setting led to FDA Breakthrough
Therapy designation and reinforce further explora-
tion of this chemotherapy-free option. Our efforts in
non-metastatic bladder cancer are beginning with an
ongoing clinical trial of PADCEV in muscle-invasive
disease. Despite treatment including surgical removal
of the bladder, there is a high risk of recurrence with
metastatic disease for these patients. We also plan to
explore non-muscle invasive bladder cancer. Beyond
urothelial cancer, we and Astellas recently initiated a
trial in other solid tumors to identify other potential
therapeutic applications for PADCEV.
In 2019, we reported strong results from
HER2CLIMB, a pivotal randomized trial evaluating
tucatinib in combination with trastuzumab and capecit-
abine in patients with locally ad-
vanced or metastatic HER2-positive
breast cancer. Nearly 50 percent of
those enrolled had brain metasta-
ses, a negative prognostic factor.
The results demonstrated that the
tucatinib-containing arm achieved a
statistically significant and clinical-
ly meaningful improvement across
PADCEV
U.S. Approval and Launch
Seattle Genetics became a multi-
product oncology company in
2019. PADCEV is the first drug
approved in its treatment setting
and meets a significant unmet
need for patients with metastatic
urothelial cancer. Ongoing clinical
trials have the opportunity to
further expand its use.
PAGE 1
S E A T T L E G E N E T I C S 2 0 1 9 A N N U A L R E P O R T
the primary and all secondary endpoints, including
improvement in progression-free and overall survival,
compared to the control arm. Notably, the combina-
tion was generally well tolerated with a manageable
safety profile. HER2CLIMB data were published in the
New England Journal of Medicine and supported FDA
Breakthrough Therapy designation. The positive results
of the HER2CLIMB trial validate our belief in the po-
tential of tucatinib as a best-in-class oral HER2 tyrosine
kinase inhibitor that improves outcomes for patients.
We submitted a New Drug Application (NDA)
for tucatinib to the FDA in December 2019, and in
February 2020 the FDA set a PDUFA target action
date of August 20, 2020. The application was submit-
ted under the FDA’s Real-Time Oncology Review Pilot
Program and the NDA is being reviewed under Project
Orbis, an initiative of the FDA Oncology Center of
Excellence that provides a framework for concurrent
submission and review of oncology drugs among
the United States, Canada, Switzerland, Singapore
and Australia. In addition, January 2020 saw both the
submission of the tucatinib Marketing Authorization
Application (MAA) and its validation by the European
Medicines Agency. With that in mind, we are in the
process of expanding our European capabilities and
adding leadership in key countries.
Our tucatinib development program encompass-
es a number of ongoing and planned clinical trials.
This includes a phase 3 trial called HER2CLIMB-02
in first- and second-line metastatic HER2-positive
breast cancer and a trial of tucatinib in neoadjuvant
breast cancer. We also believe tucatinib may have
application in other HER2-positive cancers, such as
colorectal cancer, and are conducting a phase 2 trial
designed to support potential accelerated approv-
al in the metastatic setting. We are planning trials
in other HER2-positive solid tumors as part of our
goal to broadly bring tucatinib to patients in need.
In addition to PADCEV and tucatinib, we con-
tinue to achieve significant milestones in the com-
mercialization and further clinical development of
ADCETRIS. In 2019, we achieved record ADCETRIS
revenues in the United States and Canada of $628
million, up 32 percent over 2018. Taken together
with sales of ADCETRIS by our partner Takeda in its
territory, global sales exceeded $1 billion in 2019,
underscoring the importance of ADCETRIS to phy-
sicians and patients around the world. A primary
driver of this growth is use of ADCETRIS in com-
bination with chemotherapy for newly diagnosed
Hodgkin lymphoma and peripheral T-cell lympho-
mas (PTCL). In December 2019, we presented 4-year
Diversifying our commercial portfolio and advancing
broad development programs across our pipeline
Fulfilling the promise for CD30-expressing lymphomas
First-in-class antibody-drug conjugate (ADC)
for urothelial cancer
Tucatinib
Deep pipeline
Potential best-in-class tyrosine kinase inhibitor
for metastatic HER2-positive breast cancer
Includes tisotumab vedotin and other novel
ADC and immuno-oncology agents
PAGE 2
S E A T T L E G E N E T I C S 2 0 1 9 A N N U A L R E P O R T
Marketing Applications
Under Review for Tucatinib
Remarkable results from the
HER2CLIMB clinical trial of
tucatinib for patients with
metastatic HER2-positive
breast cancer supported
FDA Breakthrough Therapy
designation and were the basis
for marketing applications in
the U.S., E.U. and certain other
countries globally. If approved,
2020 will be the year that we
add a third commercial product
to our portfolio.
progression-free survival data from
the ECHELON-1 trial in frontline
Hodgkin lymphoma that showed
sustained clinically meaningful ben-
efit of ADCETRIS plus chemother-
apy in this setting. We continue to
explore other uses of ADCETRIS
that may support label expansions
and inform application in clinical
practice. We are evaluating retreat-
ment with ADCETRIS, use in pa-
tients who are unfit for combina-
tion chemotherapy, novel frontline
Hodgkin lymphoma regimens and
relapsed/refractory diffuse large
B-cell lymphoma.
As our commercial portfolio is becoming more
diverse with products addressing hematological ma-
lignancies and solid tumors, we are also advanc-
ing a pipeline of programs across a range of cancer
types. The most advanced of these is tisotumab ve-
dotin, which we are developing in collaboration with
Genmab. Our initial focus is in recurrent or metastatic
cervical cancer, and we expect to report topline data
from a pivotal phase 2 trial in this setting in the first
half of 2020. We are also studying tisotumab vedotin
in other solid tumors including ovarian and head and
neck cancers.
Our commitment to transforming cancer care
demands that we address the molecular biology of
specific cancer types. Doing so requires advancing a
variety of small molecule, antibody-based and immu-
no-oncology therapies that target specific mutations
inside cancer cells, on their surfaces and in their sur-
rounding microenvironments. Seattle Genetics’ clin-
ical-stage pipeline highlights our ability to identify
and develop potentially differentiat-
ed new therapies across therapeu-
tic classes. We intend to continue
our investment in product candi-
dates that we believe can be first-
in-class or best-in-class, including
antibody-drug conjugates and oth-
er targeted therapies. In addition to
many early-stage assets already in
clinical trials, we expect to advance
four novel agents into the clinic in
2020 and another four in 2021. We
are utilizing efficient clinical trial de-
signs that are intended to inform
clear, rapid and evidence-based de-
velopment decisions. We look for-
ward to keeping you updated on our progress with
this deep pipeline of programs that we believe will
be drivers of our future growth.
Over the past two years we have made rapid
progress in advancing multiple therapies. The 2018
approval of ADCETRIS in frontline PTCL just 11 days
after submission of a supplemental Biologics License
Application, the 2019 approval of PADCEV only 26
months after the first patient was enrolled in the piv-
otal trial, the submission of six tucatinib marketing ap-
plications within three months of having pivotal data
and the initiation of trials with multiple new agents in
2019 – each of these achievements reflects our deep
sense of urgency, our research and development ex-
pertise and our commitment to advancing important
new medicines. As this letter goes to print, the global
impact of the COVID-19 pandemic is evolving. In this
rapidly changing environment, our focus remains on
the pursuit of transformative therapies that make a
meaningful difference in cancer patients’ lives.
Clay B. Siegall, Ph.D.
President, Chief Executive Officer and Chairman of the Board
PAGE 3
S E A T T L E G E N E T I C S 2 0 1 9 A N N U A L R E P O R T
M O M EN T S
Matter
As we move into and through 2020, we remain committed to developing
transformative medicines for people with cancer. We expect ADCETRIS to
continue growing as a mainstay in the treatment of several types of lymphoma.
The launch of PADCEV will give patients with certain types of metastatic urothelial
cancer new options for treating their disease. The potential approval of tucatinib
holds the promise of an innovative treatment for metastatic HER2-positive breast
cancer. The continued advancement and expansion of our clinical programs
for ADCETRIS, PADCEV, tucatinib and our pipeline programs will support the
further evolution of Seattle Genetics from a leading innovator of cutting-edge
ADC technology and other targeted therapies to a diversified, global oncology
company. Underpinning this vision is our dedication to patients, commitment to
excellence and the urgent need to make every moment matter.
PAGE 4
S E A T T L E G E N E T I C S 2 0 1 9 A N N U A L R E P O R T
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-32405
Seattle Genetics, Inc.
(Exact name of registrant as specified in its charter)
Delaware
91-1874389
(State or other Jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
21823 30th Drive SE, Bothell, WA 98021
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (425) 527-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001
SGEN
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $7.5 billion as of the last business day of the
registrant’s most recently completed second fiscal quarter, based upon the closing sale price on The Nasdaq Global Select Market reported for such date. Excludes an aggregate of
53,192,037 shares of the registrant’s Common Stock held as of such date by officers, directors and stockholders that the registrant has concluded are or were affiliates of the registrant.
Exclusion of such shares should not be construed to indicate that the holder of any such shares possesses the power, direct or indirect, to direct or cause the direction of the
management or policies of the registrant or that such person is controlled by or under common control with the registrant.
There were 172,259,645 shares of the registrant’s Common Stock issued and outstanding as of February 3, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, in connection with the Registrant’s 2020 Annual Meeting of Stockholders.
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Item 4.
Item 5.
Item 6.
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.
Principal Accounting Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Item 16.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
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This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are
based on our management’s beliefs and assumptions and on information currently available to our management. All
statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions,
including those relating to future events or our future financial performance and financial guidance. In some cases,
you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “expect,”
“plan,” “anticipate,” “project,” “believe,” “estimate,” “predict,” “potential,” “intend” or “continue,” the negative of
terms like these or other comparable terminology, and other words or terms of similar meaning in connection with
any discussion of future operating or financial performance. These statements are only predictions. All forward-
looking statements included in this Annual Report on Form 10-K are based on information available to us on the date
hereof, and we assume no obligation to update any such forward-looking statements, except as required by law. Any
or all of our forward-looking statements in this document may turn out to be incorrect. Actual events or results may
differ materially. Our forward-looking statements can be affected by inaccurate assumptions we might make or by
known or unknown risks, uncertainties and other factors. We discuss many of these risks, uncertainties and other
factors in this Annual Report on Form 10-K in greater detail under the heading “Item 1A—Risk Factors.” We
caution investors that our business and financial performance are subject to substantial risks and uncertainties.
PART I
Item 1. Business
Overview
Seattle Genetics is a biotechnology company that develops and commercializes therapies targeting cancer. We are
commercializing ADCETRIS®, or brentuximab vedotin, for the trbreatment of certain CD30-expressing lymphomas, and
PADCEVTM, or enfortumab vedotin-ejfv, for the treatment of certain metastatic urothelial cancers. We are also advancing
a pipeline of novel therapies for solid tumors and blood-related cancers designed to address unmet medical needs and
improve treatment outcomes for patients. Many of our programs, including ADCETRIS and PADCEV, are based on our
antibody-drug conjugate, or ADC, technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-
killing agents directly to cancer cells.
ADCETRIS is commercially available in more than 70 countries worldwide. We commercialize ADCETRIS in
the U.S. and its territories and in Canada, and we collaborate with Takeda Pharmaceutical Company Limited, or Takeda,
to develop and commercialize ADCETRIS on a global basis. Under this collaboration, Takeda has commercial rights in
the rest of the world and pays us a royalty. ADCETRIS is approved by the U.S. Food and Drug Administration, or FDA,
in six indications. In Hodgkin lymphoma, ADCETRIS is approved as monotherapy for patients whose disease has
relapsed and as consolidation therapy following prior treatment, and in combination with chemotherapy for the treatment
of patients with previously untreated disease. In T-cell lymphomas, ADCETRIS is approved as monotherapy for patients
with relapsed or refractory systemic anaplastic large cell lymphoma, or sALCL, or certain types of cutaneous T-cell
lymphoma, and in combination with chemotherapy for patients with previously untreated CD30-expressing peripheral T-
cell lymphoma, or PTCL.
Beyond our current labeled indications, we are evaluating ADCETRIS in several clinical trials. These include a
potentially registration-enabling trial evaluating treatment with ADCETRIS in Hodgkin lymphoma and PTCL patients
who are unfit for combination chemotherapy, and a potentially registration-enabling trial evaluating retreatment with
ADCETRIS in Hodgkin and T-cell lymphoma patients who progress after a prior response, including in the frontline
setting. In addition, we are evaluating ADCETRIS in combination with nivolumab for Hodgkin and non-Hodgkin
lymphoma under a clinical collaboration with Bristol-Myers Squibb Company, or BMS. Nivolumab is a programmed
death-1, or PD-1, immune checkpoint inhibitor.
1
Our second marketed product PADCEV, was granted accelerated approval by the FDA in December 2019 for the
treatment of adult patients with locally advanced or metastatic urothelial cancer who have previously received a PD-1 or
PD-L1 inhibitor and a platinum-containing chemotherapy before (neoadjuvant) or after (adjuvant) surgery or in a locally
advanced or metastatic setting. It is the first FDA approved treatment for these patients. PADCEV was approved under
the FDA’s Accelerated Approval Program based on tumor response rate. Continued approval may be contingent upon
verification and description of clinical benefit in confirmatory trials. A global, randomized phase 3 clinical trial, called
EV-301, which is a required confirmatory trial, is ongoing and is also intended to support global registrations. We
completed enrollment in the trial in January 2020.
PADCEV is being co-developed and jointly commercialized with Astellas Pharma, Inc., or Astellas. In the U.S.,
we and Astellas are jointly promoting PADCEV. In the U.S. we record net sales of PADCEV and are responsible for all
distribution activities. We and Astellas each bear the costs of our own sales organizations in the U.S., equally share
certain other costs associated with commercializing PADCEV in the U.S., and equally share in any profits realized in the
U.S.
FDA approval of PADCEV was supported by data from a single-arm pivotal phase 2 clinical trial called EV-201.
The trial enrolled 125 patients with locally advanced or metastatic urothelial cancer who received prior treatment with a
PD-1 or PD-L1 inhibitor and a platinum-based chemotherapy. Positive results from the first cohort were presented at the
American Society of Clinical Oncology, or ASCO, 2019 annual meeting and published in the Journal of Clinical
Oncology. We are continuing enrollment in the EV-201 trial for the second cohort of patients who previously received a
PD-1 or PD-L1 inhibitor, but who were not candidates for treatment with a platinum agent, which we believe could
potentially serve as the basis for a second indication.
PADCEV is also being investigated in frontline metastatic urothelial cancer and earlier stages of bladder cancer.
We and Astellas are conducting a phase 1/2 clinical trial, called EV-103, that is a multi-cohort, open-label trial of
PADCEV alone or in combination with the anti-PD-1 therapy pembrolizumab and/or chemotherapy. The trial is
evaluating safety, tolerability and activity in locally advanced and first- and second-line metastatic urothelial cancer, and
was recently expanded to include muscle invasive bladder cancer. In September 2019, initial results from the trial in
patients with previously untreated locally advanced or metastatic urothelial cancer who were ineligible for treatment with
cisplatin-based chemotherapy were presented at the European Society for Medical Oncology, or ESMO, 2019 Congress,
that demonstrated a confirmed objective response rate, or ORR, of 71 percent and met safety outcome measures.
Positive initial data from the EV-103 trial support a recently initiated global, registrational phase 3 trial, called
EV-302, in frontline metastatic urothelial cancer that is being conducted under a clinical collaboration agreement
between us, Astellas and Merck. Under the terms of the agreement, we, Astellas and Merck are jointly funding EV-302.
The trial was initiated in January 2020 and the trial is being led by us. EV-302 is an open-label, randomized phase 3
clinical trial evaluating the combination of PADCEV and pembrolizumab with or without chemotherapy versus
chemotherapy alone in patients with previously untreated locally advanced or metastatic urothelial cancer. The trial is
expected to enroll 1,095 patients and the dual primary endpoints are progression-free survival, or PFS, and overall
survival, or OS.
In addition in January 2020, we and Astellas initiated a phase 2 clinical trial, called EV-202, to evaluate PADCEV
monotherapy in solid tumors that have high-levels of Nectin-4 expression, including non-small cell lung, head and neck,
gastric/esophageal and breast cancers.
The most advanced program in our clinical pipeline is tucatinib, an oral, small molecule tyrosine kinase inhibitor,
or TKI, that is highly selective for HER2, a growth factor receptor overexpressed in many cancers. Positive results from
the tucatinib HER2CLIMB-01 pivotal trial were presented in December 2019 at the 2019 San Antonio Breast Cancer
Symposium and simultaneously published in the New England Journal of Medicine. HER2CLIMB-01 is a randomized
pivotal clinical trial comparing tucatinib added to trastuzumab and capecitabine versus trastuzumab and capecitabine
alone in patients with locally advanced or metastatic HER2-positive breast cancer who were previously treated with
trastuzumab, pertuzumab and ado-trastuzumab emtansine, or T-DM1.
2
Based on the HER2CLIMB-01 results, in December 2019, tucatinib was granted Breakthrough Therapy
designation by the FDA in combination with trastuzumab and capecitabine for treatment of patients with locally
advanced unresectable or metastatic HER2-positive breast cancer, including patients with brain metastases, who have
been treated with trastuzumab, pertuzumab and T-DM1. Also in December 2019, we submitted a New Drug Application,
or NDA, to the FDA under Oncology Center of Excellence's, or OCE's, Real Time Oncology Review, or RTOR, pilot
program. We are also participating in the Project Orbis initiative of the FDA OCE which provides a framework for
concurrent submission and review of oncology products among international partners. Countries currently included in
this initiative are Australia, Canada, Singapore, Switzerland and the U.S. In addition to the U.S., applications for
approval were submitted to the other participating countries. In January 2020, we submitted a Marketing Authorization
Application, or MAA, to the European Medicines Agency, or EMA, and the submission was validated, which confirms it
is sufficiently complete to begin the formal review process.
We intend to conduct a broad clinical development program of tucatinib in earlier lines of breast cancer and in
other HER2-positive cancers. In October 2019, we initiated a phase 3 randomized trial, called HER2CLIMB-02, of
tucatinib versus placebo, in combination with T-DM1 for patients with unresectable locally advanced or metastatic
HER2-positive breast cancer, including those with brain metastases, who have had prior treatment with a taxane and
trastuzumab.
We are also conducting a phase 2 trial, called MOUNTAINEER, evaluating tucatinib in combination with
trastuzumab in patients with HER2-positive, RAS wild-type metastatic colorectal cancer after treatment with first- and
second-line standard-of-care therapies. Initial results from 23 patients were presented at the ESMO 2019 Congress that
demonstrated encouraging antitumor activity. We have expanded enrollment in the trial so that it could potentially
support an application for accelerated approval in the U.S.
In collaboration with Genmab A/S, or Genmab, we are developing tisotumab vedotin, which is an ADC targeting
tissue factor. We and Genmab are conducting a pivotal phase 2 trial, called the innovaTV 204 trial, evaluating single-
agent tisotumab vedotin for patients with recurrent and/or metastatic cervical cancer who have relapsed or progressed
after standard of care treatment. The trial is intended to support a potential regulatory submission under the FDA's
accelerated approval pathway. In March 2019, we completed enrollment in the innovaTV 204 trial and we anticipate
reporting topline data from the trial in the first half of 2020. We are also conducting a phase 2 clinical trial called
innovaTV 207 for patients with relapsed, locally advanced or metastatic solid tumors which is intended to inform future
development plans. In addition, we are conducting a phase 2 clinical trial, called innovaTV 208, for patients with
platinum-resistant ovarian cancer.
We are developing ladiratuzumab vedotin, an ADC targeting LIV-1, which is currently being evaluated in phase 1
and phase 2 clinical trials both as monotherapy and in combination with other agents for patients with metastatic breast
cancer and select solid tumors with high LIV-1 expression.
We are advancing a pipeline of early-stage clinical candidates as well as multiple preclinical and research-stage
programs that employ our proprietary technologies. We have advanced several product candidates into clinical
development in 2019 and we plan to submit several investigational new drug applications, or INDs, to the FDA in 2020.
We have active license agreements for our ADC technology with a number of biotechnology and pharmaceutical
companies, including AbbVie Biotechnology Ltd., or AbbVie; Genentech, Inc., a member of the Roche Group, or
Genentech; GlaxoSmithKline LLC, or GSK; and Progenics Pharmaceuticals Inc, as well as collaboration agreements
with Astellas and Genmab. Genentech and GSK have ADCs using our technology in late-stage clinical trials. In June
2019, Genentech received accelerated approval from the FDA and, in January 2020, received conditional marketing
authorization from the European Commission for Polivy® (polatuzumab vedotin-piic), an ADC that uses our technology,
to treat patients with relapsed or refractory diffuse large B-cell lymphoma. Under our ADC license agreement with
Genentech, the accelerated approval of Polivy triggered a milestone payment to us and we also receive royalties on net
sales of Polivy worldwide. In January 2020, the FDA granted priority review for GSK's Biologics License Application,
or BLA, and in February 2020 the EMA validated GSK's MAA for belantamab mafodotin, an additional ADC that uses
our technology, for the treatment of patients with relapsed or refractory multiple myeloma, whose prior therapy included
an immunomodulatory agent, a proteasome inhibitor, and an anti-CD38 antibody. Additionally, GSK initiated a phase 3
clinical trial of belantamab mafodotin in the fourth quarter of 2019.
3
Our Strategy
Our strategy is to become a global oncology company developing and marketing targeted therapies for cancer.
Key elements of our strategy are to:
•
Successfully Execute Our ADCETRIS Commercial Plan. We continue to focus our efforts on commercializing
ADCETRIS in the United States and Canada, particularly its use for previously untreated Hodgkin lymphoma
and CD30-expressing PTCL, through the coordinated efforts of our sales, marketing, reimbursement and
market planning groups. Beyond the frontline setting in the U.S. and Canada, ADCETRIS is approved by the
FDA for four additional indications in other settings for the treatment of Hodgkin lymphoma and T-cell
lymphomas. In addition, we are continuing to support Takeda’s efforts to obtain regulatory approvals and
conduct commercial launches in additional countries worldwide.
• Expand the Therapeutic Potential of ADCETRIS. We believe ADCETRIS may have additional applications in
the treatment of Hodgkin lymphoma and other types of CD30-expressing lymphomas. Clinical trials are being
conducted by us, including ones that are potentially registration-enabling, as well as by our collaborators and
by investigators in different CD30-expressing indications. They include novel combinations of ADCETRIS
plus other anticancer agents and in other areas of medical and scientific interest. Several clinical trials are
evaluating ADCETRIS in combination with nivolumab, a PD-1 inhibitor, in various lymphoma settings.
•
Successfully Commercialize PADCEV in the U.S. and Seek Approval in Other Territories Globally. We and
our partner Astellas are focused on commercializing PADCEV in the U.S. following accelerated approval by
the FDA in December 2019. We have established an experienced commercial team that is providing
information to patients and physicians as to the efficacy and safety of PADCEV for the treatment of patients
with previously treated metastatic urothelial cancer. We are also advancing a global, randomized phase 3
clinical trial, EV-301, that is intended to support global regulatory applications for potential approvals.
• Expand the Therapeutic Potential of PADCEV. We are conducting trials evaluating PADCEV both as a single
agent and in combination with other anticancer agents in different settings of urothelial cancer. We have
initiated a registration-enabling phase 3 trial of PADCEV in combination with pembrolizumab for previously
untreated metastatic urothelial cancer based on positive results from the EV-103 trial. Additionally, we are
investigating PADCEV in a phase 1/2 trial for treatment of muscle-invasive bladder cancer, an earlier non-
metastatic stage of the disease, as well as in other solid tumors.
•
Seek Approval and Commercialize Tucatinib in the U.S., Europe and Other Territories Globally. Our efforts
are focused on advancing applications for approval submitted to the FDA in December 2019 and the EMA in
January 2020 for patients with previously treated HER2-positive metastatic breast cancer. Our strategy is to
commercialize tucatinib in the U.S., Europe and additional countries globally.
• Expand the Therapeutic Potential of Tucatinib in Earlier Lines of HER2-Positive Metastatic Breast Cancer
and Other HER2-Positive Cancers. We are advancing a registration-enabling phase 3 trial of tucatinib in
combination with T-DM1 in previously treated HER2-positive metastatic breast cancer that would potentially
support use in earlier lines of therapy. In addition, we are conducting a phase 2 trial in HER2-positive
metastatic colorectal cancer.
• Advance Our Clinical Pipeline of Oncology Drugs. We are deploying our clinical, development, regulatory
and manufacturing expertise with the goal of advancing our product candidates. Our key efforts in this regard
include:
Advance Tisotumab Vedotin including in a Pivotal Trial for Cervical Cancer. We and Genmab are
conducting a pivotal phase 2 trial for patients with recurrent and/or metastatic cervical cancer who have
relapsed or progressed after standard of care treatment. In addition, as part of our strategy to broadly
investigate tisotumab vedotin for cancer we and Genmab are conducting clinical trials for patients in
other solid tumors that are intended to inform future development plans.
4
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 as well as other preclinical and
research-stage programs that employ our proprietary technologies. We are evaluating our programs as
monotherapy, and in some cases in combination with other anticancer agents such as checkpoint
inhibitors, to broadly assess the potential of our pipeline as part of existing and emerging therapeutic
regimens.
•
Support Growth of Our Pipeline through Internal Research Efforts, and Enter Into Strategic Transactions and
Collaborations. We have internal research programs directed at 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
acquire or in-license from biotechnology and pharmaceutical companies and academic institutions. We have
also entered into collaborations to broaden and accelerate clinical trial development and potential
commercialization of our product candidates. Collaborations may be entered into in order to supplement our
own internal expertise in key areas such as manufacturing, regulatory affairs and clinical development, or
provide us with access to our collaborators’ marketing, sales and distribution capabilities in specific
territories.
• Continue to Expand Globally. We have established operations in Zug, Switzerland and in Amsterdam, the
Netherlands to support our operations within Europe. We acquired global rights to tucatinib in 2018, and we
plan to continue to develop our European presence in support of our commercialization of tucatinib in
Europe. We plan to expand globally in stages and are evaluating different alternatives for tucatinib
commercialization in regions outside of the United States, Canada and Western Europe including potential
distributorships, partnering and out-license arrangements.
• 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 license agreements with AbbVie, Genentech, GSK,
and Progenics, as well as collaboration agreements with Astellas and Genmab. ADC collaboration and license
agreements have generated over $425 million as of December 31, 2019, primarily in the form of upfront and
milestone payments. In June 2019, Genentech received approval for Polivy from the FDA and, in January
2020, from the European Commission. In January 2020, the FDA granted priority review for GSK's Biologics
License Application, or BLA, and in February 2020 the EMA validated GSK's MAA for belantamab
mafodotin for the treatment of patients with relapsed or refractory multiple myeloma, whose prior therapy
included an immunomodulatory agent, a proteasome inhibitor, and an anti-CD38 antibody.
5
Marketed Products
We are currently commercializing ADCETRIS for patients with certain CD30-expressing lymphomas and PADCEV
for patients with previously treated metastatic urothelial cancer.
ADCETRIS
ADCETRIS is an ADC targeting CD30, which is a protein located on the surface of cells and highly expressed in
Hodgkin lymphoma, certain T-cell lymphomas as well as other cancers. We are collaborating with Takeda on the global
development and commercialization of ADCETRIS. Under this collaboration, we have rights to commercialize ADCETRIS
in the United States and Canada. Takeda has exclusive rights to commercialize ADCETRIS in the rest of the world.
ADCETRIS has received regulatory approvals in the United States and Canada as follows:
Indication1
Approvals
ADCETRIS approvals in classical Hodgkin lymphoma (cHL)
Previously untreated Stage III/IV cHL in combination with doxorubicin, vinblastine and dacarbazine
cHL at high risk of relapse or progression as post-autologous hematopoietic stem cell transplantation (auto-HSCT)
consolidation
cHL after failure of auto-HSCT or after failure of at least two prior multi-agent chemotherapy regimens in patients
who are not auto-HSCT candidates
U.S.
Canada
U.S.
Canada
U.S.
Canada
ADCETRIS approvals in T-cell lymphoma
Previously untreated sALCL or other CD30-expressing PTCL, including angioimmunoblastic T-cell lymphoma and
PTCL not otherwise specified, in combination with cyclophosphamide, doxorubicin and prednisone
U.S.
Canada
sALCL after failure of at least one prior multi-agent chemotherapy regimen
Primary cutaneous anaplastic large cell lymphoma (pcALCL) or CD30-expressing mycosis fungoides (MF) who
have received prior systemic therapy
1.
2.
ADCETRIS is only indicated for adults.
Approval with conditions.
U.S.
Canada2
U.S.
Canada
Takeda has received regulatory approval for ADCETRIS as monotherapy or in combination with agents in various
settings for the treatment of patients with Hodgkin lymphoma or CD30-positive T-cell lymphomas in Europe and the rest of
the world, and is pursuing additional regulatory approvals. ADCETRIS is commercially available in more than 70 countries
worldwide.
Market Opportunities
According to the American Cancer Society, approximately 8,500 cases of Hodgkin lymphoma are expected to be
diagnosed in the United States during 2020, and an estimated 1,000 people are expected to die of the disease. Approximately
4,000 patients are diagnosed annually in the United States with a type of CD30-expressing PTCL, including sALCL. The
standard of care frontline therapy for patients with Hodgkin lymphoma and PTCL has seen limited improvement over the
last few decades. Additionally, these chemotherapy regimens have substantial associated toxicities and a significant number
of lymphoma patients relapse and require additional treatments including other chemotherapy regimens and autologous stem
cell transplant, or ASCT. An estimated 1,000 people annually have CD30-expressing mycosis fungoides or primary
cutaneous ALCL requiring systemic therapy.
6
PADCEV
PADCEV is an ADC targeting Nectin-4, a protein expressed on the surface of cells and highly expressed in bladder
cancer as well as other cancers. PADCEV was granted accelerated approval by the FDA in December 2019 for the treatment
of adult patients with locally advanced or metastatic urothelial cancer who have previously received a PD-1 or PD-L1
inhibitor and a platinum-containing chemotherapy before (neoadjuvant) or after (adjuvant) surgery or in a locally advanced
or metastatic setting. It is the first FDA approved treatment for these patients. PADCEV is approved under the FDA’s
Accelerated Approval Program based on tumor response rate. The FDA’s Accelerated Approval Program allows approval of
a medicine based on a surrogate endpoint, such as tumor response rate, if the medicine fills an unmet medical need for a
serious condition. A global, randomized phase 3 clinical trial, EV-301, which is a required confirmatory trial, completed
enrollment in January 2020 and is also intended to support global registrations.
The primary basis for the BLA submission to the FDA was the positive EV-201 pivotal trial results of PADCEV.
EV-201 is a phase 2 multi-center trial that enrolled 125 patients with locally advanced or metastatic urothelial cancer who
received prior treatment with a PD-1 or PD-L1 inhibitor and a platinum-based chemotherapy. In the trial, the primary
endpoint of confirmed ORR was 44 percent per blinded independent central review (55/125; 95 percent Confidence Interval,
or CI,: 35.1, 53.2). Among patients treated with the single agent PADCEV, 12 percent (15/125) experienced a complete
response, meaning no cancer could be detected at the time of assessment, and 32 percent (40/125) experienced a partial
response, meaning a decrease in tumor size or extent of cancer in the body. The median duration of response, or DoR, a
secondary endpoint, was 7.6 months (95 percent CI: 6.3, not estimable). The most common serious adverse reactions ( 3
percent) were urinary tract infection (6 percent), cellulitis (5 percent), febrile neutropenia (4 percent), diarrhea (4 percent),
sepsis (3 percent), acute kidney injury (3 percent), dyspnea (3 percent), and rash (3 percent). The most common adverse
reaction leading to discontinuation was peripheral neuropathy (6 percent). The most common adverse reactions ( 20
percent) were fatigue (56 percent), peripheral neuropathy (56 percent), decreased appetite (52 percent), rash (52 percent),
alopecia (50 percent), nausea (45 percent), dysgeusia (42 percent), diarrhea (42 percent), dry eye (40 percent), pruritus (26
percent) and dry skin (26 percent). The most common Grade 3 adverse reactions ( 5 percent) were rash (13 percent),
diarrhea (6 percent) and fatigue (6 percent).
Market Opportunities
Approximately 154,000 people in the United States will present annually with the need for treatment for newly
diagnosed or recurrent bladder cancer. This includes approximately 20,000 with metastatic disease, 28,000 with muscle
invasive disease and 106,000 with non-muscle invasive disease. In the metastatic setting, several PD-1 and PD-L1 inhibitors
have been approved for urothelial cancer in the past several years and are improving outcomes for some patients, yet the
vast majority of patients do not benefit, or relapse, and require additional treatment options. Prior to the approval of
PADCEV in the U.S. there were no approved agents in the post-platinum-based therapy and post-checkpoint inhibitor
setting, representing an unmet medical need. We are conducting clinical trials in frontline metastatic disease and in muscle
invasive bladder cancer. In addition, we are working on a development strategy in non-muscle invasive bladder cancer.
7
Our Clinical Development Pipeline
The following table summarizes the clinical development status of ADCETRIS, PADCEV and our lead product
candidates:
Name of Product
or
Product Candidate
ADCETRIS
(brentuximab
vedotin)
Therapeutic Area
Frontline Hodgkin lymphoma
Frontline Hodgkin lymphoma or PTCL that is unfit for
chemotherapy
Relapsed Hodgkin lymphoma or PTCL; retreatment with
ADCETRIS
Relapsed Hodgkin lymphoma (pediatrics)
PADCEV
(enfortumab
vedotin-ejfv)2
Metastatic urothelial cancer previously treated with a PD-1
or PD-L1 inhibitor and is platinum naive or cisplatin
ineligible
Metastatic urothelial cancer previously treated with
platinum chemotherapy and a PD-1 or PD-L1 inhibitor
Frontline metastatic urothelial cancer
Frontline metastatic urothelial cancer or muscle invasive
bladder cancer
Monotherapy/
Combination
Development Status
In combination with
nivolumab, doxorubicin
and dacarbazine1
Phase 2
Monotherapy
Phase 2
Monotherapy
Phase 2
Combination with
nivolumab1
Monotherapy
Phase 2 (CheckMate 744)
Pivotal Phase 2 (EV-201 cohort 2)
Phase 3 (EV-301)
Phase 3 (EV-302)
Phase 1/2 (EV-103)
In combination with
pembrolizumab with or
without platinum agents
In combination with
platinum agents and/or
pembrolizumab
Metastatic solid tumors including non-small cell lung
cancer, head and neck, gastric/esophageal and breast cancer
Monotherapy
Phase 2 (EV-202)
Tucatinib
HER2+ metastatic breast cancer previously treated with
HER2-targeted agents, including patients with brain
metastases
In combination with
capecitabine and
trastuzumab
Pivotal Phase 2 (HER2CLIMB-01)
Tisotumab
Vedotin3
HER2+ metastatic breast cancer previously treated with a
taxane and trastuzumab, including patients with brain
metastases
HER2+ metastatic colorectal cancer
In combination with ado-
trastuzumab (T-DM1)
Phase 3 (HER2CLIMB-02)
In combination with
trastuzumab
Phase 2 (MOUNTAINEER)
Recurrent/metastatic cervical cancer
Monotherapy
Pivotal Phase 2 (innovaTV 204)
First- and -second-line metastatic cervical cancer
In combination with other
cancer agents
Phase 1/2 (innovaTV 205)
Relapsed, locally advanced or metastatic solid tumors
Platinum-resistant ovarian cancer
Monotherapy
Monotherapy
Phase 2 (innovaTV 207)
Phase 2 (innovaTV 208)
1. Clinical collaboration with Bristol-Myers Squibb
2.
3.
50:50 co-development and commercial collaboration with Astellas
50:50 co-development and commercial collaboration with Genmab
Development Status
ADCETRIS (brentuximab vedotin)
Beyond our current labeled indications, we are evaluating ADCETRIS monotherapy and in combination with other
agents in ongoing trials. In addition to our corporate-sponsored trials there are numerous investigator-sponsored trials of
ADCETRIS in the United States. The investigator-sponsored trials include the use of ADCETRIS in a number of malignant
hematologic indications and in solid tumors. Several investigator-sponsored trials are currently evaluating ADCETRIS with
immuno-oncology compounds in Hodgkin lymphoma, and we expect that additional investigator-sponsored trials might
evaluate ADCETRIS in novel combination regimens.
8
Recent clinical data and analyses from select trials of ADCETRIS were presented at the 61st American Society of
Hematology annual meeting in December 2019 including:
• Four-Year Update of the phase 3 ECHELON-1 Trial. As previously reported, the ECHELON-1 trial achieved its
primary endpoint with the combination of ADCETRIS plus AVD (Adriamycin [doxorubicin], vinblastine and
dacarbazine) resulting in a statistically significant improvement in modified PFS compared to the control arm of
ABVD, which includes bleomycin. A four-year post-hoc exploratory analysis was conducted to examine PFS
outcomes per investigator assessment in the intent-to-treat population of 1,334 patients. The four-year PFS rate
for patients in the ADCETRIS plus AVD arm was 81.7 percent compared to 75.1 percent in the ABVD arm, a
difference of 6.6 percent (hazard ratio, or HR, =0.69; 95 percent CI: 0.542, 0.881; p=0.003). This represents a 31
percent reduction in the risk of progression or death. Median follow-up time was 48.4 months. As previously
reported for the primary analysis, on the ADCETRIS plus AVD arm, peripheral neuropathy events were observed
in 67 percent of patients compared to 43 percent in the ABVD arm. The four-year update shows that among
patients with peripheral neuropathy, 83 percent in the ADCETRIS plus AVD arm and 84 percent in the ABVD
arm reported complete resolution or improvement at last follow-up.
• Phase 2 Study of Frontline ADCETRIS Plus Nivolumab in Patients with Hodgkin Lymphoma Aged
60 Years.
Data were presented from an updated analysis of the phase 2 clinical trial evaluating ADCETRIS in combination
with nivolumab as frontline therapy for Hodgkin lymphoma patients aged 60 years and older. Data were reported
from 21 patients, and the median age was 72 years. The majority of patients (76 percent) had stage III/IV disease
at the time of diagnosis. Of 19 response-evaluable patients, 18 patients (95 percent) had an objective response,
including 13 patients (68 percent) with a complete response and five patients (26 percent) with a partial response.
All response-evaluable patients experienced tumor reduction (complete response + partial response + stable
disease) following treatment with ADCETRIS in combination with nivolumab. Median duration of response was
not yet reached after median follow-up of 6.8 months and the maximum duration of response was 22 months and
ongoing (95 percent CI: 7.06, not estimable). The most common treatment-related adverse events of any grade
occurring in at least 20 percent of patients were fatigue, diarrhea, pyrexia, infusion related reaction, peripheral
motor neuropathy, peripheral sensory neuropathy and increase in lipase. One treatment-related serious adverse
event was pyrexia.
PADCEV (enfortumab vedotin-efjv)
PADCEV 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 PADCEV as a potential treatment for solid
tumors under our collaboration with Astellas.
We and Astellas are conducting a pivotal, single-arm phase 2 clinical trial, called EV-201, of single-agent PADCEV
for locally advanced or metastatic urothelial cancer patients who have been previously treated with PD-1 or PD-L1 inhibitor
therapy. Results from the first cohort of patients who previously received both platinum chemotherapy and a PD-1 or PD-L1
inhibitor were submitted to the FDA in July 2019 for accelerated approval which was subsequently granted in December
2019. We are continuing enrollment in a second cohort of patients who previously received a PD-1 or PD-L1 inhibitor but
who were not candidates for treatment with a platinum agent, which we believe could potentially serve as the basis for a
second indication.
We and Astellas are also conducting a phase 1/2 trial, called EV-103, that is a multi-cohort, open-label trial of
PADCEV alone or in combination with the immune therapy pembrolizumab and/or chemotherapy. The trial is evaluating
safety, tolerability and activity in locally advanced and first- and second-line metastatic urothelial cancer, and was recently
expanded to include muscle invasive bladder cancer. In September 2019, initial results from the trial were presented at the
ESMO 2019 Congress. Forty-five patients were evaluated for safety with the combination of PADCEV and pembrolizumab
in previously untreated patients with locally advanced or metastatic urothelial cancer who were ineligible for treatment with
cisplatin-based chemotherapy. The trial met outcomes for safety and the data indicated that the combination of PADCEV
plus pembrolizumab shrank tumors in the majority of patients, resulting in a confirmed ORR of 71 percent (95 percent CI:
55.7, 83.6). The complete response rate was 13 percent. Fifty-eight percent of patients had a partial response and 22 percent
had stable disease. Ninety-one percent of responses were observed at the first assessment. The duration of response range
was from one to 10.5 months and ongoing. Fifty-one percent of patients had an adverse event greater than or equal to Grade
3. Among these events, an increase in lipase was the most frequent (13 percent). Four patients (9 percent) discontinued
treatment due to treatment-related adverse events, most commonly peripheral sensory neuropathy. There was one death
deemed to be treatment-related by the investigator attributed to multiple organ dysfunction syndrome.
9
Positive initial data from the EV-103 trial support a recently initiated global, registrational phase 3 trial, called
EV-302, in frontline metastatic urothelial cancer that is being conducted under a clinical collaboration agreement between
us, Astellas and Merck. Under the terms of the agreement, the three companies are jointly funding EV-302. The trial was
initiated in January 2020 and is being led by Seattle Genetics. EV-302 is an open-label, randomized phase 3 clinical trial
evaluating the combination of PADCEV and pembrolizumab with or without chemotherapy versus chemotherapy alone in
patients with previously untreated locally advanced or metastatic urothelial cancer. The trial is expected to enroll 1,095
patients and the dual primary endpoints are PFS and OS.
We and Astellas have also initiated a phase 2 clinical trial, EV-202, to evaluate PADCEV monotherapy in solid
tumors that have high-level of Nectin-4 expression that include non-small cell lung, head and neck, gastric/esophageal and
breast cancers.
Tucatinib
Tucatinib is an investigational oral, small molecule TKI that is highly selective for HER2, a growth factor receptor
overexpressed in many cancers, including breast, colorectal esophageal, gastric, lung and ovarian cancers. Preclinical data
indicate that tucatinib is highly selective for HER2 without significant inhibition of epidermal growth factor receptor, or
EGFR. Inhibition of EGFR has been associated with significant toxicities, including skin rash and diarrhea. HER2 mediates
cell growth, differentiation and survival. Tumors that over-express HER2 are generally more aggressive and historically
have been associated with poor overall survival, compared with HER2-negative cancers.
Tucatinib was evaluated in the HER2CLIMB-01 clinical trial which was a multinational randomized (2:1), double-
blind, placebo-controlled, active comparator, pivotal clinical trial comparing tucatinib in combination with trastuzumab and
capecitabine compared with trastuzumab and capecitabine alone in patients with locally advanced or metastatic HER2-
positive breast cancer who were previously treated with trastuzumab, pertuzumab and T-DM1. The primary endpoint was
PFS per Response Evaluation Criteria in Solid Tumors, or RECIST, v1.1 as determined by blinded independent central
review in the first 480 patients enrolled in the trial. HER2CLIMB-01 enrolled a total of 612 patients to support the analyses
of key secondary endpoints, including overall survival as well as PFS in patients with brain metastases at baseline. Forty-
seven percent of the patients enrolled in the trial had brain metastases at the time of enrollment.
In October 2019, we announced positive topline results from the HER2CLIMB-01 trial and in December 2019
additional details were presented at the 2019 San Antonio Breast Cancer Symposium and published in the New England
Journal of Medicine. The trial met the primary endpoint of PFS, demonstrating that the addition of tucatinib was superior to
trastuzumab and capecitabine alone, with a 46 percent reduction in the risk of disease progression or death (HR=0.54; 95
percent CI: 0.42, 0.71; p<0.00001). Estimated PFS at one year was 33 percent (95 percent CI: 27, 40) in the tucatinib arm,
compared to 12 percent (95 percent CI: 6, 21) in the trastuzumab and capecitabine arm (control arm). Median PFS was 7.8
months (95 percent CI: 7.5, 9.6) in the tucatinib arm, compared to 5.6 months (95 percent CI: 4.2, 7.1) in the control arm.
The trial also met all secondary endpoints at interim analysis. The tucatinib arm demonstrated an improvement in OS,
with a 34 percent reduction in the risk of death (HR=0.66; 95 percent CI: 0.50, 0.88; p=0.0048) compared to trastuzumab
and capecitabine alone. Estimated OS at two years was 45 percent (95 percent CI: 37, 53) in the tucatinib arm, compared to
27 percent (95 percent CI: 16, 39) in the control arm. Median OS was 21.9 months (95 percent CI: 18.3, 31.0) in the
tucatinib arm, compared to 17.4 months (95 percent CI: 13.6, 19.9) in the control arm. For patients with brain metastases at
baseline, the tucatinib arm also demonstrated superior PFS, with a 52 percent reduction in the risk of disease progression or
death compared to those who received trastuzumab and capecitabine alone (HR=0.48; 95 percent CI: 0.34, 0.69;
p<0.00001). The estimated PFS at one year was 25 percent (95 percent CI: 17, 34) with the tucatinib regimen, compared to
zero percent in the control arm. Median PFS was 7.6 months (95 percent CI: 6.2, 9.5) in the tucatinib arm, compared to 5.4
months (95 percent CI: 4.1, 5.7) in the control arm. Additionally, the confirmed ORR in the patient population with
measurable disease at baseline (511/612) was 40.6 percent (95 percent CI: 35.3, 46.0) in the tucatinib arm, compared with
22.8 percent (95 percent CI: 16.7, 29.8) for trastuzumab and capecitabine alone (p=0.0008).
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Tucatinib in combination with trastuzumab and capecitabine was generally well tolerated with a manageable safety
profile. The most common adverse events occurring in more than 20 percent of patients in the tucatinib arm vs. the control
arm included: diarrhea (80.9 vs. 53.3 percent), palmar-plantar erythrodysaesthesia syndrome (PPE) (63.4 vs. 52.8 percent),
nausea (58.4 vs. 43.7 percent), fatigue (45.0 vs. 43.1 percent) and vomiting (35.9 vs. 25.4 percent), which were primarily
low grade. Discontinuation of tucatinib and placebo due to adverse events was 5.7 percent in the tucatinib arm and 3.0
percent in the control arm. Greater than or equal to Grade 3 diarrhea was seen in 12.9 percent of the patients in the tucatinib
arm vs. 8.6 percent in the control arm. Antidiarrheal prophylaxis was not required per protocol. Antidiarrheals were used in
less than half of all cycles where diarrhea was reported. In both treatment arms, when used, the duration of antidiarrheal
treatment was short (median of 3 days/cycle). Greater than or equal to Grade 3 aspartate aminotransferase, or AST, was seen
in 4.5 percent of the patients in the tucatinib arm vs. 0.5 percent in the control arm, and alanine aminotransferase, or ALT,
elevation in 5.4 percent vs. 0.5 percent, respectively. Discontinuations due to liver transaminase elevations were infrequent
in both arms (ALT: 1.0 vs. 0.5 percent; AST: 0.7 vs. 0.5 percent).
Based on the HER2CLIMB-01 results, we submitted an NDA to the FDA in December 2019 and in January 2020
submitted a MAA to the EMA. In the U.S., we are participating in the FDA OCE's RTOR pilot program. RTOR allows the
FDA to review much of the data earlier, before the applicant formally submits the complete application so that by the time of
the submission of the application, the agency’s review team is in a better position to conduct a more efficient review. We are
also participating in the Project Orbis initiative of the FDA OCE, which provides a framework for concurrent submission
and review of oncology products among international partners. Countries currently included in this initiative are Australia,
Canada, Singapore, Switzerland and U.S.
In October 2019, we initiated a phase 3 randomized trial, called HER2CLIMB-02, of tucatinib versus placebo, in
combination with T-DM1 for patients with unresectable locally advanced or metastatic HER2-positive breast cancer,
including those with brain metastases, who have had prior treatment with a taxane and trastuzumab. HER2CLIMB-02 was
initiated based on positive results from a completed phase 1b trial. The trial is designed to enroll approximately 460 patients.
The primary endpoint is PFS.
We are also conducting a phase 2 trial, called MOUNTAINEER, evaluating tucatinib in combination with
trastuzumab in patients with HER2-positive, RAS wild-type metastatic colorectal cancer after treatment with first- and
second-line standard-of-care therapies. Initial results from 23 patients were presented at the ESMO 2019 Congress that
demonstrated encouraging antitumor activity with an ORR of 52 percent. The median PFS was 8.1 months and the median
OS was 18.7 months. The combination was generally well tolerated. We have expanded enrollment in the trial so it may
support potential application for approval. The primary endpoint is confirmed ORR.
Tisotumab Vedotin
Tisotumab vedotin is an ADC composed of a human antibody that binds to tissue factor, or TF, linked to a potent
auristatin compound using our proprietary ADC technology. TF is expressed on many solid tumors, including cervical,
ovarian, prostate and bladder. We are developing tisotumab vedotin as a potential treatment for solid tumors under our
collaboration with Genmab. This collaboration is discussed in more detail under “Corporate Collaborations” in this Item 1.
We and Genmab are conducting a pivotal phase 2 trial, called the innovaTV 204 trial, evaluating single-agent
tisotumab vedotin for patients with recurrent and/or metastatic cervical cancer who have relapsed or progressed after
standard of care treatment. The trial is intended to support a potential regulatory submission under the FDA’s accelerated
approval pathway. In March 2019, we completed enrollment in the innovaTV 204 trial and we anticipate reporting topline
data from the trial in the first half of 2020. We are also conducting a phase 2 clinical trial called innovaTV 207 for patients
with relapsed, locally advanced or metastatic solid tumors, which is intended to inform future development plans. In
addition, we are conducting a phase 2 clinical trial called innovaTV 208 for patients with platinum-resistant ovarian cancer.
Other Pipeline Activities
We are developing ladiratuzumab vedotin, an ADC targeting LIV-1, which is currently being evaluated in phase 1 and
phase 2 clinical trials both as monotherapy and in combination with other agents for patients with metastatic breast cancer
and select solid tumors with high LIV-1 expression.
We are advancing a pipeline of early-stage clinical candidates as well as multiple preclinical and research-stage
programs that employ our proprietary technologies. We advanced several product candidates into clinical development in
2019 and we plan to submit several IND applications to the FDA in 2020.
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Our Antibody-Drug Conjugate (ADC) Technology
ADCETRIS, PADCEV and many product candidates in our clinical-stage pipeline 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 most advanced ADCs, including ADCETRIS, PADCEV, tisotumab vedotin and ladiratuzumab
vedotin, use our proprietary auristatin-based ADC technology. Auristatins are microtubule disrupting agents. 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. This technology is also the basis of our ADC
collaborations. 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.
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-BCMA is a clinical-stage non-fucosylated BCMA-directed antibody developed using SEA technology that is
designed to block proliferative tumor cell signaling, mediate antibody dependent cellular phagocytosis and induce
enhanced cell lysis through antibody dependent cellular cytotoxicity. The cell surface protein BCMA is expressed on
cells of several cancer types, including multiple myeloma and other B-cell malignancies. SEA-BCMA is currently in a
phase 1 clinical trial for patients with relapsed or refractory multiple myeloma.
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.
Research Programs
In addition to our pipeline of current product candidates and technologies, we have internal research programs
directed toward developing new classes of potent anti-tumor agents, new ADC linkers, the identification of novel drug
targets and monoclonal antibodies, and by advancing our antibody engineering initiatives.
New Tumor Cell-Killing Agents. We continue to identify and study new agents with anti-tumor mechanisms of
action that will provide pipeline diversity and complement the auristatins that we currently use in our ADC technology.
We also seek to develop new drugs that are designed to activate the host immune system by targeting key immune
stimulatory pathways that can mediate innate or adaptive anti-tumor immune responses.
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New Drug Linkers. We are conducting research with the intent to develop new ADC linkers that are designed to
provide the appropriate stability in the bloodstream and drug release characteristics to effectively target cancer cells.
Novel Monoclonal Antibodies and Antigen Targets. We are actively engaged in internal efforts to identify and
develop monoclonal antibodies, and other therapeutic molecules, to target tumor antigens and important tumor or
immune pathways. For ADCs, we focus on drug targets that are highly expressed on the surface of cancer cells that have
the appropriate expression, distribution and internalization properties that make them desirable as monoclonal antibody
or ADC targets. We may then create and screen panels of cancer-reactive monoclonal antibodies in our laboratories to
identify those with the desired specificity and drug delivery properties. Additionally, we identify targets that play key
roles in anti-tumor innate or adaptive immune responses and identify antibodies and other therapeutic molecules to
stimulate an anti-tumor immune response. 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 collaborations with Astellas and Genmab.
Antibody Engineering. We have substantial internal expertise in antibody engineering including humanization,
antibody masking technologies to enhance cancer specific binding, enhancement of immunological function by blocking
fucosylation, as well as engineering 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 ADC drug
properties and the cost-effectiveness of our manufacturing processes for conjugation of ADCs.
Corporate Collaborations
We enter into collaborations with pharmaceutical and biotechnology 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 have licensed our technologies to collaborators to be developed with their own antibodies. These 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
product candidates.
Takeda ADCETRIS Collaboration
We have an agreement with Takeda for the global co-development of ADCETRIS and the commercialization of
ADCETRIS by Takeda in its territory. We have commercial rights for ADCETRIS in the U.S. and its territories and in
Canada. Takeda has commercial rights in the rest of the world. Under the collaboration, we and Takeda can each conduct
development activities and equally co-fund the cost of certain mutually agreed development activities. Costs associated with
co-development activities are included in research and development expense.
As of December 31, 2019, we had achieved milestone payments totaling $157.5 million related to regulatory and
commercial progress by Takeda. As of December 31, 2019, total future potential milestone payments to us under this
collaboration could total $77.0 million. Of that amount, up to approximately $7.0 million relates to the achievement of
development milestones, and up to $70.0 million relates to the achievement of regulatory milestones. In addition, we
recognize royalty revenues, where royalties are based on a percentage of Takeda's net sales of ADCETRIS in its licensed
territories, with percentages ranging from the mid-teens to the mid-twenties based on annual net sales tiers, and sales-based
milestones. Takeda bears a portion of third-party royalty costs owed on its sales of ADCETRIS, which is included in royalty
revenues.
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.
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Astellas PADCEV Collaboration
We have a collaboration agreement with Agensys, Inc., which subsequently became an affiliate of Astellas, to jointly
research, develop and commercialize ADCs for the treatment of several types of cancer. The collaboration encompasses
combinations of our ADC technology with fully-human antibodies developed by Astellas to proprietary cancer targets.
Under this collaboration, we and Astellas are co-funding all development costs for PADCEV. We rely on Astellas to supply
PADCEV for commercial sales and for our clinical trials, and Astellas oversees the manufacturing supply chain for
PADCEV.
In 2018, we and Astellas entered into a joint commercialization agreement to govern the global commercialization of
PADCEV:
•
In the U.S., we and Astellas jointly promote PADCEV. We record sales of PADCEV in the U.S. and are
responsible for all U.S. distribution activities. The companies each bear the costs of their own sales organizations
in the U.S., equally share certain other costs associated with commercializing PADCEV in the U.S., and equally
share in any profits realized in the U.S.
• Outside the U.S., we have commercialization rights in all countries in North and South America, and Astellas has
commercialization rights in the rest of the world, including Europe, Asia, Australia and Africa. The agreement is
intended to provide that we and Astellas will effectively equally share in costs incurred and any profits realized
in all of these markets. Cost and profit sharing in Canada, the United Kingdom, Germany, France, Spain and
Italy will be based on product sales and costs of commercialization. In the remaining markets, the
commercializing party will bear costs and will pay the other party a royalty rate applied to net sales of the
product based on a rate intended to approximate an equal profit share for both parties.
Astellas or its affiliates are responsible for manufacturing PADCEV for development and commercial use. However,
we are responsible for packaging and labeling in countries in which we sell PADCEV. In addition if the parties determine
that a second source is required we will be responsible for establishing such second source whether internal or through a
third 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 the expiration of all payment
obligations pursuant to the collaboration agreement, or the day upon which we and Astellas cease to develop and
commercialize products under the agreement.
Either party may terminate the joint commercialization agreement if the other party becomes insolvent. The joint
commercialization agreement expires on a country-by-country basis upon complete cessation of the commercialization,
launch and selling of PADCEV in that country.
Either party may also opt out of co-development and profit-sharing under the collaboration agreement in return for
receiving milestones and royalties from the continuing party. In addition, either party may opt out of co-development and
profit-sharing for PADCEV on a country-by-country basis, in return for receiving royalties pursuant to the collaboration
agreement from the continuing party with respect to that country.
Genmab Tisotumab Vedotin Collaboration
We have an agreement with Genmab to develop and commercialize ADCs for the treatment of several types of
cancer, under which we previously exercised a co-development option for tisotumab vedotin. We and Genmab will share all
future costs and profits for development and commercialization of tisotumab vedotin on an equal basis.
We will be responsible for tisotumab vedotin commercialization activities in the U.S., Canada, and Mexico. Genmab
will be responsible for commercialization activities in all other territories. We are currently in discussions with Genmab
regarding the detailed terms on which we will work together to commercialize tisotumab vedotin under this agreement.
Either party may terminate the collaboration agreement if the other party becomes insolvent or materially breaches
the agreement and such breach remains uncured. In addition, either party may terminate the collaboration agreement if such
party’s patent rights subject to the agreement are challenged by the other party or its sublicensees. Either party may also opt
out of co-development and profit-sharing under the collaboration agreement in return for receiving milestones and royalties
from the continuing party.
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ADC License Agreements
We have license agreements for our ADC technology with a number of biotechnology and pharmaceutical companies.
Under these agreements, which we have entered into in the ordinary course of business, we have granted research and
commercial licenses to use our technology, most often in conjunction with the licensee's technology. In certain agreements,
we also have agreed to conduct limited development activities and to provide other materials, supplies, and services to our
licensees during a specified term of the agreement. We typically receive upfront cash payments and progress- and sales-
dependent milestones for the achievement by our licensees of certain events, and annual maintenance fees and support fees
for research and development services and materials provided under the agreements. We also are entitled to receive royalties
on net sales of any resulting products incorporating our ADC technology. Our licensees are solely responsible for research,
product development, manufacturing and commercialization of any product candidates under these agreements, which
includes the achievement of the potential milestones.
In 2019, Genentech received accelerated approval from the FDA for PolivyTM (polatuzumab vedotin-piic), an ADC
that uses our technology, to treat patients with relapsed or refractory diffuse large B-cell lymphoma. Under our ADC license
agreement with Genentech, the accelerated approval of Polivy triggered a milestone payment to us and we also receive
royalties on net sales of Polivy worldwide. In addition, Genentech and GSK have ADCs using our technology in late-stage
clinical trials. The product candidates being developed under our other ADC license agreements are at various stages of
clinical and preclinical development. Our ability to generate significant future revenues from our ADC license agreements
will largely depend on products that incorporate our technologies entering late-stage clinical development, and receiving
marketing approval from the FDA and subsequently being commercialized, at which point the milestone payments, royalties
or other rights and benefits would become more substantial.
In-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 1998, we obtained rights to some of our technologies and product candidates,
portions of which are exclusive, through a license agreement with BMS. 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 BMS. The term of the license agreement expires on a country-by-country and product-by-product
basis upon the later of the expiration of the last valid claim covering the applicable product within that country or
either ten or twelve years depending on the particular patents applicable to the product after the first commercial
sale of the applicable product within that country. We and BMS each have the right to terminate the license
agreement prior to its expiration for insolvency or material breach, subject to cure and dispute resolution
provisions. In addition, the license agreement will terminate automatically in the event that we fail to maintain
certain required insurance.
• University of Miami License. In 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 progress-dependent milestone
payments. We are required to pay annual maintenance fees and royalties in the low single digits on net sales of
products, including ADCETRIS, incorporating technology licensed from the University of Miami. The term of
the license agreement expires ten years after the first commercial sale of ADCETRIS or on August 21, 2021,
upon which we will have in perpetuity a fully paid-up, royalty free, nonexclusive, sublicensable license. We and
the University of Miami each have the right to terminate the license agreement prior to its expiration for
insolvency or material breach, subject to cure provisions.
• Array BioPharma, Inc. We are a party to a license agreement with Array BioPharma, Inc. or Array, which was
acquired by Pfizer in July 2019. Pursuant to the license agreement, Array has granted us an exclusive license to
develop, manufacture and commercialize tucatinib. We will pay Array a portion of any non-royalty payments
received from sublicensing tucatinib rights. Array is also entitled to receive a low double-digit royalty based on
net sales of tucatinib by us and a single-digit royalty based on net sales of tucatinib by our sublicensees. The term
of the license agreement expires on a country-by-country basis upon the later of the expiration of the last valid
claim covering tucatinib within that country or 10 years after the first commercial sale of tucatinib within that
country. We and Array each have the right to terminate the license agreement prior to its expiration for
insolvency or material breach, subject to cure and dispute resolution provisions.
• Other Licenses. We have other non-exclusive licenses to other technology used in ADCETRIS that require us to
pay a low single-digit royalty on net sales of ADCETRIS. Under the terms of in-license agreements related to
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our pipeline programs, we would potentially owe development, regulatory, and sales-based milestones, and
royalties on net sales of certain approved products.
Patents and Proprietary Technology
Our owned and licensed patents and patent applications are directed to ADCETRIS, PADCEV, 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 each of our products and 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, PADCEV and
tisotumab vedotin, 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, PADCEV and our 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.
We own or have rights to the following patents relating to our products and our pipeline (in addition to certain
patents covering our early-stage product candidates):
•
•
•
•
•
For ADCETRIS and our related ADC technology, we own twelve patents in the United States and Europe that
will expire between 2020 and 2031.
For PADCEV and our related ADC technology, we own, co-own or have licensed rights to twelve patents in
the United States and Europe that will expire between 2022 and 2031. Of these patents, we own or co-own
ten patents and have licensed rights to two patents.
For tucatinib, we have licensed rights to eight patents in the United States and Europe that will expire
between 2024 and 2033.
For tisotumab vedotin and our related ADC technology, we own, co-own or have licensed rights to ten patents
in the United States and Europe that will expire between 2022 and 2032. Of these patents, we own or co-own
five patents and have licensed rights to five patents.
For ladiratuzumab vedotin 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 2020 and 2032. Of these patents, we own or
co-own seven patents and have licensed rights to two patents.
The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent,
the scope of its coverage as determined by the patent office or courts in the country, and the availability of legal remedies
in the country. The list above does not identify all patents that may be related to our products and product candidates. For
example, in addition to the listed patents, we have patents on platform technologies (that relate to certain general classes
of products or methods), as well as patents that relate to methods of using, manufacturing or administering a product or
product candidate, that may confer additional patent protection. We also have pending patent applications that may give
rise to new patents related to one or more of these agents.
The information in the above list is based on our current assessment of patents that we own, co-own or control or
have licensed. The information is subject to revision, for example, in the event of changes in the law or legal rulings
affecting our patents or if we become aware of new information. Significant legal issues remain unresolved as to the
extent and scope of available patent protection for biotechnology products and processes in the U.S. and other important
markets outside the U.S. We expect that litigation will likely be necessary to determine the term, validity, enforceability,
and/or scope of certain of our patents and other proprietary rights. An adverse decision or ruling with respect to one or
more of our patents could result in the loss of patent protection for a product and, in turn, the introduction of competitor
products or follow-on biologics to the market earlier than anticipated, and could force us to either obtain third-party
licenses at a material cost or cease using a technology or commercializing a product.
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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 in other countries may limit our ability to defend or enforce our
patents, or may apply retroactively to affect the term and/or scope 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
and administrative tribunals, such as in U.S. Patent and Trademark Office inter partes review or reexamination
proceedings, foreign opposition proceedings or related legal and administrative proceedings 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 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 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 PADCEV 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, PADCEV 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, PADCEV or any other products or product candidates.
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.
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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, pricing, 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 necessary steps before a new biopharmaceutical product may be sold in the
United States ordinarily include:
•
•
•
•
•
•
•
preclinical in vitro and in vivo tests, some of which must comply with Good Laboratory Practices, or GLP;
submission to the FDA of an IND which must become effective before clinical trials may commence, and which
must be updated periodically as new information is obtained and at least annually with a report on development;
development of a drug formulation and manufacture of the drug for clinical trials, and commercial sale, if
approved;
completion of adequate and well controlled human clinical trials to establish the safety and efficacy of the
product candidate for its intended use;
submission to the FDA of a BLA or NDA which must be accompanied by a substantial user fee unless the fee is
waived;
FDA pre-approval inspection of manufacturing facilities for current Good Manufacturing Practices, or GMP,
compliance and FDA inspection of select clinical trial sites and/or trial sponsors for Good Clinical Practice, or
GCP, compliance; and
FDA review and approval of the BLA or NDA, which includes the product prescribing information, prior to any
commercial sale.
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. New clinical trial protocols
can be submitted to the existing IND 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. 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
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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
product’s chemistry, manufacturing, and controls, are submitted to the FDA, in the form of a BLA or NDA, for approval of
the manufacture, marketing and commercial shipment of the pharmaceutical product. Data from clinical trials are not always
conclusive and the FDA and other regulatory agencies 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 Committee’s
recommendation. The submission of a BLA or NDA 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 FDA’s review. A standard review period is twelve months from submission of an original
application, while priority review is eight months from submission of an original 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. Drug or biologic products studied for their safety
and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval from the
FDA upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical
benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably
likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity,
rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated
approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical
studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. In
addition, the FDA requires, as a condition for accelerated approval, pre-approval of promotional materials. 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 an approved product, including phase 4 clinical trials, and surveillance programs to monitor the safety of
the approved product, and the FDA has the power to prevent or limit further marketing of the approved product 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 or NDA 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 a reproducible, validated diagnostic test to be
used with our therapeutic product at the same time that FDA approves the therapeutic product. The review of these in vitro
companion diagnostics in conjunction with the review of our cancer treatments involves coordination of review by FDA’s
Center for Drug Evaluation and Research and by FDA’s Center for Devices and Radiological Health. The FDA’s premarket
approval, or PMA, process is costly, lengthy, and uncertain. The receipt and timing of PMA approval may have a significant
effect on the receipt and timing of any future commercial approvals for ADCETRIS, PADCEV or our product candidates.
Human diagnostic products are subject to pervasive and ongoing regulatory obligations, including the submission of
medical device reports, adherence to the Quality Systems Regulation, recordkeeping and product labeling, as enforced by
the FDA and comparable state authorities.
The FDA's approval of ADCETRIS in the frontline PTCL indication included a post-marketing commitment to
develop a clinically validated in-vitro diagnostic device for the selection of patients with CD30-expressing PTCL, not
including sALCL, for treatment with ADCETRIS in this indication. We and Takeda have a collaboration with Ventana
Medical Systems, Inc., or Ventana, under which Ventana is working to develop, manufacture and commercialize a
companion diagnostic test to measure CD30 expression levels in tissue specimens. If Ventana develops an in-vitro
diagnostic device that we are able to clinically validate, the FDA or another regulatory authority may revise our label for the
frontline PTCL indication or in connection with any future approvals to require the use of the in-vitro test as a companion
diagnostic. This may limit our ability to commercialize ADCETRIS in the applicable treatment setting due to potential label
requirements, prescriber practices, constraints on availability of the diagnostic, or other factors. If Ventana is unable to
successfully develop the CD30 in-vitro diagnostic, or experiences delays in doing so, or we experience delays in clinical
validation of the diagnostic, we will likely need to renegotiate the timing or content of our post-marketing commitment
regarding the in-vitro diagnostic device with the FDA.
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, manufacturing, distribution and commercial sales 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 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. We hold worldwide rights to develop and commercialize tucatinib, including in Europe. To commercialize
tucatinib in Europe, we will need to comply with applicable European regulations.
Clinical Trials Regulation in Europe
In the EU, pursuant to the currently applicable Clinical Trials Directive 2001/20/EC and the Directive 2005/28/EC on
GCP, a system for the approval of clinical trials in the EU has been implemented through national legislation of the member
states. Under this system, an applicant must obtain approval from the competent national authority of an EU member state
in which the clinical trial is to be conducted, or in multiple member states if the clinical trial is to be conducted in a number
of member states. Furthermore, the applicant may only start a clinical trial at a specific study site after the independent
ethics committee has issued a favorable opinion. The clinical trial application, or CTA, must be accompanied by an
investigational medicinal product dossier with supporting information prescribed by Directive 2001/20/EC and Directive
2005/28/EC and corresponding national laws of the member states and further detailed in applicable guidance documents. In
April 2014, the EU adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical
Trials Directive 2001/20/EC. It is expected that the new Clinical Trials Regulation (EU) No 536/2014 will come into effect
sometime after 2020 with a three-year transition period. It will overhaul the current system of approvals for clinical trials in
the EU. Specifically, the new regulation, which will be directly applicable in all member states, aims at simplifying and
streamlining the approval of clinical trials in the EU. For instance, the new Clinical Trials Regulation provides for a
streamlined application procedure via a single entry point and strictly defined deadlines for the assessment of clinical trial
applications.
Marketing Authorization Regulation in Europe
In order to be able to market our products outside of the U.S., we must obtain approval from the national competent
regulatory authority. The approval requirements and process for each country can vary, and the time required to obtain
approval may be longer or shorter than that required for FDA approval in the United States.
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In the European Economic Area, which is comprised of the 27 member states of the EU plus the United Kingdom,
Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a marketing
authorization through either of the following procedures: centralized and decentralized. Under the centralized procedure, a
single marketing authorization application is submitted to the Committee for Medicinal Products for Human Use, or CHMP,
of the European Medicines Agency, or EMA, which then makes a recommendation to the European Commission, or EC.
The EC makes the final determination on whether to approve the application. The centralized procedure is compulsory for
the approval, among others, of human medicines containing a new active substance to treat cancer. The decentralized
procedure provides for mutual recognition of individual national approval decisions and is available for products that are not
subject to the centralized procedure. Under the decentralized procedure, an identical dossier is submitted to the competent
authorities of each of the member states in which the marketing authorization is sought, one of which is selected by the
applicant as the Reference Member State, or RMS. The competent authority of the RMS prepares a draft assessment report,
a draft summary of the product characteristics, or SPC, and a draft of the labeling and package leaflet, which are sent to the
other member states (referred to as the Member States Concerned) for their approval. If the Member States Concerned raise
no objections, based on a potential serious risk to public health, to the assessment, SPC, labeling, or packaging proposed by
the RMS, the product is subsequently granted a national marketing authorization in all the member states (i.e., in the RMS
and the Member States Concerned).
For the EMA, an application designated as standard review typically lasts approximately twelve to fourteen months
depending on the length of time sponsors take to address EMA questions. The accelerated assessment procedure is
applicable to marketing authorization applications for medicinal products that are expected to be of major public health
interest. For applications that receive accelerated assessment designation and are able to remain on this timeline the review
typically lasts approximately seven months depending on the length of time sponsors take to address EMA questions. It is
not unusual, however, for applications that receive accelerated assessment designation to revert to standard review, typically
because the EMA has determined that the significance of the questions that the company needs to address would be more
appropriate under the standard review timelines. At the end of the review period, EMA will issue an opinion either in
support of marketing authorization (positive opinion) or recommending refusal of a marketing authorization (negative
opinion). In the event of a negative opinion, the company may request a re-examination of the application. The initial
marketing authorization granted in the EU is valid for five years. Once renewed, the authorization is usually valid for an
unlimited period unless the national competent authority or the EC decides on justified grounds to proceed with one
additional five-year renewal. The renewal of a marketing authorization is subject to a re-evaluation of the risk-benefit
balance of the product by the national competent authorities or the EMA.
Manufacturing Regulation in Europe
Various requirements apply to the manufacturing and placing on the EU market of medicinal products. The
manufacturing of medicinal products in the EU requires a manufacturing authorization, and the manufacturing authorization
holder must comply with various requirements set out in the applicable EU laws, regulations and guidance. These
requirements include compliance with EU cGMP standards when manufacturing medicinal products and active
pharmaceutical ingredients, or APIs, including the manufacture of APIs outside of the EU with the intention to import the
APIs into the EU. Similarly, the distribution of medicinal products into and within the EU is subject to compliance with the
applicable EU laws, regulations and guidelines, including the requirement to hold appropriate authorizations for distribution
granted by the competent authorities of the EU member states. Marketing authorization holders may be subject to civil,
criminal or administrative sanctions, including suspension of manufacturing authorization, in case of non-compliance with
the EU or EU member states’ requirements applicable to the manufacturing of medicinal products.
Post-approval Regulation in Europe
In connection with potential regulatory approvals outside of the U.S., we expect to be subject to a variety of post-
authorization regulations, including with respect to clinical studies, product manufacturing, advertising and promotion,
distribution, and safety reporting.
The holder of an EU marketing authorization for a medicinal product must also comply with the EU’s
pharmacovigilance legislation, which includes requirements for conducting pharmacovigilance, or the assessment and
monitoring of the safety of medicinal products. The EMA reviews periodic safety update reports submitted by marketing
authorization holders. If the EMA has concerns that the risk benefit profile of a product has changed, it can adopt an opinion
advising that the existing marketing authorization for the product be amended. The agency can also require that the
marketing authorization holder conducts post-authorization safety studies. Non-compliance with such obligations can lead
to the variation, suspension or withdrawal of marketing authorization or imposition of financial penalties or other
enforcement measures.
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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 operations 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 statute’s 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.
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 HIPAA’s 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.
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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 Children’s Health Insurance Program to annually report information related to certain payments or other
transfers of value provided to physicians, as defined by such law, 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 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.
In the EU, the advertising and promotion of medicinal products are subject to EU member states’ laws governing
promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair
commercial practices. In addition, other legislation adopted by individual EU member states may apply to the advertising
and promotion of medicinal products. Violations of the rules governing the promotion of medicinal products in the EU could
be penalized by administrative measures, fines and imprisonment. These laws may further limit or restrict the advertising
and promotion of our future products to the general public and may also impose limitations on promotional activities with
health care professionals. There are data privacy and security laws, to which we are currently and/or may in the future, be
subject. For example, European Union, or EU, member states and other foreign jurisdictions, including Switzerland, have
adopted data protection laws and regulations which impose significant compliance obligations. Moreover, effective May 25,
2018, the collection and use of personal health data in the EU is governed by the provisions of the EU General Data
Protection Regulation, or the GDPR. The GDPR, which is wide-ranging in scope, imposes several requirements relating to
the control over personal data by individuals to whom the personal data relates, the information provided to the individuals,
the documentation we must maintain, the security and confidentiality of the personal data, data breach notification and the
use of third-party processors in connection with the processing of personal data. The GDPR also imposes strict rules on the
transfer of personal data out of the EU, provides an enforcement authority and authorizes the imposition of large penalties
for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues of the non-
compliant company, whichever is greater. The GDPR requirements apply not only to third-party transactions, but also to
transfers of information between us and our subsidiaries, including employee information.
Coverage and Reimbursement
Sales of ADCETRIS, PADCEV 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, evidence of favorable clinical outcomes,
determination of medical necessity and cost effectiveness.
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Additionally, a third-party payor’s 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 sales and negatively impact our operating 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 or PADCEV 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. For example,
PPACA increased the mandated Medicaid rebate on most branded prescription drugs from 15.1% of average manufacturer
price, or AMP, to 23.1% of AMP, expanded the rebate to Medicaid managed care utilization and increased the types of
entities eligible for the federal 340B drug discount program. In January 2017, the White House Office of Management and
Budget withdrew the draft August 2015 Omnibus Guidance document that was issued by the Department of Health and
Human Services Health Resources and Services Administration, or HRSA, that addressed a broad range of topics including,
among other items, the definition of a patient’s eligibility for 340B drug pricing. Federal budget decisions have and may
result in reduced Medicare payment rates. 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 and PADCEV 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 and
PADCEV 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 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 and PADCEV 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. The European Union has adopted directives and other
legislation governing labeling, advertising, distribution, supply, pharmacovigilance and marketing of pharmaceutical
products. Such legislation provides mandatory standards throughout the EU and permits member states to supplement these
standards with additional regulations. European governments also regulate pharmaceutical product prices through their
control of national health care systems that fund a large part of the cost of such products to consumers. As a result, patients
are unlikely to use a pharmaceutical product that is not reimbursed by the government. In many European countries, the
government either regulates the pricing of a new product at launch or subsequent to launch through direct price controls or
reference pricing. In recent years, many countries have also imposed new or additional cost containment measures on
pharmaceutical products. Differences between national price regimes create price differentials within the EU that can lead to
parallel trade in pharmaceutical products.
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Health Technology Assessment, or HTA, of medicinal products is becoming an increasingly common part of the
pricing and reimbursement procedures in some EU member states, including countries representing major markets. The
HTA process, which is governed by the national laws of these countries, is the procedure according to which the assessment
of the public health impact, therapeutic impact and the economic and societal impact of use of a given medicinal product in
the national healthcare systems of the individual country is conducted. HTA generally focuses on the clinical efficacy and
effectiveness, safety, cost and cost-effectiveness of individual medicinal products, as well as their potential implications for
the healthcare system. Those elements of medicinal products are compared with other treatment options available on the
market. The outcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement
status granted to these medicinal products by the competent authorities of individual EU member states. Pursuant to
Directive 2011/24/EU, a voluntary network of national authorities or bodies responsible for HTA in the individual EU
member states was established. The EU member states were required to implement the provisions of the Directive into their
national legislation by October 2013. The purpose of the network is to facilitate and support the exchange of scientific
information concerning HTAs. This could lead to harmonization between EU member states of the criteria taken into
account in the conduct of HTA and their impact on pricing and reimbursement decisions.
Healthcare Reform
PPACA substantially changed 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 has, among
other things, expanded and increased industry rebates for products covered under Medicaid programs and changed the
coverage requirements under the Medicare Part D program.
Many provisions of PPACA 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 children’s 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 AMP rule, to the Medicaid rebate formula and AMP definition described above could cause the
required PHS discount to increase.
There remain 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 was 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. While Congress has not passed repeal or replace legislation, the tax reform legislation signed into law on
December 22, 2017 included a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment
imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is
commonly referred to as the “individual mandate.” Based on the repeal of the individual mandate, in December 2018, a
federal district court in Texas ruled that the PPACA is unconstitutional. Additionally, on December 18, 2019, the U.S. Court
of Appeals for the 5th Circuit upheld the district court ruling that the individual mandate was unconstitutional and remanded
the case back to the district court to determine whether the remaining provisions of PPACA are invalid as well. It is unclear
how this decision, future decisions, subsequent appeals, and other efforts to repeal and replace PPACA will impact PPACA
and our business.
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 legislation’s 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 through 2029 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.
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Further, the Drug Supply Chain Security Act imposes on manufacturers of certain pharmaceutical products new
obligations related to product tracking and tracing, among others. This legislation also requires covered manufacturers 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. Additionally, the Drug
Supply Chain Security Act included provisions requiring that the transfer of information to subsequent product owners by
manufacturers be done electronically. The Drug Supply Chain Security Act also requires covered manufacturers to verify
that purchasers of the manufacturers’ products are appropriately licensed. Further, under this legislation, covered
manufacturers 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. At the federal level, the Trump administration’s budget proposal for fiscal year
2020 contained further drug price control measures that could be enacted during the budget process or in other future
legislation such as measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B,
to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income
patients. Further, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of
drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of
certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of
pocket costs of drug products paid by consumers. The Department of Health and Human Services, or HHS, has solicited
feedback on some of these measures and has implemented others under its existing authority. For example, on October 30,
2018, CMS issued an advance notice of proposed rulemaking with respect to the potential adaption of an international
pricing index model that would be designed to reduce Medicare expenditures on certain Part B drugs to rates that are more
closely aligned with the costs of such drugs in select comparator countries. In addition, in May 2019, CMS issued a final
rule to allow Medicare Advantage plans the option to use step therapy for Part B drugs beginning January 1, 2020. This final
rule codified CMS’s policy change that was effective January 1, 2019. While some of these and other measures may require
additional authorization to become effective, Congress and the Trump administration have each indicated that it will
continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have
increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product
pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing
cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and
bulk purchasing. 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 legislative and regulatory
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 our products 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.
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With respect to ADCETRIS, there are several other FDA approved drugs for its approved indications. BMS’s
nivolumab (Opdivo®) and Merck’s pembrolizumab (Keytruda®) are approved for the treatment of certain patients with
relapsed or refractory classical Hodgkin lymphoma, and Celgene’s romidepsin (Istodax®) and Spectrum Pharmaceuticals’
pralatrexate (Folotyn®) and belinostat (Beleodaq®) are approved for relapsed or refractory sALCL among other T-cell
lymphomas. Kyowa Kirin's mogamulizumab (Poteligeo®) is approved for adult patients with relapsed or refractory
mycosis fungoides or Sézary syndrome. The competition ADCETRIS faces from these and other therapies is
intensifying. Additionally, Merck is conducting a phase 3 clinical trial in relapsed or refractory classical Hodgkin
lymphoma comparing pembrolizumab with ADCETRIS. If this clinical trial demonstrates that pembrolizumab is more
effective than ADCETRIS in that treatment setting, our sales of ADCETRIS would be negatively impacted. We are also
aware of multiple investigational agents that are currently being studied, including Pfizer’s avelumab, 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’ approved
indications, including auto-HSCT, allogeneic hematopoietic stem cell transplant, combination chemotherapy, clinical
trials with experimental agents and single-agent regimens.
With respect to PADCEV, other treatments in pre-treated metastatic urothelial cancer include checkpoint inhibitor
monotherapy, generic chemotherapy and, for patients with select fibroblast growth factor receptor genetic alterations,
Janssen's erdafitinib (Balversa®). There are other investigational agents that, if approved, could be competitive with
PADCEV, such as Immunomedics’ sacituzumab govitecan. Treatment in front line metastatic urothelial cancer has
traditionally been treated with chemotherapy alone but is evolving to include two recently approved checkpoint inhibitor
therapies for cisplatin-ineligible patients with high PD-L1 expression or patients who are ineligible for platinum therapy.
Several trials of investigational agents in combination with chemotherapy or other novel agents expected to report data in
the near term.
With respect to tucatinib, there are multiple marketed products which target HER2, including the antibodies
trastuzumab (Herceptin®) and pertuzumab (Perjeta®) and the antibody drug conjugate T-DM1 (Kadcyla®). In addition,
lapatinib (Tykerb®) is an EGFR/HER2 oral kinase inhibitor for the treatment of metastatic breast cancer, and neratinib
(Nerlynx®) is an irreversible pan-HER kinase inhibitor indicated for extended adjuvant use that is also being studied in a
phase 3 trial in pre-treated HER2-positive metastatic breast cancer, for which positive data were reported in 2019.
Daiichi Sankyo and AstraZeneca have fam-trastuzumab deruxtecan-nxki (Enhertu®) that was recently approved for
patients who have received two or more prior anti-HER2-based regimens in the metastatic setting. Synthon has an
antibody drug conjugate in a pivotal study in this patient population and MacroGenics has a HER2 targeted, Fc-
optimized antibody, margetuximab, also in a pivotal study for which positive data were reported and a BLA was
submitted in late 2019.
With respect to tisotumab vedotin, in June 2018, Merck’s pembrolizumab was approved for the treatment of
recurrent or metastatic cervical cancer with disease progression on or after chemotherapy in patients whose tumors
express PD-L1. We are also aware of other companies that currently have products in development for the treatment of
late-stage cervical cancer which could be competitive with tisotumab vedotin, including Agenus, BMS, Iovance
Biotherapeutics, Merck, Regeneron Pharmaceuticals, and Roche.
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, BMS, Celgene,
Daiichi Sankyo, Eisai, Genentech, GSK, Gilead, ImmunoGen, Immunomedics, Infinity, Janssen, Karyopharm,
MacroGenics, MedImmune, MEI Pharma, Merck, Novartis, Pfizer, Puma Biotech, 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.
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We are aware of other companies that have technologies that may be competitive with ours, including AbbVie,
ADC Therapeutics, Astellas, AstraZeneca, BMS, Daiichi Sankyo, ImmunoGen, Immunomedics, MedImmune, Mersana,
Pfizer and Roche, 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 ImmunoGen’s 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.
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 FDA’s
prior approvals regarding innovative biological products and data submitted with a BLA to obtain approval of a
biosimilar application twelve years after the time of approval of the innovative biological product. The twelve-year
exclusivity period runs from the initial approval of the innovator product and not from approval of a new indication. In
addition, the twelve-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 FDA’s prior approvals in approving a BLA for an
innovator’s biological product to support the biosimilar product’s approval. Further, under the FDA’s 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. In
the European Union, the European Commission has granted marketing authorizations for biosimilars pursuant to a set of
general and product class-specific guidelines. 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, PADCEV, tucatinib, tisotumab vedotin, or our other product candidates or that would render our technology
obsolete or noncompetitive, or will succeed in developing biosimilar, interchangeable or generic products for
ADCETRIS, PADCEV, tucatinib, tisotumab vedotin or our other product candidates. We anticipate that we will continue
to face increasing 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, PADCEV, tucatinib, tisotumab vedotin, or
our other product candidates.
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:
•
•
•
advance our technology platforms;
license additional technology;
complete clinical trials which position our products for regulatory and commercial success;
• maintain a proprietary position in our technologies and products;
•
•
•
•
•
•
obtain required government and other public and private approvals on a timely basis;
attract and retain key personnel;
commercialize effectively;
obtain reimbursement for our products in approved indications;
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
enter into additional collaborations to advance the development and commercialization of our product
candidates.
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Manufacturing
ADCETRIS
We rely on contract manufacturing organizations to supply ADCETRIS for our clinical trials and for commercial
sale. 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 Millipore Sigma, a subsidiary of Merck
KGaA, for clinical and commercial supplies. We have multiple contract manufacturers for conjugating the drug linker to
the antibody and producing ADCETRIS drug product. In addition, we rely on other third parties to supply the raw
materials used to produce ADCETRIS, and to perform additional steps in the manufacturing process, including storage
and distribution 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, store and distribute sufficient quantities of ADCETRIS for use
in our clinical trials and for commercial sale.
AbbVie Biotechnology. In 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 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.
Millipore Sigma. In 2010, we entered into a commercial supply agreement with Sigma Aldrich Fine Chemicals, or
SAFC, which was subsequently acquired by Millipore Sigma, an affiliate of Merck KGaA. Under this agreement,
Millipore Sigma manufactures commercial quantities of the drug linker that is a component of ADCETRIS. The
agreement generally provides for the supply by Millipore Sigma 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 will continue until 2029 with automatic term extension unless either party provides written notice
of termination to the other party. Either party has the right to terminate the supply agreement if the other party materially
breaches its obligations thereunder.
PADCEV
We rely on Astellas to supply PADCEV for commercial sale and for our clinical trials, and Astellas oversees the
manufacturing supply chain for PADCEV. For the foreseeable future, we expect to continue to rely on Astellas and other
third parties to produce, store and distribute sufficient quantities of PADCEV for commercial sale and for use in our
clinical trials. We believe that the existing supplies of PADCEV and Astellas' contract manufacturing relationships will
be sufficient to accommodate current commercial and clinical needs. However, we or Astellas may need to obtain
additional manufacturing arrangements or increase manufacturing capability to meet potential future commercial needs
with respect to PADCEV, which could require additional capital investment by us or cause us potential delays if Astellas
encounters challenges in negotiating commercially reasonable arrangements with these manufacturers.
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Product Candidates
For the clinical supply of our product candidates, which include ADCs as well as antibodies and small molecules
such as tucatinib, we rely on multiple contract manufacturers and other third parties to perform manufacturing services
for us. In 2017, we acquired a biologics manufacturing facility located in Bothell, Washington. We use the facility to
support our clinical supply needs. However, for the foreseeable future, we expect to continue to rely on contract
manufacturers and, in the case of tisotumab vedotin, our collaborators for much of the manufacturing to supply drug
product for our clinical trials. With respect to tucatinib, we rely on third-party contract manufacturers to produce drug
supply for our clinical trials and our potential future commercial supplies. We have limited prior experience as an
organization manufacturing tucatinib and small molecule drug products generally, and have relatively new working
relationships with many of the third party manufacturers involved in tucatinib manufacture. We may also need to put in
place additional manufacturing arrangements or expand our current manufacturing arrangements with third party
manufacturers to meet potential future commercial needs for tucatinib, and while we are currently negotiating those
arrangements, we cannot assure you that we can enter into such arrangements on commercially reasonable terms or at all.
With respect to tisotumab vedotin, the manufacturing supply chain is overseen by Genmab, and we rely Genmab to
supply sufficient supplies of drug product. For tisotumab vedotin, we believe that the existing supplies of drug product
and Genmab's contract manufacturing relationships will be sufficient to accommodate ongoing and future clinical trials.
However, we or Genmab may need to obtain additional manufacturing arrangements or increase manufacturing
capability to meet potential future commercial needs with respect to tisotumab vedotin, which could require additional
capital investment by us or cause us potential delays if Genmab encounters challenges in negotiating commercially
reasonable arrangements with these manufacturers.
Commercial Operations
We have allocated commercial resources, including sales, marketing, supply chain management and
reimbursement capabilities, to commercialize ADCETRIS in the U.S. and Canada, and PADCEV in the U.S. We believe
the U.S. market for ADCETRIS and PADCEV in their approved indications, and Canadian market for ADCETRIS in its
approved indications, are addressable with a targeted sales and marketing organization, and we intend to continue
promoting our products in the U.S. and Canada for these and any additional indications we may obtain in the future.
Takeda has commercial rights for ADCETRIS in the rest of the world. We and Takeda have received marketing
authorizations by regulatory authorities for ADCETRIS in more than 70 countries worldwide, and Takeda continues to
pursue marketing authorizations in multiple other countries.
We sell ADCETRIS and PADCEV through a limited number of specialty distributors. Health care providers order
ADCETRIS and PADCEV 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 control—
AmerisourceBergen Corporation, Cardinal Health, Inc., and McKesson Corporation—each accounted for 10% or more
of our total revenue in 2019, 2018 and 2017.
Employees
As of December 31, 2019, we had 1,605 employees. Of these employees, 1,011 were engaged in or support
research, development and clinical activities, 309 were in administrative and business related positions, and 285 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 30th
Drive SE, Bothell, Washington 98021. Our telephone number is (425) 527-4000, and our website address is
www.seattlegenetics.com. Seattle Genetics®, ADCETRIS® and PADCEVTM are our 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, or SEC, 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 SEC. Information found on,
or accessible through, our website is not part of, and is not incorporated into, this Annual Report on Form 10-K. In
addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC.
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 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 success depends on our ability to effectively commercialize our products. If we and our collaborators are
unable to effectively commercialize our products and to expand their utilization, our ability to generate significant
revenue and our prospects for profitability will be adversely affected.
Our two marketed products are ADCETRIS®, or brentuximab vedotin and PADCEVTM, or enfortumab
vedotin ejfv, which received accelerated approval in December 2019 by the U.S. Food and Drug Administration, or
FDA. Our ability to generate revenue from product sales and our prospects for profitability are substantially dependent
on our and our collaborators’ ability to effectively commercialize ADCETRIS and PADCEV and expand their utilization.
We may not be able to fully realize the commercial potential of our products, or commercial sales of our products may be
lower than our projections, for a number of reasons, including:
• we may be unable to effectively commercialize our products, including in any new indications for which we
receive marketing approval;
• we may not be able to establish or demonstrate in the medical community the safety, efficacy or value of our
products and their potential advantages compared to existing and future therapeutics in their approved
indications, including, with respect to ADCETRIS, in the newly diagnosed, previously untreated Stage III and
IV classical Hodgkin lymphoma indication, for which the FDA approved ADCETRIS in combination with
chemotherapy in March 2018 based on the results of the ECHELON-1 trial, or the frontline Hodgkin lymphoma
indication, and the newly diagnosed, previously untreated systemic anaplastic large-cell lymphoma, or sALCL
or other CD30-expressing peripheral T-cell lymphomas, or PTCL, including angioimmunoblastic T-cell
lymphoma and PTCL not otherwise specified indication, for which the FDA approved ADCETRIS in
combination with chemotherapy in November 2018 based on the results of the ECHELON-2 trial, or the
frontline PTCL indication;
• we and our collaborators may not be able to obtain and maintain regulatory approvals to market our products for
their currently approved indications or for any additional indications in our or our collaborators' respective
territories, including any approvals for ADCETRIS in the ECHELON-2 treatment setting outside the U.S. and
Canada or for PADCEV outside the U.S., which would limit the sales and commercial potential of the
applicable product;
•
new competitive therapies in ADCETRIS' approved indications, including immuno-oncology agents such as
PD-1 inhibitors (e.g., nivolumab and pembrolizumab) and other novel agents (e.g., mogamulizumab), or in
PADCEV's approved indication, including antibody drug conjugates (e.g., sacituzumab govitecan) and other
targeted agents (e.g., BALVERSA for patients with select FGFR alterations), have been approved by regulatory
authorities or may be submitted in the near term to regulatory authorities for approval, and these competitive
products could negatively impact our commercial sales of ADCETRIS or PADCEV, respectively;
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•
•
•
there may be changes to the labels for our products, including the boxed warning in the ADCETRIS label, that
further restrict how we market and sell our products, including as a result of data collected from any of the
clinical trials that we and our collaborators are conducting or may in the future conduct for ADCETRIS or
PADCEV, including the post-approval confirmatory studies that our collaborator, Takeda Pharmaceutical
Company Limited, or Takeda, is required to conduct as a condition to the conditional marketing authorization of
ADCETRIS granted by the European Commission, or the EC, and the confirmatory post-marketing study that
we and our collaborator, Astellas Pharma, Inc., or Astellas, are required to conduct as a condition to the
accelerated approval of PADCEV by the FDA, or as a result of investigator-sponsored studies;
the estimated incidence rate of new patients or the duration of therapy in the approved indications for our
products may be lower than our projections;
there may be adverse results or events reported in any of the clinical trials that we or our collaborators are
conducting, or may conduct in the future, for our products;
• we and our collaborators may be unable to continue to effectively market, sell and distribute our products;
•
•
•
•
•
in the case of PADCEV, our joint commercialization efforts in the U.S. with Astellas may be unsuccessful or we
may encounter challenges in joint decision making and joint execution that adversely affect PADCEV product
sales;
our products may be impacted by adverse reimbursement and coverage policies from government and private
payors 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 pharmaceutical pricing or otherwise;
the relative price of our products may be higher than alternative treatment options, and therefore their
reimbursement may be limited by private and governmental insurers;
physicians may be reluctant to prescribe our products due to side effects associated with their use or until longer
term efficacy and safety data exist;
there may be changed or increased regulatory restrictions;
• we may not have adequate financial or other resources to effectively commercialize our products; and
• we may not be able to obtain adequate commercial supplies of our products to meet demand or at an acceptable
cost.
We have 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. We
also have agreements with Astellas to develop and commercialize PADCEV, under which we and Astellas jointly
promote PADCEV in the U.S., we have commercialization rights in the other countries in North and South America, and
Astellas has commercialization rights in the rest of the world. The success of these collaborations and the activities of
our collaborators will significantly impact the development and commercialization of our products. We cannot control
the amount and timing of resources that our collaborators dedicate to the development and commercialization of
ADCETRIS or PADCEV, or to their marketing and distribution. Our ability to generate royalty revenues from
ADCETRIS product sales by Takeda depends on Takeda’s ability to obtain regulatory approvals for ADCETRIS in
Takeda's territory, and to achieve market acceptance of, and to otherwise effectively market, ADCETRIS for its approved
indications in Takeda’s territory. Our ability to generate revenues from PADCEV product sales in the U.S. and in
Astellas' territories depends on our and Astellas' ability to effectively jointly commercialize PADCEV in the U.S, and on
Astellas' ability to obtain regulatory approvals for, achieve market acceptance of, and otherwise effectively market,
PADCEV in Astellas' territories. Moreover, foreign sales could be adversely affected by the imposition of governmental
controls, political and economic instability, trade restrictions or barriers and changes in tariffs, including as a result of the
United Kingdom’s separation from the European Union, commonly referred to as Brexit, escalating global trade and
political tensions, or otherwise.
While ADCETRIS product sales have grown over time, and our future plans assume that sales of ADCETRIS will
increase, we expect lower sales growth for ADCETRIS in 2020 as compared to growth in 2019. 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
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expect that our ability to continue to grow our ADCETRIS sales, if at all, will depend primarily on our ability to establish
or demonstrate to the medical community the value of ADCETRIS and its potential advantages compared to existing and
future therapeutics in its approved indications, including in the frontline Hodgkin lymphoma and PTCL indications, and
the extent to which physicians make prescribing decisions with respect to ADCETRIS. Other important factors affecting
ADCETRIS sales include the extent to which Takeda obtains further regulatory approvals of ADCETRIS in its
territories, the incidence flow of patients eligible for treatment in ADCETRIS’ approved indications, the extent to which
coverage and adequate levels of reimbursement for ADCETRIS are available from governments and other third-party
payors, the impact of any healthcare reform measures that may be adopted in the future, including measures that could
potentially result in more rigorous coverage criteria and additional downward pressure on the price that we receive for
ADCETRIS, increasing competition from competing therapies and the potential future approval of ADCETRIS in any
additional indications. In addition, as a result of these and other factors, our future ADCETRIS product sales can be
difficult to accurately predict from period to period.
Our ability to realize the anticipated benefits from our investment in PADCEV is subject to a number of risks and
uncertainties, including our and Astellas’ ability to successfully jointly launch, market and commercialize PADCEV in
the U.S. in its approved indication, the extent to which we and Astellas are able to obtain regulatory approvals of
PADCEV in additional indications, including in the frontline metastatic urothelial cancer setting, and in territories
outside the U.S., our ability and Astellas’ ability to successfully comply with rigorous post-marketing requirements,
including the successful completion of the required confirmatory post-marketing study that we and Astellas are subject to
as a result of an accelerated approval by the FDA, the acceptance of PADCEV by the medical community and patients,
the extent to which physicians make prescribing decisions with respect to PADCEV, the incidence flow of patients
eligible for treatment in PADCEV’s approved indication, the duration of therapy for patients receiving PADCEV, the
extent to which coverage and adequate levels of reimbursement for PADCEV are available from governments and other
third-party payors, the impact of any healthcare reform measures that may be adopted in the future, including measures
that could potentially result in more rigorous coverage criteria and additional downward pressure on the price that we
receive for PADCEV and potential competition from competing therapies. In addition, due to the lack of any historical
sales data and these factors, PADCEV sales are currently difficult to predict from period to period.
Our ability to grow our product sales in future periods is also dependent on price increases, and we periodically
increase the price of our products. Price increases on our products and negative publicity regarding drug pricing and
price increases generally, whether on our products or products distributed by other pharmaceutical companies, could
negatively affect market acceptance of, and sales of, our products. 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 our product sales.
Our success also depends on our ability to obtain regulatory approvals of our product candidates and of our current
products in additional territories, as well as our ability to expand the labeled indications of use for our current
products, and, if the requisite approvals are obtained, our ability to successfully launch and commercialize our
products in their approved indications. Our inability to do so could have a material adverse effect on our business,
financial condition, results of operations and growth prospects.
Neither we nor our collaborators are permitted to market our product candidates in the United States or foreign
countries until we obtain marketing approvals from the FDA and foreign regulatory authorities, and we or our
collaborators may never receive regulatory approval for the commercial sale of any of our product candidates. Likewise,
we and our collaborators are required to obtain marketing approvals from the FDA and foreign regulatory authorities in
order to market our current products in additional territories and to expand the labeled indications of use for our current
products.
We have made and are continuing to make significant investments in a number of product candidates, including
tucatinib and tisotumab vedotin, and in seeking additional regulatory approvals for ADCETRIS and PADCEV. However,
obtaining marketing approval is a lengthy, expensive and uncertain process, approval is never assured, and we have only
limited experience in preparing and submitting the applications necessary to gain regulatory approvals. As an
organization, we do not have any prior experience submitting an application to the FDA for a small molecule, such as
tucatinib, or applying for regulatory approval in jurisdictions outside the U.S. and Canada. Further, the FDA and other
regulatory agencies have substantial discretion in the approval process and determining when or whether regulatory
approval will be obtained for our products and product candidates, including any regulatory approvals for the potential
commercial sale of tucatinib or of ADCETRIS or PADCEV in additional indications or in additional territories. In this
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regard, even if we believe the data collected from preclinical studies or clinical trials of our products and product
candidates are promising, the FDA or any foreign regulatory authority or their respective advisors may disagree with our
interpretations of this data. For example, we reported positive topline results from the pivotal clinical trial comparing
tucatinib added to trastuzumab and capecitabine versus trastuzumab and capecitabine alone in patients with locally
advanced or metastatic HER2-positive breast cancer who were previously treated with trastuzumab, pertuzumab and
ado-trastuzumab emtansine, or T-DM1, which we refer to as the HER2CLIMB-01 trial. However, regulatory agencies
may disagree with our interpretation of the data from the HER2CLIMB-01 trial and may otherwise determine not to
accept for filing or approve the applications we submitted for tucatinib, including the New Drug Application, or NDA,
we submitted to the FDA in December 2019 under the FDA's Oncology Center of Excellence's, or OCE's, Real Time
Oncology Review, or RTOR, pilot program, submissions to other countries participating in the FDA OCE's Project Orbis
initiative, and the Marketing Authorization Application, or MAA, we submitted to the European Medicines Agency, or
EMA, in January 2020, in a timely manner or at all. Although the FDA granted Breakthrough Therapy designation to
tucatinib in combination with trastuzumab and capecitabine, for treatment of patients with locally advanced unresectable
or metastatic HER2-positive breast cancer, including patients with brain metastases, who have been treated with
trastuzumab, pertuzumab, and ado-trastuzumab emtansine, or T-DM1, and we submitted our tucatinib NDA under the
RTOR pilot program, this Breakthrough Therapy designation and RTOR pilot program may not result in a faster review
or approval process for tucatinib. Further, they do not increase the likelihood that the tucatinib NDA will be accepted for
filing or approved or that tucatinib will otherwise receive any marketing approvals. We also cannot assure you that
tucatinib or any of our other product candidates will receive any marketing approvals. In fact, it is possible that none of
our product candidates will ever become commercial products. As a result, we may not realize the anticipated benefits of
our investments in our product candidates, including, with respect to tucatinib, our acquisition of Cascadian
Therapeutics, Inc., or Cascadian, referred to as the Cascadian Acquisition. In addition, failure to obtain regulatory
approval of tucatinib in Europe may negatively impact our plans to build a commercial infrastructure in Europe.
Similarly, regulatory agencies may not approve the labeling claims that are necessary or desirable for the
successful commercialization of ADCETRIS and PADCEV in any additional indications or territories, or of any future
approved product. Regulatory agencies also may approve a product candidate for fewer or narrower indications than
requested, or with a label that includes only subtypes of a particular indication rather than a more general disease
classification. In addition, our products and product candidates could take a significantly longer time to gain new or
initial regulatory approvals than we expect or may never gain new or initial regulatory approvals, which could delay or
eliminate any potential product revenue from sales of our product candidates or of ADCETRIS or PADCEV in any
additional indications or territories and significantly delay or prevent us from achieving profitability. In this regard, part
of our growth strategy is to continue to explore the use of ADCETRIS in different CD30-expressing lymphomas, to seek
approval for PADCEV in our territories outside the U.S. and to continue to explore the use of PADCEV in additional
indications. However, we and/or our collaborators may be unable to obtain any regulatory approvals for the commercial
sale of ADCETRIS or PADCEV in any additional indications or territories in a timely manner or at all. For example, as
part of the 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 target action dates,
and if the FDA were to fail to meet its PDUFA target action date in the future for any of our current or future NDAs or
BLAs, the commercialization of the affected product candidate, or of the affected product in any additional indications,
could be delayed or impaired.
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Even if approved for commercial sale, our ability to realize the anticipated benefits from our investments in our
product candidates and our efforts to expand the labeled indications of use and territories for our current products is
subject to a number of risks and uncertainties, including our and our collaborators’ ability to successfully launch, market
and commercialize our products, our reliance, in the case of PADCEV and tisotumab vedotin, on Astellas and Genmab
A/S, or Genmab, respectively, to effectively jointly launch and commercialize PADCEV and any potential future
approved tisotumab vedotin products with us, our and our collaborators’ ability to successfully comply with rigorous
post-marketing requirements, including the successful completion of the required confirmatory trial, EV-301, that we and
Astellas are required to complete as a result of the accelerated approval of PADCEV by the FDA, the acceptance of our
approved products by the medical community and patients, and 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. For example, although PADCEV was launched in the U.S. in December 2019, our joint launch and
commercialization of this product in the U.S. with Astellas is at an early stage and may not be successful. If we are
unable to successfully launch and commercialize PADCEV jointly with Astellas in the U.S., our growth prospects and
our prospects for profitability would be adversely affected. Likewise, although we have submitted certain applications
for regulatory approval for tucatinib outside the U.S., we have no prior experience as an organization launching or
commercializing a product outside the U.S. and Canada, which could adversely affect our ability to maximize the
commercial potential of any approved tucatinib product. In addition, in many countries, the proposed pricing for a drug
must be approved before it may be lawfully marketed, which could delay entry of a product into a market or, if pricing is
not approved, may prevent us from selling a product in a country where we have received regulatory approval. The
launch of a newly approved product or of an existing product in a new market could be delayed due to a variety of
factors, including supply constraints, delays in arranging a commercial infrastructure or delays in negotiating pricing and
reimbursement approvals. If we experience delays or unforeseen difficulties due to any of these factors, planned launches
in the countries in question would be delayed, which could negatively impact anticipated revenue from tucatinib. In
addition, if we are unable to obtain favorable pricing and reimbursement approvals in the countries that represent
significant potential markets, our anticipated revenue from and growth prospects for tucatinib in Europe and other
regions could be negatively affected.
If we are unable to obtain and maintain necessary or desirable regulatory approvals for our products and product
candidates, including for ADCETRIS, PADCEV and tucatinib, in a timely manner, if at all, if the FDA or other
regulatory authorities do not approve product labeling that is necessary or desirable for the successful commercialization
of an approved product, or if sales of an approved product do not reach the levels we expect, then our anticipated
revenue from our products and product candidates and our prospects for profitability would be adversely affected, which
could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Reports of adverse events or safety concerns involving our products or product candidates could delay or prevent us
from obtaining or maintaining regulatory approvals or could negatively impact sales of our products or the prospects
for our product candidates.
Reports of adverse events or safety concerns involving our products could interrupt, delay or halt clinical trials of
our products, including the post-approval confirmatory studies that Takeda is required to conduct as a condition of the
marketing authorization of ADCETRIS by the EC and that we and Astellas are required to conduct in connection with
the accelerated approval of PADCEV by the FDA in the U.S. In addition, reports of adverse events or safety concerns
involving our products could result in regulatory authorities requiring that we update the applicable product's prescribing
information, or limiting, denying or withdrawing approval of our products for any or all indications, including previously
approved indications. For example, there was an increased incidence of febrile neutropenia and peripheral neuropathy in
the ADCETRIS plus doxorubicin, vinblastine and dacarbazine, or AVD, arm of the ECHELON-1 trial. The ADCETRIS
prescribing information provides for use of prophylactic growth factors for Stage III or IV classical Hodgkin lymphoma
patients receiving ADCETRIS plus AVD to mitigate events of neutropenia and febrile neutropenia, but despite this, these
product safety concerns could limit prescribing of ADCETRIS for newly diagnosed patients with previously untreated
Stage III and IV classical Hodgkin lymphoma and negatively impact sales of ADCETRIS or adversely affect
ADCETRIS’ acceptance in the market. There are no assurances that patients receiving ADCETRIS or PADCEV will not
experience serious adverse events in the future, whether the serious adverse events are disclosed in the ADCETRIS or
PADCEV prescribing information or are newly reported. Further, there are no assurances that patients receiving
ADCETRIS or PADCEV with co-morbid diseases not previously studied, such as autoimmune diseases, will not
experience new or different serious adverse events in the future.
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Adverse events may negatively impact the sales of our products. We may be required to further update the
prescribing information for our products, including boxed warnings, limitations of use, contraindications, warnings and
precautions, and adverse reactions, based on reports of adverse events or safety concerns, or implement a Risk
Evaluation and Mitigation Strategy, or REMS, which could adversely affect the acceptance of our products in the market,
make competition easier or make it more difficult or expensive for us to distribute our products. For example, the
prescribing information for ADCETRIS has been revised over time to include warnings and precautions for hematologic
toxicities, serious infections and opportunistic infections, increased toxicity in the presence of moderate or severe hepatic
impairment, increased toxicity in the presence of severe renal impairment, hepatotoxicity, pulmonary toxicity,
hyperglycemia and gastrointestinal complications, as well as a boxed warning related to the risk that JC virus infection
resulting in progressive multifocal leukoencephalopathy 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 our product candidates could interrupt, delay or
halt clinical trials of our product candidates, or could result in our or our collaborators' inability to obtain regulatory
approvals for any of our product candidates. We initiated the pivotal trials of tucatinib and tisotumab vedotin, in each
case based on only limited clinical data. Data continues to be generated in these pivotal and other trials. Although we
reported positive results from the pivotal HER2CLIMB-01 trial, there may still be important facts about the safety,
efficacy, and risk versus benefit of tucatinib and each of our other product candidates that are not known to us at this time
which may negatively impact our ability to develop and commercialize these product candidates. In response to prior
safety events observed in our clinical trials of PADCEV and tisotumab vedotin, including patient deaths, we have in the
past, and may in the future, institute additional precautionary safety measures such as dosing caps and delays, enhanced
monitoring for side effects, and modified patient inclusion and exclusion criteria. Additional and/or unexpected safety
events could be observed in these or other trials that could delay or prevent us from advancing the clinical development
of, or obtaining regulatory approvals for tucatinib or tisotumab vedotin or for PADCEV in any additional indications or
territories, and may adversely affect our business, results of operations and prospects.
Concerns regarding the safety of our products or 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, PADCEV or the applicable product candidate. Undesirable side effects caused by our
products or 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, PADCEV 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 our products or product candidates or result in potential product
liability claims. Any of these events could prevent us from developing or commercializing ADCETRIS, PADCEV or the
particular product candidate, and could significantly harm our business, results of operations and prospects.
Even if we and our collaborators obtain regulatory approvals to market our current and any future approved
products, we and our collaborators will remain subject to extensive ongoing regulatory obligations and oversight,
including post-approval requirements, that could result in significant additional expense and could negatively impact
our and our collaborators' ability to commercialize our current and any future approved products.
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 and
PADCEV in each of their 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 and our collaborators' ability to
commercialize our current and any future approved products. For example, the FDA's accelerated approval of PADCEV
included a requirement for a confirmatory trial, EV-301, to confirm the clinical benefit and provide additional long-term
efficacy data that may inform product labeling. Unfavorable results from this post-marketing study or failure to complete
this post-marketing study could result in the withdrawal of approval of PADCEV or the inclusion of unfavorable safety
information in our product labeling, which could seriously harm our business. Moreover, in connection with PADCEV's
accelerated approval, the labeling and advertising and promotion of PADCEV are subject to additional regulatory
requirements, which could entail significant expense and could negatively impact the potential commercialization of
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PADCEV. In addition, the use of PADCEV may uncover additional adverse events that limit or prevent PADCEV's
widespread use or that force us or Astellas to withdraw PADCEV from the market, and any problems with PADCEV or
any violation of ongoing regulatory obligations could result in restrictions on PADCEV, including its withdrawal from
the market.
ADCETRIS is approved for treating patients in the relapsed sALCL indication with conditions in Canada, and
approved under conditional marketing authorization in relapsed Hodgkin lymphoma and sALCL in the European Union,
in each case under regulations 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. For the
European Union indications, Takeda is subject to certain post-approval requirements, including the requirement to
conduct clinical trials to confirm clinical benefit. In Canada, the ECHELON-2 results may be sufficient to confirm the
clinical benefit of ADCETRIS in relapsed sALCL. In the European Union, there are other post approval requirements to
convert the conditional marketing authorization for ADCETRIS in relapsed Hodgkin lymphoma and relapsed sALCL
into a standard marketing authorization. Takeda’s failure to provide these additional clinical data from confirmatory
studies could result in the EC withdrawing approval of ADCETRIS in the European Union for certain indications, which
would negatively impact anticipated royalty revenue from ADCETRIS sales by Takeda in the European Union and could
adversely affect our results of operations. The FDA's approval of ADCETRIS in the frontline PTCL indication included a
post-marketing commitment to develop a clinically validated in-vitro diagnostic device for the selection of patients with
CD30-expressing PTCL, not including sALCL, for treatment with ADCETRIS in this indication. We and Takeda have a
collaboration with Ventana Medical Systems, Inc., or Ventana, under which Ventana is working to develop, manufacture
and commercialize a companion diagnostic test to measure CD30 expression levels in tissue specimens. If Ventana
develops an in-vitro diagnostic device that we are able to clinically validate, the FDA or another regulatory authority
may revise our label for the frontline PTCL indication or in connection with any future approvals to require the use of the
in-vitro test as a companion diagnostic. This may limit our ability to commercialize ADCETRIS in the applicable
treatment setting due to potential label requirements, prescriber practices, constraints on availability of the diagnostic, or
other factors. If Ventana is unable to successfully develop the CD30 in-vitro diagnostic, or experiences delays in doing
so, or we experience delays in clinical validation of the diagnostic, we will likely need to renegotiate the timing or
content of our post-marketing commitment regarding the in-vitro diagnostic device with the FDA.
We and the manufacturers of our current and any future approved products are also required, or will be 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 our products and
product candidates, and these facilities are subject to ongoing regulatory inspections. In addition, regulatory agencies
subject an approved product, its manufacturer and the manufacturer’s facilities to continual review and inspections,
including periodic unannounced inspections. The subsequent discovery of previously unknown problems with our
current or any future approved products, including adverse events of unanticipated severity or frequency, or problems
with the facilities where our current or any future approved products are manufactured, may result in restrictions on the
marketing of our current or any such future approved products, up to and including withdrawal of the affected product
from the market. If our manufacturing facilities, our collaborators' manufacturing facilities, or those of our respective
suppliers, fail to comply with applicable regulatory requirements, such noncompliance could result in regulatory action
and additional costs to us.
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;
imposition of fines and other civil penalties;
criminal prosecutions;
injunctions, suspensions or revocations of regulatory approvals;
suspension of any ongoing clinical trials;
total or partial suspension of manufacturing;
delays in commercialization;
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refusal by the FDA to approve pending applications or supplements to approved applications submitted by us;
refusals to permit drugs to be imported into or exported from the United States;
restrictions on operations, including costly new manufacturing requirements; and
product recalls or seizures.
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 our product candidates or of ADCETRIS or PADCEV in any
additional indications or territories, 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 our
collaborators might not be permitted to market our current or any future approved products and our business would
suffer.
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 our products and product candidates and we plan to
commence additional trials of our products and product candidates in the future. In this regard, we and Astellas are
continuing enrollment in a single-arm pivotal phase-2 trial of PADCEV in patients with locally advanced or metastatic
urothelial cancer, called the EV-201 trial, for the second cohort of patients who received prior treatment with a PD-1 or
PD-L1 inhibitor and who were not candidates for treatment with a platinum agent, a global, randomized phase 3 clinical
trial of PADCEV, called the EV-301 trial, for patients with metastatic urothelial cancer who previously received both
platinum chemotherapy and a PD-1 or PD-L1 inhibitor, a phase 1/2, multi-cohort, open-label trial of PADCEV alone or
in combination with the anti-PD-1 therapy pembrolizumab and/or chemotherapy, called the EV-103 trial, in locally
advanced and first- and second-line metastatic urothelial cancer and muscle invasive bladder cancer and, under a
collaboration with Merck, an open-label, randomized phase 3 trial, called the EV-302 trial, evaluating the combination of
PADCEV and pembrolizumab with or without chemotherapy versus chemotherapy alone in patients with previously
untreated locally advanced or metastatic urothelial cancer. Additionally, we are conducting a phase 3 randomized trial of
tucatinib vs. placebo, in combination withT-DM1 for patients with unresectable locally advanced or metastatic HER2-
positive breast cancer, including those with brain metastases, who have had prior treatment with a taxane and
trastuzumab, which we refer to as HER2CLIMB-02, and a phase 2 trial evaluating tucatinib in combination with
trastuzumab in patients with HER2-positive, RAS wild-type metastatic colorectal cancer after treatment with first- and
second-line standard-of-care therapies, which we call MOUNTAINEER. We are also conducting a pivotal phase 2
clinical trial of single-agent tisotumab vedotin with Genmab for patients with recurrent and/or metastatic cervical cancer
who have relapsed or progressed after standard of care treatment, which we refer to as the innovaTV 204 trial. Each of
these trials was initiated based on only limited clinical data and we cannot be certain that the design of, or data collected
from, these trials will be sufficient to support FDA or any foreign regulatory approvals. Furthermore, we do not have
Special Protocol Assessment agreements with the FDA for any of these trials.
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 institutional
review board, or IRB, approval to conduct a clinical trial at a prospective site, and shortages of available drug supply.
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 clinical trials
are being or will be coordinated or conducted with Takeda, Astellas, Merck, Genmab, Bristol-Myers-Squibb Company,
BMS, and other collaborators, which may delay the commencement or adversely 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,
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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.
Clinical trials must be conducted in accordance with FDA or other applicable foreign government guidelines and
are subject to oversight by the FDA, foreign governmental agencies, including data protection authorities, the data safety
monitoring boards for such trials and the IRBs or Ethics Committees for the institutions in which such trials are being
conducted. In addition, clinical trials must be conducted with supplies of our products or product candidates produced
under cGMP and other requirements in foreign countries, and may require large numbers of test patients. We or our
collaborators, the FDA, foreign governmental agencies or the applicable data safety monitoring boards, IRBs and Ethics
Committees could delay, suspend, halt or modify our clinical trials of our products or any of our product candidates, for
numerous reasons, including:
• ADCETRIS, PADCEV 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, clinical protocols or regulations relating to data protection;
problems, errors or other deficiencies with respect to data collection, data processing and analysis;
deficiencies in the clinical trial operations or trial sites resulting in the imposition of a clinical hold;
the time required to determine whether ADCETRIS, PADCEV or the applicable product candidate is effective
may be longer than expected;
fatalities or other adverse events arising during a clinical trial due to medical problems that may not be related
to clinical trial treatments;
• ADCETRIS, PADCEV 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, PADCEV or the applicable product candidate may fall below acceptable
standards;
our inability and the inability of our collaborators to produce or obtain sufficient quantities of ADCETRIS,
PADCEV or the applicable product candidate to complete the trials;
our inability and the inability of our collaborators 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;
our inability and the inability of our collaborators to obtain IRB or Ethics Committee approval to conduct a
clinical trial at a prospective site;
changes in governmental regulations or administrative actions that adversely affect our ability and the ability of
our collaborators to continue to conduct or to complete clinical trials;
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;
our inability and the inability of our collaborators 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;
our inability and the inability of our collaborators 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 and the inability of our collaborators to ensure adequate statistical power to detect statistically
significant treatment effects, whether through our inability to enroll or retain patients in trials or because the
specified number of events designated for a completed trial have not occurred.
In addition, we or our collaborators 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.
Negative or inconclusive clinical trial results could adversely affect our ability and the ability of our collaborators
to obtain regulatory approvals of our product candidates or to market ADCETRIS or PADCEV and/or expand
ADCETRIS or PADCEV into additional indications and territories. In addition, clinical trial results are frequently
susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. For example, even though we
reported positive results from the HER2CLIMB-01 trial, regulatory agencies may disagree with our interpretation of the
data from the HER2CLIMB-01 trial and may otherwise determine not to accept for filing or approve the applications for
regulatory approval we submitted for tucatinib, including the NDA we submitted to the FDA in December 2019,
submissions to other countries participating in the FDA OCE's Project Orbis initiative, and the MAA we submitted to the
EMA in January 2020, in a timely manner or at all. Likewise, although we reported positive results in our ECHELON-2
trial, regulatory agencies outside of the U.S., or their advisors, may disagree with Takeda’s interpretations of data from
the ECHELON-2 trial and may not approve the expansion of the ADCETRIS labeled indications of use to the
ECHELON-2 treatment setting. Adverse medical events during a clinical trial, including patient fatalities, could cause a
trial to be redone or terminated, require us to cease development of a product candidate or the further development or
commercialization of ADCETRIS or PADCEV, result in our failure to expand ADCETRIS or PADCEV into additional
indications and territories, adversely affect our ability to market ADCETRIS or PADCEV, and may result in other
negative consequences to us, including the inclusion of unfavorable information in our product labeling. Further, some of
our clinical trials 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. In addition, we may be required to implement additional risk mitigation measures that could require us to suspend
our clinical trials if certain safety events occur.
Our product candidates are in various stages of development, and it is possible that none of our product candidates
will ever become commercial products.
Our late-stage product candidates are tucatinib and tisotumab vedotin, each of which was advanced to pivotal
trials based on only limited clinical data. Our earlier-stage clinical pipeline includes ladiratuzumab vedotin, which is in
phase 2 clinical development, and other product candidates that are in phase 1 clinical development. In addition, we have
multiple preclinical and research-stage programs that employ our proprietary technologies. We will require significant
financial resources and additional personnel in order to continue to advance the development of, to pursue, obtain and
maintain regulatory approvals for, and to potentially commercialize tucatinib and tisotumab vedotin, if we are able to do
so at all. Our other product candidates are in early or relatively early stages of development.
If a product candidate fails at any stage of development or fails to receive regulatory approval, or we or our
collaborators 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. For example, with respect to tucatinib, we have incurred significant expenditures related to its
development and potential launch, but there can be no assurances that the FDA, the other countries participating in the
FDA OCE's Project Orbis initiative, or the EMA, will accept or approve our regulatory submissions for tucatinib or that
tucatinib will otherwise receive any regulatory approvals, and we may therefore fail to receive any return on our
investment in tucatinib or realize the anticipated benefits of the Cascadian Acquisition. Moreover, with the exception of
the positive results we reported from the HER2CLIMB-01 trial, we have reported only limited data from earlier stage
trials of our product candidates. Preclinical studies and any encouraging or positive preliminary and interim data from
our clinical trials of our product candidates may not be predictive of the results of ongoing or later clinical trials. Even if
we or our collaborators 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 later-stage trials. In addition, we are developing product candidates in
indications in which competition is intense, and it is possible that a clinical trial we run may meet its safety and efficacy
endpoints but we may choose not to advance the development and commercialization of the product candidate due to
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changes in the competitive environment and the rapid evolution of the standard of care. As a result, we and our
collaborators 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 or could cause us to
discontinue the development of such product candidate. Also, 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 earlier-stage
clinical trials. Differences in earlier- and later-stage clinical trials may include changes to inclusion and exclusion
criteria, efficacy endpoints and statistical design. In this regard, we initiated the EV-302 trial of PADCEV with Astellas,
the HER2CLIMB-02 trial of tucatinib, and the innovaTV 204 trial of tisotumab vedotin with Genmab, in each case based
on only limited clinical data, and we cannot be certain that the design of, or data collected from, these trials will be
adequate to support FDA or any foreign regulatory approvals. Moreover, despite the positive results we and Astellas
reported for the first cohort in the EV-201 trial and the positive initial data from the EV-103 trial, we cannot be certain
that PADCEV will demonstrate sufficient efficacy in other trials, including in the EV-301 trial, the EV-302 trial, other
cohorts of the EV-201 and EV-103 trials or any future trials. In this regard, despite the initial results we and Astellas
reported from the EV-103 trial, PADCEV may not demonstrate sufficient efficacy in the EV-302 trial or in any other
frontline setting, and PADCEV may never be approved for use in any frontline setting, which would significantly delay
or prevent us from achieving profitability. Likewise, despite the positive results we reported from the HER2CLIMB-01
trial, we cannot be certain that tucatinib will demonstrate sufficient efficacy in other trials, including the
HER2CLIMB-02 trial, or will ever be approved for commercial sale. Tisotumab vedotin may likewise fail to
demonstrate sufficient efficacy in pivotal trials despite the results observed in earlier-stage trials. In addition, there may
still be important facts about the safety, efficacy, and risk versus benefit of PADCEV, tucatinib and tisotumab vedotin
that are not known to us at this time which may negatively impact our ability to develop and commercialize PADCEV or
these product candidates. In this regard, in the first cohort of the EV-201 trial, there was one death due to interstitial lung
disease, which occurred outside the safety-reporting period of the trial and was confounded by prolonged high-dose
steroid use and suspected pneumonia, and in the initial results of the EV-103 trial, there was one death deemed to be
treatment-related by the investigator, attributed to multiple organ dysfunction syndrome. In addition, in response to prior
safety events observed in our clinical trials of PADCEV and tisotumab vedotin, including patient deaths, we have in the
past, and may in the future, institute additional precautionary safety measures such as dosing caps and delays, enhanced
monitoring for side effects, and modified patient inclusion and exclusion criteria. Additional and/or unexpected safety
events or our failure to generate additional efficacy data in our clinical trials that support registration could significantly
impact the value of PADCEV, tucatinib and tisotumab vedotin to our business. 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 or planned clinical trials, including in the ongoing pivotal trials for PADCEV, tucatinib and tisotumab
vedotin. If we or our collaborators fail to produce positive results in our ongoing or planned clinical trials of PADCEV or
any of our product candidates, the development timeline and regulatory approval and commercialization prospects for
PADCEV and our product candidates, and, correspondingly, our business, financial condition, results of operations and
growth 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, or we may choose to discontinue the development of product
candidates for a variety of reasons such as due to safety, risk versus benefit profile, exclusivity, competitive landscape, or
prioritization of our resources. It is possible that none of our product candidates will ever become commercial products.
In addition, we have to make decisions about which clinical stage and pre-clinical product candidates to develop and
advance, and we may not have the resources to invest in certain product candidates, or clinical data and other
development considerations may not support the advancement of one or more product candidates. Decision-making
about which product candidates to prioritize involves inherent uncertainty, and our development program decision-
making and resource prioritization decisions may not improve our results of operations or prospects or enhance the value
of our common stock. Our failure to effectively advance our development programs could have a material adverse effect
on our business and prospects, and cause the price of our common stock to decline.
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The successful commercialization of our products and our product candidates will depend on a variety of factors,
including the extent to which governmental authorities and health insurers establish adequate coverage and
reimbursement levels and pricing policies, and the acceptance of our products by the medical community and
patients.
Successful sales of our current and any future approved 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 increasing levels of evidence of favorable clinical
outcomes and cost-effectiveness before extending coverage. In light of this pricing scrutiny, we cannot be sure that we
will achieve and continue to have coverage available for our products and any product candidates that we commercialize
and, if available, that the reimbursement rates will be adequate. If we are unable to obtain coverage and adequate levels
of reimbursement for our current and any future approved products that we commercialize, their marketability will be
negatively and materially impacted. For example, we cannot be certain that third-party payors will continue to provide
coverage and adequate reimbursement for ADCETRIS in the frontline Hodgkin lymphoma indication based on the
relative price and perceived benefit of ADCETRIS as compared to alternative treatment options, which may materially
harm our ability to maintain or increase sales of ADCETRIS or may otherwise negatively affect future ADCETRIS sales.
Similarly, we cannot be certain that third-party payors will provide coverage and adequate reimbursement for PADCEV
or, if we are able to obtain any regulatory approval of tucatinib, for tucatinib based on their relative price and perceived
benefits as compared to alternative treatment options or otherwise, which may materially harm our ability to successfully
commercialize PADCEV and any approved tucatinib product. In addition, we are currently seeking regulatory approvals
of tucatinib from the EMA and in the Project Orbis countries of Australia, Canada, Singapore and Switzerland. In many
countries, the proposed pricing for a drug must be approved before it may be lawfully marketed, which could delay entry
of a product into a market or, if pricing is not approved, may prevent us from selling a product in a country where we
have received regulatory approval. The launch of tucatinib in these markets could be delayed due to a variety of factors,
including supply constraints, delays in arranging a commercial infrastructure or delays in negotiating pricing and
reimbursement approvals. If we experience delays or unforeseen difficulties due to any of these factors, planned
launches in the countries in question would be delayed, which could negatively impact anticipated revenue from
tucatinib. In addition, if we are unable to obtain favorable pricing and reimbursement approvals in the countries that
represent significant potential markets, our anticipated revenue from and growth prospects for tucatinib in Europe and
other regions could be negatively affected.
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,
in the United States, there is no uniform policy of coverage and reimbursement among third-party payors. Third-party
payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and
reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be
provided is made on a payor-by-payor basis. One payor’s determination to provide coverage for a product does 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 our current and any future approved 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. Continuing negative publicity regarding pharmaceutical pricing
practices and ongoing presidential and Congressional focus on this issue create significant uncertainty regarding
regulation of the healthcare industry and third-party coverage and reimbursement. If healthcare policies or reforms
intended to curb healthcare costs are adopted or if we experience negative publicity with respect to pricing of our
products or the pricing of pharmaceutical products generally, the prices that we charge for our current and any future
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approved products may be limited, our commercial opportunity may be limited and/or our revenues from sales of our
current and any future approved products may be negatively impacted.
The degree of market acceptance among patients, physicians, and third-party payors is also important to our
ability to successfully commercialize our current and any future approved products. The degree of acceptance will
depend on a number of factors including the effectiveness of our marketing, sales and distribution strategy and
operations, the acceptance of our product by patients, physicians and third-party payors, the perceived advantages and
relative cost, safety and efficacy of alternative treatments, as well as the acceptance and degree of adoption of our
products and any future products by institutional pathways and institutional, local, and national guidelines such as the
National Comprehensive Cancer Networks® Clinical Practice Guidelines in Oncology, or the NCCN Guidelines. Many
oncology practices and healthcare providers rely on the NCCN Guidelines or other institutional practice pathways in
decisions related to treatment of patients and utilization of medicines. To the extent that our current or any future
approved products are not included or positioned favorably in such treatment guidelines and pathways, the full utilization
potential of our products may not be reached, which may harm our ability to successfully commercialize our current or
any future approved products. For example, in the ADCETRIS frontline Hodgkin lymphoma indication, the NCCN
Guidelines have been interpreted as being more restrictive than our labeled indication and since these guidelines and
related interpretations have been translated into treatment pathways for many institutions, our ability to maintain or
increase sales of ADCETRIS may be materially harmed or future ADCETRIS sales may otherwise be negatively
affected.
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 PADCEV and any future commercial products we may have.
Certain provisions of the PPACA have been subject to judicial and Congressional challenges, as well as efforts by
the Trump administration to repeal or replace certain aspects of the PPACA. For example, since January 20, 2017,
President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain
provision of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the
PPACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the
PPACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of
certain taxes under the PPACA have been signed into law. The Tax Cuts and Jobs Act of 2017, includes a provision
repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain
individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the
“individual mandate.” Additionally, the 2020 federal spending package permanently repealed, effective January 1, 2020,
the PPACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device taxes, and,
effective January 1, 2021, also eliminates the health insurer tax. Further, the Bipartisan Budget Act of 2018, or the BBA,
among other things, amends the PPACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-
of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the
coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” In December 2018, CMS
published a new final rule permitting further collections and payments to and from certain PPACA qualified health plans
and health insurance issuers under the PPACA risk adjustment program in response to the outcome of federal district
court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a Texas U.S.
District Court Judge ruled that the PPACA is unconstitutional in its entirety because the “individual mandate” was
repealed. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court
ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine
whether the remaining provisions of the PPACA are invalid as well. It is unclear how this decision, future decisions,
subsequent appeals, and other efforts to repeal and replace the PPACA will impact the PPACA and our business.
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Further, on March 23, 2018, CMS finalized updates to the National Drug Rebate Agreement, or the Rebate
Agreement, for the first time in 27 years, to incorporate legislative and regulatory changes that have occurred since the
Rebate Agreement was first published. These updates align the Rebate Agreement with certain provisions of PPACA and
contain additional changes incorporating CMS policies adopted over the years. In order to have our current and any
future approved products covered under Medicaid, and Medicare Part B, we were required to enter into the revised
Rebate Agreement with CMS. If we fail to comply with the terms of the revised Rebate Agreement, we will be unable to
obtain, and maintain, Medicaid and Medicare Part B coverage and reimbursement, which could negatively affect our
financial condition and results of operations.
We anticipate that the PPACA, as well as other healthcare reform measures that have been adopted, or 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 our current or any future approved products, which may harm our business. For example, increased
discounts and rebates may be mandated by governmental entities, or requested by 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 current or any future approved products. In addition, drug-
pricing by pharmaceutical companies has come under increased scrutiny. Specifically, there have been several recent
U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things,
bring more transparency to drug pricing by requiring drug companies to notify insurers, purchasers and government
regulators of price increases and to provide an explanation as to the reasons for the increase, reduce the out-of-pocket
costs to patients for prescription drugs, review the relationship between pricing and manufacturer patient programs and
reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s
budget proposal for fiscal year 2020 contained further drug price control measures that could be enacted during the
budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to
negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid,
and to eliminate cost sharing for generic drugs for low-income patients. Moreover, in May 2018, the Trump
administration released its "Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs," or the Blueprint. The
Blueprint contains several potential regulatory actions and legislative recommendations aimed at lowering prescription
drug prices, including measures to promote innovation and competition for biologics, changes to Medicare Part D to give
plan sponsors more leverage when negotiating prices with manufacturers, and updating the Medicare drug-pricing
dashboard to make price increases and generic competition more transparent. HHS has solicited feedback on some of
these measures and, at the same, has implemented others under its existing authority. For example, on October 30, 2018,
CMS issued an advance notice of proposed rulemaking with respect to the potential adaption of an international pricing
index model that would be designed to reduce Medicare expenditures on certain Part B drugs to rates that are more
closely aligned with the costs of such drugs in select comparator countries. In addition, in May 2019, CMS issued a final
rule to allow Medicare Advantage plans the option to use step therapy for Part B drugs beginning January 1, 2020. This
final rule codified CMS’s policy change that was effective January 1, 2019. The recommendations in the Blueprint, if
enacted by Congress and the Department of Health and Human Services, or HHS, could lead to changes to Medicare
Parts B and D, including the transition of certain drugs covered under Part B to Part D or the offering of alternative
purchasing options under the Competitive Acquisition Program that currently applies to selected drugs and biologics
covered under Part B. While many of these and other measures may require additional authorization to become effective,
Congress and the Trump administration have each indicated that it will continue to seek new legislative, administrative
and/or additional measures to control drug costs. At the state level, legislatures are increasingly passing legislation and
implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing, cost disclosure and
transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect further federal and state legislation 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 our current 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.
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Also, price increases on our products and negative publicity regarding drug pricing and price increases generally,
whether on our products or products distributed by other pharmaceutical companies, could negatively affect market
acceptance of, and sales of, our products. 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 legislation’s 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 oncology drugs, which went into effect in April 2013 and, due to subsequent
legislative amendments to the statute, including the BBA, will remain in effect through 2029 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 our
current or any future approved products earlier than otherwise would have occurred. Increased competition may
negatively impact coverage and pricing of our products, which could negatively affect our financial condition or results
of operations.
We also expect to experience pricing pressures in connection with the sale of our products due to certain managed
healthcare initiatives. For example, the PPACA increased the mandated Medicaid rebate from 15.1% to 23.1% of
Average Manufacturer Price, expanded the rebate to Medicaid managed care utilization and increased the types of
entities eligible for the federal 340B drug discount program. As concerns continue to grow over the need for tighter
oversight, there remains the possibility that the Heath Resources and Services Administration or another agency under
the HHS will propose a similar regulation or that Congress will explore changes to the 340B program through
legislation. For example, a bill was introduced in 2018 that would require hospitals to report their low-income utilization
of the program. Further, the Centers for Medicare & Medicaid Services issued a final rule that would revise the Medicare
hospital outpatient prospective payment system for calendar year 2019, including a new reimbursement methodology for
drugs purchased under the 340B program for Medicare patients at the hospital setting and recently announced the same
change for physician-based practices under 340B in 2019. In addition, HHS set January 1, 2019, as the effective date of
the final rule setting forth the calculation of the ceiling price and application of civil monetary penalties. Pursuant to the
final rule, after January 1, 2019, manufacturers must calculate 340B program ceiling prices on a quarterly basis.
Moreover, manufacturers could be subject to a $5,000 penalty for each instance where they knowingly and intentionally
overcharge a covered entity under the 340B program. A significant portion of purchases of our products are eligible for
340B drug pricing, and therefore an expansion of the 340B program or reduction in 340B pricing, whether in the form of
the final rule or otherwise, would likely have a negative impact on our net sales of our products.
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 these 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 our current and or potential future products.
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Enhanced governmental and private scrutiny over, or investigations or litigation involving, pharmaceutical
manufacturer donations to patient assistance programs offered by charitable foundations may require us to modify
our programs and could negatively impact our business practices, harm our reputation, divert the attention of
management and increase our expenses.
We have a patient assistance program and also occasionally make donations to independent charitable foundations
that help financially needy patients. These types of programs designed to assist patients in affording pharmaceuticals
have become the subject of scrutiny. In recent years, some pharmaceutical manufacturers were named in class action
lawsuits challenging the legality of their patient assistance programs and support of independent charitable patient
support foundations under a variety of federal and state laws. Our patient assistance program and support of independent
charitable foundations could become the target of similar litigation. At least one insurer also has directed its network
pharmacies to no longer accept manufacturer co-payment coupons for certain specialty drugs the insurer identified. In
addition, certain state and federal enforcement authorities and members of Congress have initiated inquiries about co-pay
assistance programs. Some state legislatures have also been considering proposals that would restrict or ban co-pay
coupons.
In addition, there has been regulatory review and enhanced government scrutiny of donations by pharmaceutical
companies to patient assistance programs operated by charitable foundations. For example, the Office of Inspector
General has established specific guidelines permitting pharmaceutical manufacturers to make donations to charitable
organizations who provide co-pay assistance to Medicare patients, provided that such organizations are bona fide
charities, are entirely independent of and not controlled by the manufacturer, provide aid to applicants on a first-come
basis according to consistent financial criteria, and do not link aid to use of a donor’s product. If we or our vendors or
donation recipients are deemed to fail to comply with laws or regulations in the operation of these programs, we could be
subject to damages, fines, penalties or other criminal, civil or administrative sanctions or enforcement actions. Further,
numerous organizations, including pharmaceutical manufacturers, have received subpoenas from the U.S. Department of
Justice and other enforcement authorities seeking information related to their patient assistance programs and support,
and certain of these organizations have entered into significant civil settlements with applicable enforcement authorities.
In connection with these civil settlements, the U.S. government has and may in the future require the affected companies
to enter into complex corporate integrity agreements that impose significant reporting and other requirements on those
companies. We cannot ensure that our compliance controls, policies and procedures will be sufficient to protect against
acts of our employees, business partners or vendors that may violate the laws or regulations of the jurisdictions in which
we operate. Regardless of whether we have complied with the law, a government investigation could negatively impact
our business practices, harm our reputation, divert the attention of management and increase our expenses.
We depend on collaborative relationships with other companies to assist in the development and commercialization of
our products and some of our product candidates and for the development and commercialization of other 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 our products, develop
and commercialize our 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 our products and some of our current
and future product candidates. Because control of development and commercialization is shared with our collaborators
under these collaborations, we do not have sole discretion and control over the development and commercialization of
the applicable products and 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 collaborations with Astellas for the development and commercialization of
PADCEV and with Genmab for the development and commercialization of tisotumab vedotin. Our collaborations also
include clinical trial collaborations to develop, in combination, our product or product candidates and the products or
product candidates of one or more third parties. For example, we have a clinical trial collaboration with BMS to evaluate
the combination of nivolumab with ADCETRIS for the treatment of Hodgkin and non-Hodgkin lymphoma.
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We also have antibody-drug conjugate, or ADC, license agreements with AbbVie Biotechnology Ltd., or AbbVie;
Astellas; Genentech, Inc., a member of the Roche Group, or Genentech; Genmab; GlaxoSmithKline LLC, or GSK; and
Progenics Pharmaceuticals Inc., or Progenics, to allow them to use our proprietary ADC technology, and our ADC
licensees conduct all research, product development, manufacturing and commercialization of any product candidates
under these agreements.
Our dependence on collaborative arrangements to assist in the development and commercialization of our
products and some of our product candidates and on license arrangements for the development and commercialization of
other product candidates utilizing or incorporating our technologies subjects us to a number of risks, including:
• we are not able to control the amount and timing of resources that our collaborators and licensees devote to the
development or commercialization of products and product candidates under a collaboration or license
agreement, including ADCETRIS, PADCEV and tisotumab vedotin;
•
disputes may arise between us and our collaborators or licensees 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 management’s attention and resources;
• with respect to collaborations under which we have an active role, such as our ADCETRIS collaboration with
Takeda, our PADCEV collaboration with Astellas and our collaboration with Genmab, we may have differing
opinions, processes or priorities than our collaborators, or we may encounter challenges in joint decision
making and joint execution, including with respect to any joint commercialization plans and co-promotion
activities, which may delay or otherwise harm the research, development, launch or commercialization of the
applicable products and product candidates, including ADCETRIS, PADCEV and tisotumab vedotin;
•
•
•
•
•
•
•
•
our current and potential future collaborators and licensees 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;
significant delays in the development of product candidates by current and potential collaborators and licensees
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 licensees to
effectively commercialize these product candidates;
our relationships with our collaborators and licensees 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 projects;
our current and potential future collaborators and licensees may not be successful in their efforts to obtain
regulatory approvals in a timely manner, or at all;
our current and potential future collaborators and licensees 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;
our current and potential future collaborators and licensees 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;
business combinations or significant changes in a collaborator’s or licensee's business strategy may adversely
affect such party’s willingness or ability to complete its obligations under any arrangement;
a collaborator or licensee could independently move forward with competing products, therapeutic approaches
or technologies to develop treatments for the diseases targeted by us or our collaborators that are developed by
such collaborator or licensee either independently or in collaboration with others, including our competitors;
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our current and potential future collaborators and licensees may experience financial difficulties; and
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our collaboration or license agreements may be terminated, breached or allowed to expire, or our collaborators
or licensees 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.
If our collaborative and license 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, which it may do for any reason upon prior written notice to us, 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. Similarly, both Astellas and Genmab have the right to opt out of their co-development obligations relating to
PADCEV and tisotumab vedotin, respectively. If either Astellas or Genmab were to opt-out of their co-development
collaborations with us, this would significantly delay the commercialization and development of PADCEV or the
development of tisotumab vedotin, as applicable, and increase our costs. Any of these events could significantly harm
our financial position, adversely affect our stock price and require us to incur all the costs of developing and
commercializing ADCETRIS, PADCEV or tisotumab vedotin, which are now being co-funded by our collaboration
partners. Moreover, in the case of PADCEV and tisotumab vedotin, the success of PADCEV and any approved tisotumab
vedotin product will depend, in part, on our ability to effectively jointly commercialize PADCEV and tisotumab vedotin
with Astellas and Genmab, respectively, in accordance with our joint commercialization obligations and joint
commercialization plans. The success, if any, of our joint commercialization efforts with Astellas and Genmab, as well as
the activities of Astellas and Genmab, will significantly impact the commercialization of PADCEV and the potential
future commercialization of an approved tisotumab vedotin product, respectively. The product candidates being
developed under our collaboration and license agreements are in various stages of development and we cannot guarantee
that any of the product candidates under our collaborations will be successful. In this regard, certain of our ADC
licensees have advanced product candidates utilizing or incorporating our ADC technology to later stage clinical trials
that were not successful. In the future, we may not be able to locate third-party collaborators to assist in commercializing
any future products in regions outside the United States, and we may lack the capital and resources necessary to market
these products in certain regions outside the Unites States alone.
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 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.
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With respect to ADCETRIS, there are several other FDA approved drugs for its approved indications. BMS’s
nivolumab (Opdivo®) and Merck’s pembrolizumab (Keytruda®) are approved for the treatment of certain patients with
relapsed or refractory classical Hodgkin lymphoma, and Celgene’s romidepsin (Istodax®) and Spectrum Pharmaceuticals’
pralatrexate (Folotyn®) and belinostat (Beleodaq®) are approved for relapsed or refractory sALCL among other T-cell
lymphomas. Kyowa Kirin's mogamulizumab (Poteligeo®) is approved for adult patients with relapsed or refractory
mycosis fungoides or Sézary syndrome. The competition ADCETRIS faces from these and other therapies is
intensifying. Additionally, Merck is conducting a phase 3 clinical trial in relapsed or refractory classical Hodgkin
lymphoma comparing pembrolizumab (Keytruda®) with ADCETRIS. If this clinical trial demonstrates that
pembrolizumab is more effective than ADCETRIS in that treatment setting, our sales of ADCETRIS would be negatively
impacted. We are also aware of multiple investigational agents that are currently being studied, including Pfizer’s
avelumab, 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’
approved indications, including autologous hematopoietic stem cell transplant, allogeneic hematopoietic stem cell
transplant, combination chemotherapy, clinical trials with experimental agents and single-agent regimens.
With respect to PADCEV, other treatments in pre-treated metastatic urothelial cancer include checkpoint inhibitor
monotherapy, generic chemotherapy or, for patients with select fibroblast growth factor receptor genetic alterations,
Janssen's erdafitinib (Balversa®). There are other investigational agents that, if approved, could be competitive with
PADCEV, such as Immunomedics’ sacituzumab govitecan. Treatment in front line metastatic urothelial cancer has
traditionally been treated with chemotherapy alone but is evolving to include two recently approved checkpoint inhibitor
therapies for cisplatin-ineligible patients with high PD-L1 expression or patients who are ineligible for platinum therapy.
Several trials of investigational agents in combination with chemotherapy or other novel agents expected to report data in
the near term.
With respect to tucatinib, there are multiple marketed products which target HER2, including the antibodies
trastuzumab (Herceptin®) and pertuzumab (Perjeta®) and the antibody drug conjugate T-DM1 (Kadcyla®). In addition,
lapatinib (Tykerb®) is an EGFR/HER2 oral kinase inhibitor for the treatment of metastatic breast cancer, and neratinib
(Nerlynx®) is an irreversible pan-HER kinase inhibitor indicated for extended adjuvant use that is also being studied in a
phase 3 trial in pre-treated HER2-positive metastatic breast cancer, for which positive data was reported in 2019. Daiichi
Sankyo and AstraZeneca have fam-trastuzumab deruxtecan-nxki (Enhertu®) that was recently approved for patients who
have received two or more prior anti-HER2-based regimens in the metastatic setting. Synthon has an antibody drug
conjugate in a pivotal study in this patient population and MacroGenics has a HER2 targeted, Fc-optimized antibody,
margetuximab, also in a pivotal study for which positive data were reported and a BLA was submitted in late 2019.
With respect to tisotumab vedotin, in June 2018, Merck’s pembrolizumab was approved for the treatment of
recurrent or metastatic cervical cancer with disease progression on or after chemotherapy in patients whose tumors
express PD-L1. We are also aware of other companies that currently have products in development for the treatment of
late-stage cervical cancer which could be competitive with tisotumab vedotin, including Agenus, BMS, Iovance
Biotherapeutics, Merck, Regeneron Pharmaceuticals and Roche.
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, BMS, Celgene,
Daiichi Sankyo, Eisai, Genentech, GSK, Gilead, ImmunoGen, Immunomedics, Infinity, Janssen, Karyopharm,
MacroGenics, MedImmune, MEI Pharma, Merck, Novartis, Pfizer, Puma Biotech, 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.
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We are aware of other companies that have technologies that may be competitive with ours, including AbbVie,
ADC Therapeutics, Astellas, AstraZeneca, BMS, Daiichi Sankyo, ImmunoGen, Immunomedics, MedImmune, Mersana,
Pfizer, and Roche, 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 ImmunoGen’s 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.
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 FDA’s
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 FDA’s prior approvals in approving a BLA for an innovator’s biological
product to support the biosimilar product’s approval. Further, under the FDA’s 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. In the European Union, the EC
has granted marketing authorizations for biosimilars pursuant to a set of general and product class-specific guidelines.
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, PADCEV, tucatinib, tisotumab vedotin or our other product candidates or that would render our technology
obsolete or noncompetitive, or will succeed in developing biosimilar, interchangeable or generic products for
ADCETRIS, PADCEV, tucatinib, tisotumab vedotin or our other product candidates. We anticipate that we will continue
to face increasing 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, PADCEV, tucatinib, tisotumab vedotin 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. As a result, although we provide product sales guidance from time to time, you should not rely on product sales
results in any period as being indicative of future performance. In addition, such guidance is based on assumptions that
may be incorrect or that may change from quarter to quarter, and it may be particularly difficult to correctly forecast
product sales for newly-approved products or in indications for existing products for which we have recently received
marketing approval. Moreover, our product sales have, on occasion, been below the expectations of securities analysts
and investors and have been below prior period sales, and our sales 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 again 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 our products, which may vary significantly from period to period;
the overall level of demand for our products, including the impact of any competitive or biosimilar products and
the duration of therapy for patients treated with our products;
the extent to which coverage and reimbursement for our products is available from government and health
administration authorities, private health insurers, managed care programs and other third-party payors;
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our ability to establish or demonstrate in the medical community the safety, efficacy or value of our products
and their potential advantages compared to existing and future therapies in their approved indications, including
in ADCETRIS' frontline Hodgkin lymphoma and frontline PTCL indications and PADCEV's FDA approved
indication;
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;
increases in the scope of eligibility for customers to purchase our products at the discounted government price
or to obtain government-mandated rebates on purchases of our products;
changes in our cost of sales due to potential new product launches, royalties owed under technology license
agreements or write-offs of inventory;
the incidence rate of new patients in the approved indications for our products;
the timing, cost and level of investment in our sales and marketing efforts to support our products sales;
the timing, cost and level of investment in our research and development, pre-commercialization and other
activities involving ADCETRIS, PADCEV, tucatinib, tisotumab vedotin and our other product candidates by us
or our collaborators;
changes in the prices of the Immunomedics, Inc., or Immunomedics, common stock that affect the valuation of
the Immunomedics common stock that we hold; and
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.
In addition, even if we and/or our collaborators are able to obtain regulatory approvals for our product candidates,
due to the lack of any historical sales data from the commercialization of any of our product candidates, sales of a newly-
approved product such as PADCEV will be difficult to predict from period to period. As a result, sales results or trends
for PADCEV or any of our future approved products in any period may not necessarily be indicative of future
performance. In any event, if we are unable to obtain and maintain necessary or desirable regulatory approvals for our
products and product candidates, including for ADCETRIS, PADCEV and tucatinib, in a timely manner, if at all, if the
FDA or other regulatory authorities do not approve product labeling that is necessary or desirable for the successful
commercialization of an approved product, or if sales of an approved product do not reach the levels we expect, our
anticipated revenue from our products and product candidates and our prospects for profitability would be adversely
affected, which could have a material adverse effect on our business, financial condition, results of operations and
growth prospects.
Moreover, we have entered into collaboration and license agreements with other companies that include
development funding and milestone and royalty 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 and our
PADCEV collaboration with Astellas, 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.
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Further, changes in our operations, such as increased development, manufacturing and clinical trial expenses in
connection with our expanding pipeline programs, or our undertaking of additional programs, or business activities, or
entry into strategic transactions, including potential future acquisitions of products, technologies or businesses 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 employee’s 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.
Additionally, as of December 31, 2019, we held shares of Immunomedics common stock with a fair value of
$163.3 million. We record changes in the fair value of our equity securities that we hold in net income or loss, which can
lead to volatility of net income or loss to the extent that we continue to hold common stock or other equity securities. For
example, in the year ended December 31, 2019, our net loss included a gain of $53.2 million associated with our
holdings of Immunomedics common stock.
For these and other reasons, it is difficult for us to accurately forecast future sales of our current or any future
approved products, 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 future 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 clinical trials of our products and product candidates as well as commercializing our products for
the treatment of patients in their approved indications. In addition, we expect to make substantial expenditures to further
develop and potentially commercialize tucatinib, tisotumab vedotin and our other product candidates. We may also
pursue new operations or continue the expansion of our existing operations, including with respect to our plans to build a
commercial infrastructure in Europe and to otherwise continue to expand our operations internationally. Accordingly, we
expect to continue to incur net losses in future periods and may not achieve profitability in the future for some time, if at
all. Although we recognize revenue from product sales and we continue to earn amounts under our collaboration
agreements, our revenue and profit potential is unproven and our future operating results are difficult to predict. Even if
we do achieve profitability in the future, 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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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, including in connection with our transition into a multi-product oncology company, our
operation of a manufacturing facility and our continuing international expansion. In this regard, the anticipated continued
growth of ADCETRIS, the continued launch and commercialization of PADCEV and the potential launch and
commercialization of tucatinib and any other future approved products may require expansion of our sales force and
commercial organization, and we may need to commit significant additional funds, management and other resources to
the growth of our commercial organization. We may not be able to achieve any necessary growth in a timely or cost-
effective manner or realize a positive return on our investment, and we may not have the financial resources to achieve
the necessary growth in a timely manner or at all, any of which could negatively impact our ability to successfully launch
and commercialize a newly-approved product and harm the commercial potential of our current and any future approved
products. In any event, this rapid growth and additional complexity 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. In addition, this growth places significant demands on our third party suppliers and they
may not have the resources and personnel to adequately support our commercial plans and launch needs, including in
regions outside the United States. 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, control deficiencies or other problems. 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.
Risks associated with our expanding operations in foreign countries could materially adversely affect our business.
We are expanding our operations internationally. We have an expanding number of subsidiaries in foreign
jurisdictions, including multiple subsidiaries in Europe, and we plan to build a commercial infrastructure in Europe and
expand our commercial infrastructure in Canada. Consequently, we are, and will increasingly be, subject to risks related
to operating in foreign countries. Risks associated with conducting operations in foreign countries include:
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the increased complexity and costs inherent in managing international operations, including in geographically
disparate locations;
diverse regulatory, drug safety, drug supply, financial and legal requirements, and any future changes to such
requirements, in one or more countries where we are located or do business;
differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls;
adverse tax consequences, including changes in applicable tax laws and regulations;
applicable trade laws, tariffs, export quotas, custom duties or other trade restrictions, and any changes to them;
economic weakness, including inflation, or political or economic instability in particular foreign economies and
markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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;
liabilities for activities of, or related to, our international operations;
challenges inherent in efficiently managing employees in diverse geographies, including the need to adapt
systems, policies, benefits and compliance programs to differing labor and other regulations and different
languages;
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reliance on vendors who are located far from our headquarters and with whom we have not worked previously;
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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.
As a result of our expanding international operations, including potentially with respect to a commercial presence
in Europe and expanding commercial infrastructure in Canada, our business and corporate structure has and will become
substantially more complex. In addition, as a business, we do not have experience conducting operations outside of the
United States and Canada. There can be no assurance that we will effectively manage the increased complexity and
broader scope of our operations without experiencing operating inefficiencies, control deficiencies or other problems.
Significant management time and effort will be required to effectively manage the increasing complexity and broader
scope of our operations, and our failure to successfully do so could have a material adverse effect on our business,
financial condition, results of operations and growth prospects.
In addition, since a significant proportion of the regulatory framework in the United Kingdom, or U.K., is derived
from European Union directives and regulations, Brexit, which occurred on January 31, 2020, could materially change
the regulatory regime applicable to our operations and those of our collaborators, including with respect to potential
future marketing authorizations for ADCETRIS, PADCEV and our product candidates. Pursuant to the formal
withdrawal arrangements agreed between the U.K. and the European Union, the U.K. will be subject to a transition
period through December 31, 2020, or the Transition Period, during which European Union rules will continue to apply.
Negotiations between the U.K. and the European Union are expected to continue in relation to the customs and trading
relationship between the U.K. and the European Union following the expiry of the Transition Period. We or our
collaborators may face new costs and challenges as result of Brexit, in particular following the Transition Period, that
could have an adverse effect on our operations, including potential stresses and constraints on the capacity of service
providers providing product release services in new locations outside of the U.K., potential challenges with releasing
clinical product supplies into the U.K. and potential challenges or inefficiencies in obtaining approvals to commercialize
our current or potential future products in the U.K., any of which could negatively impact our current and planned
clinical trials and regulatory and commercial activities, and those of our collaborators, and increase our costs. It is also
possible that Brexit will cause additional unanticipated negative impacts on our ability to supply clinical or commercial
product, or on that of our collaborators, including Takeda and Astellas. Moreover, following the Transition Period, there
is currently considerable uncertainty in relation to U.K. financial and banking markets as well as the pharmaceutical
regulatory process in the U.K. In addition, the U.K. is likely to lose the benefits of global trade agreements negotiated by
the European Union on behalf of its members, which may result in increased trade barriers and could make it more
difficult for us and our collaborators to do business in the U.K., including to obtain and maintain regulatory approvals of
products. 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 or our collaborators' ability to continue to conduct operations in Europe or our ability to
build and maintain a commercial infrastructure in Europe.
Moreover, the Trump administration has imposed tariffs on certain U.S. imports, and certain countries have
responded with retaliatory tariffs on certain U.S. exports. We cannot predict what effects these and potential additional
tariffs will have on our business, including in the context of escalating global trade and political tensions. However, such
tariffs and other trade restrictions, whether resulting from Brexit or otherwise, could increase our cost of doing business,
reduce our gross margins or otherwise negatively impact our financial results.
These and other risks described elsewhere in these risk factors associated with expanding our international
operations could have a material adverse effect on our business, financial condition, results of operations and growth
prospects.
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 our products
and product candidates.
Although we own a biologics manufacturing facility located in Bothell, Washington, we rely and expect to
continue to rely on corporate collaborators and contract manufacturing organizations to supply drug product for
commercial supply and our IND-enabling studies and clinical trials.
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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 Millipore Sigma, an affiliate of Merck KGaA,
for clinical and commercial supplies. We have multiple contract manufacturers for conjugating the drug linker to the
antibody and producing the ADCETRIS product. We rely on Astellas to supply PADCEV for our clinical trials and for
commercial sale, and Astellas oversees the manufacturing supply chain for PADCEV. For the foreseeable future, we
expect to continue to rely on contract manufacturers and other third parties to produce and store sufficient quantities of
ADCETRIS, and on Astellas and other third parties to produce and store sufficient quantities of PADCEV, for use in our
clinical trials and for commercial sale. If our contract manufacturers, collaborators or other third parties fail to deliver
our products 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 bear costly losses
or be required to delay or suspend clinical trials or otherwise discontinue development, production and sale of our
products. Moreover, there are a limited number of facilities in which ADCETRIS or PADCEV 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 or contractual disputes could result in the cancellation of
shipments, loss of product in the manufacturing process, a shortfall in product supply, or limit our or our collaborators'
ability to sell our products. Further, we and our collaborators depend on outside vendors for the supply of raw materials
used to produce our products. If the third-party suppliers were to cease production or otherwise fail to supply us or our
collaborators with quality raw materials and we or our collaborators were unable to contract on acceptable terms for
these raw materials with alternative suppliers, our ability to have our products manufactured to meet clinical and
commercial requirements would be adversely affected. While we believe that the existing supplies of PADCEV and
Astellas' contract manufacturing relationships will be sufficient to accommodate current clinical and commercial needs,
we or Astellas may need to obtain additional manufacturing arrangements or increase manufacturing capability to meet
potential future commercial needs with respect to PADCEV, which could require additional capital investment by us or
cause us potential delays if Astellas encounters challenges in negotiating commercially reasonable arrangements with
these manufacturers.
For the clinical supply of our product candidates, which include ADCs as well as antibodies and small molecules
such as tucatinib, we rely, and expect for the foreseeable future to continue to rely, on multiple contract manufacturers
and other third parties to perform manufacturing services for us. If these third-party manufacturers cease or interrupt
production, fail to supply satisfactory materials, products or services for any reason or experience performance delays or
quality concerns, or if materials or products are lost in transit or in the manufacturing process, such challenges or
interruptions could substantially impact clinical trial drug supply, with the potential for additional costs, delays and an
adverse effect on our business. With respect to tucatinib specifically, we have limited prior experience as an organization
manufacturing tucatinib and small molecule drug products generally, and have relatively new working relationships with
many of the third-party manufacturers involved in tucatinib manufacture. These factors increase the chance that we could
encounter manufacturing challenges that could increase our costs, cause delays or otherwise negatively impact our
business. In this regard, in order to obtain regulatory approval of any product candidate, we or our supplier or suppliers
for that product must obtain approval to manufacture and supply product, in some cases based on qualification data
provided as part of a BLA, NDA or other application for regulatory approval, and the manufacturing facilities utilized to
manufacture the product candidate will be subject to pre-approval regulatory inspections. Any delay in generating, or
failure to generate, data required in connection with submission of the chemistry, manufacturing and controls, or CMC,
portions of any BLA, NDA or other application for regulatory approval, or challenges in the regulatory inspection
process, could negatively impact our ability to meet our anticipated submission dates and/or result in delay in any
approval decisions, including with respect to the tucatinib NDA, or our ability to obtain regulatory approval at all. In
addition, with respect to tucatinib, we may need to put in place additional manufacturing arrangements or expand our
current manufacturing arrangements with third-party manufacturers to meet future potential commercial needs and while
we are currently negotiating those arrangements, we cannot assure you that we can enter into such arrangements on
commercially reasonable terms or at all. Any failures or delays in manufacturing adequate product supplies and in
putting in place or expanding our manufacturing and supply infrastructure could delay or impede our ability to launch
and commercialize tucatinib in any markets where tucatinib obtains regulatory approval, if any, and could negatively
impact our operating results and adversely affect our business.
With respect to tisotumab vedotin, we rely on drug product supply provided by Genmab and have little control
over their supply chains or the contract manufacturers they utilize. For the foreseeable future, we expect to continue to
rely on Genmab for manufacturing of clinical supplies of tisotumab vedotin. We or Genmab may need to obtain
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additional manufacturing arrangements or increase manufacturing capability to meet potential future commercial needs,
which could require additional capital investment by us or cause potential delays if we or Genmab encounter challenges
in negotiating commercially reasonable arrangements with these manufacturers.
Any failure of us, our collaborators or a manufacturer to obtain approval from a regulatory authority to
manufacture and supply product or any delay in obtaining and distributing adequate supplies of a product on a timely
basis or in accordance with applicable specifications and local requirements could negatively impact our ability to
successfully launch and commercialize a newly-approved product, including PADCEV and, if tucatinib receives
regulatory approval, tucatinib, and to generate sales of that product at the levels we expect. We or our collaborators may
also encounter difficulties in meeting the regulatory requirements applicable to the manufacturing process for these
agents, in managing the additional complexity of manufacturing for a number of markets outside the U.S. or in
responding to changes in the amount or timing of supply needs. Any failures or delays to meet these requirements could
substantially delay or impede our ability to obtain regulatory approvals for and to market these agents, which could
negatively impact our operating results and adversely affect our business.
We are using our own manufacturing facility to support our clinical-stage pipeline, and we could encounter
challenges in operating this facility.
We own a biologics manufacturing facility located in Bothell, Washington, which we acquired in 2017. We use
this facility to support our clinical supply needs. Operating this facility requires us to comply with complex regulations
and to continue to hire and retain experienced scientific, quality control, quality assurance and manufacturing personnel.
We could encounter challenges in operating the manufacturing facility in compliance with cGMP, regulatory or other
applicable requirements, resulting in potential negative consequences, including regulatory actions, which could
undermine our ability to utilize this facility for our own manufacturing needs. Any of these risks, if actualized, could
materially and adversely affect our business and financial position. In addition, despite the acquisition and operation of
this facility, we nonetheless expect to continue to rely on corporate collaborators and contract manufacturing
organizations to supply drug product and intermediates for commercial supply and our IND-enabling studies and clinical
trials. Our continuing dependence on these manufacturers may impair the continued development and commercialization
of our products and product candidates.
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. For example, in March 2018, we made significant investment in
tucatinib through the Cascadian Acquisition. The Cascadian Acquisition and any potential future acquisitions or in-
licensing transactions 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;
increased operating expenses and cash requirements;
difficulty integrating acquired technologies, products, operations, and personnel with our existing business;
the potential disruption of our historical core business;
diversion of management’s attention in connection with both negotiating the acquisition or license and
integrating the business, technology or product;
retention of key employees;
difficulties in assimilating employees and corporate cultures of any acquired companies;
uncertainties in our ability to maintain key business relationships of any acquired companies;
strain on managerial and operational resources;
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 unanticipated liabilities of acquired companies or companies in which we invest;
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the potential need to write down assets or recognize impairment charges; and
potential costly and time-consuming litigation, including stockholder lawsuits.
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
product candidates or technologies, including tucatinib, 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 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 acquisitions 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 or goodwill 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. Other pharmaceutical companies,
many of which may have substantially greater financial, marketing and sales resources, compete with us for these
opportunities. 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.
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, liabilities and uncertainties effectively, including in connection with the Cascadian
Acquisition, could have a material adverse effect on our business and adversely affect our results of operations and
financial condition. 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.
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 Takeda’s ability and willingness to market ADCETRIS outside of the United States and Canada. In
addition, under our agreements with Astellas, we and Astellas bear the costs of their own sales organizations in the U.S.,
equally share certain other costs associated with commercializing PADCEV in the U.S. and equally share in any profits
realized in the U.S. The loss of our collaborators, especially Takeda or Astellas, 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.
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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.
We sell ADCETRIS and PADCEV through a limited number of specialty distributors. Health care providers order
ADCETRIS and PADCEV through these distributors. We receive orders from distributors and generally ship product
directly to the health care provider. We do not promote our products to these distributors and they do not set or determine
demand for our products; however, our ability to effectively commercialize our products 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 are subject to various state and federal and foreign laws and regulations, including healthcare, data protection
and privacy 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, the federal Health
Insurance Portability and Accountability Act, or HIPAA, the federal Health Information Technology for Economic and
Clinical Health Act, or 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 or any future approved products.
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. Courts have interpreted the statute’s 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 to have committed a violation. The Anti-Kickback Statute is broad and prohibits many
arrangements and practices that would otherwise be lawful in businesses outside of the healthcare industry.
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 codified
case law that 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 civil 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 company’s
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 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 to have committed a violation.
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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, known as 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 Children’s Health Insurance Program to annually report to the CMS information related to payments
and other transfers of value to physicians, as defined by such law, and teaching hospitals, and physician ownership and
investment interests.
Many states and foreign jurisdictions have similar laws and regulations, such as anti-kickback, anti-bribery and
corruption, false claims, privacy and data protection laws, to which we are currently and/or may in the future, be subject.
For example, European Union, or EU, member states and other foreign jurisdictions, including Switzerland, have
adopted data protection laws and regulations which impose significant compliance obligations. Moreover, effective May
25, 2018, the collection and use of personal health data in the EU is governed by the provisions of the EU General Data
Protection Regulation, or the GDPR. The GDPR, which is wide-ranging in scope, imposes several requirements relating
to the control over personal data by individuals to whom the personal data relates, the information provided to the
individuals, the documentation we must maintain, the security and confidentiality of the personal data, data breach
notification and the use of third-party processors in connection with the processing of personal data. The GDPR also
imposes strict rules on the transfer of personal data out of the EU, provides an enforcement authority and authorizes the
imposition of large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the
annual global revenues of the non-compliant company, whichever is greater. The GDPR requirements apply not only to
third-party transactions, but also to transfers of information between us and our subsidiaries, including employee
information. The GDPR has increased our responsibility and potential liability in relation to all types of personal data
that we process, including in clinical trials, and we may be required to put in place additional mechanisms to ensure
compliance with the GDPR, which could divert management’s attention and increase our cost of doing business.
However, despite our ongoing efforts to bring our practices into compliance with the GDPR, we may not be successful
either due to various factors within our control or other factors outside our control. It is also possible that local data
protection authorities may have different interpretations of the GDPR, leading to potential inconsistencies amongst
various EU member states. Any failure or alleged failure (including as a result of deficiencies in our policies, procedures
or measures relating to privacy, data protection, marketing or communications) by us to comply with laws, regulations,
policies, legal or contractual obligations, industry standards or regulatory guidance relating to privacy or data protection,
may result in governmental investigations and enforcement actions, litigation, fines and penalties or adverse publicity. In
addition, new regulation, legislative actions or changes in interpretation of existing laws or regulations regarding privacy
and data protection (together with applicable industry standards) may increase our costs of doing business. In this regard,
we expect that there will continue to be new laws, regulations and industry standards relating to privacy and data
protection in the United States, the EU and other jurisdictions, such as the California Consumer Privacy Act of 2018,
which has been characterized as the first “GDPR-like” privacy statute to be enacted in the United States, and we cannot
determine the impact such new laws, regulations and standards may have on our business. Further, Brexit has created
uncertainty with regard to data protection regulation in the U.K. In particular, it is unclear whether the U.K. and EU will
be able to negotiate a mutually agreeable data protection agreement that regulates data transfers between the U.K. and
EU and what impact this will have on our business. 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,
marketing expenditures, or other reporting and registration requirements related to our business activities. 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 for off-label uses we may be
subject to significant liability, including significant civil and administrative financial penalties and other remedies as well
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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 company’s 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 against pharmaceutical
manufacturers under the whistleblower provisions of the civil False Claims Act and state equivalents or other laws and
regulations such as securities laws and the evolution of new theories of liability under those laws and regulations.
Government agencies will likely continue to intervene in such private whistleblower lawsuits and such intervention
typically raises the company’s 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 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 we will be able to integrate the operations of acquired businesses
into our compliance program on a timely basis, 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, criminal and administrative 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 management’s 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.
Changes in funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain
key leadership and other personnel, prevent new products and services from being developed or commercialized in a
timely manner or otherwise prevent those agencies from performing normal functions on which the operation of our
business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including
government budget and funding levels, ability to hire and retain key personnel and accept payment of user fees, and
statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result.
In addition, government funding of the FDA, SEC and other government agencies on which our operations may rely is
inherently fluid and unpredictable.
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Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or
approved by necessary government agencies, which would adversely affect our business. For example, over the last
several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the
SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged
government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our
regulatory submissions, which could have a material adverse effect on our business. Further, future government
shutdowns could potentially impact our ability to access the public markets and obtain necessary capital in order to
properly capitalize and continue our operations.
As we continue to 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 continuing to expand our operations internationally, and plan to build a commercial infrastructure in
Europe. In this regard, we currently have multiple subsidiaries in foreign jurisdictions, including several subsidiaries in
Europe, and plan in the future to have subsidiaries in additional jurisdictions. Our business activities outside of the
United States are and will continue to be 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
recently established French Anti-corruption Law on Transparency, Fight against Corruption and the Modernization of the
Economy, referred to as Sapin II. In Europe, national anti-corruption laws prohibit giving, offering, or promising bribes
to any person, including foreign government officials and private persons, as well as requesting, agreeing to receive, or
accepting bribes from any person. Various European anti-corruption laws have broad extraterritorial reach and therefore
we may be subject to those laws even if we do not have an established entity in those countries and we may be held
liable for bribes given, offered or promised to any person, including private persons, by employees and persons
associated with us in order to obtain or retain business or a business advantage. 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, and advocacy groups, and we will interact with physicians, which are
generally considered foreign officials in Europe, as well as with regulatory authorities who may be deemed to be foreign
officials under the FCPA or similar laws of other countries that may govern our activities. Any interactions with any such
parties or individuals 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 under one country’s laws may increase the
likelihood that we will be prosecuted and be found to have violated another country’s laws. If our business practices
outside the United States are found to be in violation of the FCPA, the Sapin II 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, EU member states and other foreign
jurisdictions, including Switzerland, have adopted data protection laws and regulations, such as the GDPR, 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 setbacks in our ADC development program would negatively affect our business and financial
position.
ADCETRIS, PADCEV and our tisotumab vedotin and ladiratuzumab vedotin 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 license agreements with AbbVie, Astellas, Genentech, GSK, and Progenics, and our
collaboration agreements with Takeda, Astellas, and Genmab. Certain of our ADC product candidates include additional
proprietary technologies that have not yet been proven in late stage clinical development. Any failures or setbacks in our
ADC development program or with respect to our additional proprietary technologies, 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
any of our other product candidates, could have a detrimental impact on the continued commercialization of our products
in their current or any potential future approved indications and on our internal product candidate pipeline, as well as our
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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 and may in the future be subject to litigation, including securities-related litigation, litigation
pertaining to the conduct of our business, and litigation in connection with the Cascadian Acquisition and potential
future strategic transactions. Such litigation could result in substantial damages and may divert management’s time
and attention from our business.
In January 2017, a purported securities class action lawsuit was commenced in the United States District Court for
the Western District of Washington, or the Court, naming as defendants us and certain of our officers. A related
stockholder derivative lawsuit, or the Stockholder Derivative Action, was also filed in Washington Superior Court for the
County of Snohomish, or the Snohomish County Superior Court, on March 29, 2017. While the class action lawsuit and
the related Stockholder Derivative Action were subsequently dismissed, we may be the target of securities-related
litigation in the future, both related and unrelated to the dismissed class action and Stockholder Derivative Action.
Moreover, three purported stockholders of Cascadian filed a complaint seeking to inspect books and records in order to
determine whether wrongdoing or mismanagement has taken place such that it would be appropriate to file claims for
breach of fiduciary duty, and to investigate the independence and disinterestedness of the former Cascadian directors
with respect to the Cascadian Acquisition. As a result of such complaint or otherwise, it is possible that additional
lawsuits may be brought against us and/or Cascadian related to the Cascadian Acquisition.
We are also engaged in a dispute with Daiichi Sankyo regarding the ownership of certain technology used by
Daiichi Sankyo in its metastatic breast cancer drug fam-trastuzumab deruxtecan-nxki (Enhertu®), among other product
candidates. In addition, from time to time in the ordinary course of business we become involved in various lawsuits,
claims and proceedings relating to the conduct of our business, including but not limited to those pertaining to the
defense and enforcement of our patent or other intellectual property rights and our contractual rights.
These and potential future litigations are subject to inherent uncertainties, and the actual costs to be incurred
relating to litigations may be impacted by unknown factors. The outcome of litigation is necessarily uncertain, and we
could be forced to expend significant resources in the course of these and potential future litigations, and we may not
prevail. Monitoring, defending against and pursuing legal actions can be time-consuming for our management and
detract 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 these and potential future litigations. Decisions adverse to our interests in these and potential
future litigations could result in the payment of substantial damages, or possibly fines, or affect our intellectual property
rights and could have a material adverse effect on our cash flow, results of operations and financial position. In addition,
the uncertainty associated with litigation could lead to increased volatility in our stock price.
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We may need to raise 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, and support our development, manufacturing, commercialization, and planned global
expansion, which may require us to raise additional capital. In addition, we may pursue new operations or continue the
expansion of our existing operations, including with respect to our plans to build a commercial infrastructure in Europe
and to otherwise continue to expand our operations internationally. Our commitment of resources to the continuing
development, regulatory and commercialization activities for our products, the research, continued development and
manufacturing of our product candidates, our pursuit of regulatory approvals for and preparing to potentially launch and
commercialize our product candidates, and the anticipated expansion of our pipeline and operations may require us to
raise additional capital. Further, we actively evaluate various strategic transactions on an ongoing basis, including
licensing or otherwise acquiring complementary products, technologies or businesses, and we may require significant
additional capital in order to complete or otherwise provide funding for such transactions. For example, in connection
with the Cascadian Acquisition, we sold 13,269,230 shares of our common stock in an underwritten public offering with
the primary use of the net proceeds used to fund the Cascadian Acquisition. 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, PADCEV or of any future approved products;
the time and costs involved in obtaining regulatory approvals of our products in additional indications, if any,
and potentially of tucatinib and/or any of our other product candidates;
the size, complexity, timing, progress and number of our clinical programs and our collaborations;
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 and
revenue generated under our collaboration with Astellas;
the cost of establishing and maintaining clinical supplies of our products and product candidates and
commercial supplies of our current and any future approved products;
the extent of our investment in development, manufacturing and commercialization outside the U.S.;
the costs associated with acquisitions or licenses of additional technologies, products, or companies as well as
licenses we may need to commercialize our current or any future approved products;
the terms and timing of any future collaborative, licensing and other arrangements that we may establish;
expenses associated with future securities class action or derivative lawsuits, as well as any other potential
litigation;
the potential costs associated with international, state and federal taxes; and
competing technological and market developments.
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
or our undertaking of additional programs, business activities or entry into additional strategic transactions, including
potential future acquisitions of products, technologies or businesses. Moreover, we may choose to raise additional capital
due to market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future
operating plans. 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.
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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. Such adverse capital and credit market
conditions, as well as a rising interest rate environment, 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 and our collaborators rely on license agreements for certain aspects of our products and product candidates and
technologies such as 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 our products and product candidates.
We have entered into agreements with third-party commercial and academic institutions to license technology for
use in ADCETRIS, our product candidates and technologies such as our ADC technology. Currently, we have license
agreements with BMS, the University of Miami and Array BioPharma, Inc., 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. In
addition, Astellas has agreements to license technology for use in PADCEV. We rely on Astellas to maintain these license
agreements. If Astellas fails to maintain these license agreements, if our licensors terminate our license agreements or if
we or our collaborators are unable to maintain the exclusivity of our exclusive license agreements, we may be unable to
continue to develop and commercialize our products or product candidates. Further, we have had in the past, and we or
our collaborators may in the future have, disputes with our licensors, which may impact our ability to develop and
commercialize our products or product candidates or require us to enter into additional licenses. An adverse result in
potential future disputes with our or our collaborators' licensors may impact our ability to develop and commercialize our
products and 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 our products and 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 our products or any 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, or USPTO, 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 validity, enforceability, or
term of our patent. For example, the U.S. Supreme Court has modified some legal standards applied by the USPTO 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 USPTO. Each proceeding
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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 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 our
products 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 our products or future commercialization of our product candidates. 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 our products 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 our products or 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-party’s 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
management’s 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.
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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, 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 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, and tucatinib. 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 continue to commercialize our products, and advance the development and commercialization of our additional
product candidates, we will be required to expand our workforce, particularly in the areas of manufacturing, clinical
trials management, regulatory affairs, business development, sales and marketing, both in the United States and in
Europe. We continue to face intense competition for qualified individuals from numerous pharmaceutical and
biotechnology companies, as well as academic and other research institutions, and our failure to compete effectively in
this area could negatively affect our sales of our current and any future approved products. 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. For example, we may not be successful in attracting or retaining key personnel necessary to support our
strategy to effectively commercialize PADCEV, to build a commercial infrastructure in Europe or to support the potential
launch and commercialization of tucatinib and our other product candidates, alone or jointly with our collaborators, if we
receive regulatory approval. If our commercial organization is not appropriately sized or equipped to adequately market
our current and any future approved products, the commercial potential of our current and any future approved products
may be diminished, and our business and prospects for profitability may be adversely affected.
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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 our products and product candidates by us and our corporate collaborators in clinical
trials and the sale of our products, expose us to product liability claims. These claims have and may in the future be made
directly by patients or healthcare providers or indirectly by pharmaceutical companies, our corporate collaborators or
others selling such products. Additionally, in connection with our acquisition of the manufacturing facility from BMS,
we agreed to enter into certain transitional services agreements under which we manufactured certain clinical drug
product components for BMS for a period of time. As a result, it is possible that we may be named as a defendant in
product liability suits that may allege that drug products we manufactured for BMS have resulted in injury to patients.
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, such insurance
is subject to coverage limits and exclusions, as well as significant deductibles. In addition, 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 our products could materially adversely affect our
business by rendering us unable to sell our products for some time and by adversely affecting our reputation.
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 addition, with respect
to our manufacturing facility, we may incur substantial costs to comply with environmental laws and regulations and
may become subject to the risk of accidental contamination or injury from the use of hazardous materials in our
manufacturing process. It is also possible that our manufacturing facility may expose us to environmental liabilities
associated with historical site conditions that we are not currently aware of and did not cause. In this regard, some
environmental laws impose liability for contamination on current owners and operators of affected sites, regardless of
fault. In the event of an accident or environmental discharge, or new or previously unknown contamination is discovered
or new cleanup obligations are otherwise imposed in connection with any of our currently or previously owned or
operated facilities, 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. Damage or extended periods of interruption to
our corporate, development or research 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 our products. 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.
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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 our products and 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 breaches—
whether by employees or others—which may expose sensitive or personal 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, patients in our clinical trials,
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 destruction, loss, alteration, unauthorized use
or access, disclosure or modification of, personally identifiable information or personal data, could harm our reputation,
compel us to comply with federal, state and/or international breach notification laws, subject us to mandatory corrective
or regulatory action, require us to verify the correctness of database contents and otherwise subject us to liability under
laws and regulations that protect personal data, including the GDPR, which could disrupt our business, result in
increased costs or loss of revenue, and/or result in significant legal and financial exposure. 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 implement and
maintain adequate organizational and technical measures to prevent such security breaches or privacy violations, or to
respond adequately in the event of a breach, our operations could be disrupted, and we may suffer loss of reputation,
problems with regulatory authorities, financial loss and other negative consequences. Moreover, failure to maintain
effective internal accounting controls related to data security breaches and cybersecurity in general could impact our
ability to produce timely and accurate financial statements and could subject us to regulatory scrutiny. In addition,
security 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 our products and product candidates or about the diseases that our
products 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.
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.
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The potential future impairment of in-process research and development and goodwill related to the Cascadian
Acquisition may negatively affect our results of operations and financial position.
As of December 31, 2019, we had recorded $574.7 million of in-process research and development and goodwill
as a result of the Cascadian Acquisition. In-process research and development and goodwill are subject to an impairment
analysis whenever events or changes in circumstances indicate the carrying amount of the asset may not be
recoverable. Additionally, goodwill and indefinite-lived assets are subject to an impairment test at least annually. Events
giving rise to impairment are an inherent risk in the pharmaceutical industry and cannot be predicted. Our results of
operations and financial position in future periods could be negatively impacted should future impairments of in-process
research and development or goodwill occur.
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, 2019, our closing stock price fluctuated between $56.37 and $121.62 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 levels of ADCETRIS and PADCEV product sales;
announcements of FDA or foreign regulatory approval or non-approval of our products or any of our product
candidates, including tucatinib, or specific label indications for or restrictions, warnings or limitations in its use,
or delays in the regulatory review or approval process;
announcements regarding the results of discovery efforts and preclinical, clinical and commercial activities by
us, or those of our competitors;
announcements regarding the results of the clinical trials we and our collaborators are conducting or may in the
future conduct for our products and product candidates;
announcements regarding, or negative publicity concerning, adverse events or safety concerns associated with
the use of ADCETRIS, PADCEV or tucatinib or our other product candidates;
issuance of new or changed analysts’ reports and recommendations regarding us or our competitors;
termination of or changes in our existing collaborations or licensing arrangements, especially our ADCETRIS
collaboration with Takeda, our PADCEV collaboration with Astellas and our tisotumab vedotin collaboration
with Genmab, or establishment of new collaborations or licensing arrangements;
our failure to achieve the perceived benefits of our strategic transactions, including the Cascadian Acquisition,
as rapidly or to the extent anticipated by financial analysts or investors;
our entry into additional material strategic transactions including licensing or acquisition of products, businesses
or technologies;
actions taken by regulatory authorities with respect to our product candidates, our clinical trials or our
regulatory filings;
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our raising of additional capital and the terms upon which we may raise any additional capital;
• market conditions for equity investments in general, or the biotechnology or pharmaceutical industries in
particular;
developments or disputes concerning our proprietary rights;
developments regarding any future purported securities class action lawsuits, as well as any other potential
litigation;
share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
changes in government regulations; and
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economic or other external factors.
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 possible invalidation, repeal and/or replacement of all or portions of PPACA or changes in
tariffs and other trade restrictions stemming from Trump administration and foreign government 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. Lawsuits brought against us could result in substantial costs, which
would hurt our financial condition and results of operations and divert management’s attention and resources, which
could result in delays of our clinical trials or our development and commercialization efforts.
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 December 31, 2019, we had 171,993,786 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 potential
future 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.
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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 as of December 31, 2019, collectively beneficially owned approximately
30% of our common stock. 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, as
amended, or the Securities Act, we would be obligated to effect such registration. On July 26, 2018, pursuant to the
registration rights agreement, we registered for resale, from time to time, up to 50,977,960 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. Accordingly, we
expect to register additional shares held by the Baker Entities for resale from time to time, including in certain cases,
shares that we have previously registered for resale by the Baker Entities, whether in connection with the expiration of
registration statements that we previously filed with the SEC or otherwise. If the Baker Entities, by exercise of these
registration and/or underwriting rights and our registration of shares held by the Baker Entities for resale from time to
time, 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 registrations 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.
Based solely on the most recent Schedules 13G and 13D filed with the SEC, reports filed with the SEC under
Section 16 of the Exchange Act, and our outstanding shares of common stock as of December 31, 2019, our executive
officers and directors and holders of greater than five percent of our outstanding common stock beneficially owned
approximately 63% of our voting power as of December 31, 2019. 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.
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.
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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our headquarters are in Bothell, Washington. Our Bothell campus comprises ten leased buildings of office space
that we use for laboratory, discovery, research and development and general and administrative purposes, and a biologics
manufacturing facility which we own. We also have leased space in Seattle, Washington, South San Francisco,
California, Mississauga, Canada, Zug, Switzerland, and Amsterdam, the Netherlands, used for general and administrative
purposes. All of our significant leases include renewal options. We believe that our facilities are currently adequate to
meet our needs. As we continue to expand our operations, we may need to lease or purchase additional facilities.
Item 3. Legal Proceedings
The information set forth under the heading “Contingencies” in Note 14 of the Notes to Consolidated Financial
Statements included in Part II Item 8 of this Annual Report on Form 10-K is incorporated by reference into this Item 3.
Item 4. Mine Safety Disclosures
Not applicable.
72
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our Common Stock
Our common stock is traded on the Nasdaq Global Select Market under the symbol “SGEN.” As of February 3,
2020, there were 172,259,645 shares of our common stock outstanding, which were held by approximately 63 holders of
record.
Dividend Policy
We have not paid any cash dividends on our common stock since our inception. We do not intend to pay any cash
dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business operations.
Sales of Unregistered Securities and Issuer Repurchases of Securities
There were no unregistered sales of equity securities by us during 2019. In addition, we did not repurchase any of
our equity securities during 2019.
Stock Performance Graph
The table below shows the cumulative total return to our stockholders during the period from December 31, 2014
through December 31, 2019 in comparison to the indicated indexes. The results assume that $100 was invested on
December 31, 2014 in our common stock and each of the indicated indexes, including reinvestment of any dividends.
$400
$350
$300
$250
$200
$150
$100
$50
12/2014
12/2015
12/2016
12/2017
12/2018
12/2019
Seattle Genetics, Inc.
Nasdaq Composite
Nasdaq Biotechnology
December 31,
2014
2015
2016
2017
2018
2019
Seattle Genetics, Inc.
Nasdaq Composite
Nasdaq Biotechnology
$
$
100.00
100.00
100.00
$
139.68
106.96
111.77
$
164.24
116.45
87.91
$
166.51
150.96
106.92
$
176.35
146.67
97.45
355.62
200.49
121.92
This information under “Stock Performance Graph” is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference in any filing of Seattle Genetics, Inc. under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this
Annual Report on Form 10-K and irrespective of any general incorporation language in those filings.
73
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with our consolidated financial statements and
notes to our consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” contained elsewhere in this Annual Report on Form 10-K. The selected Consolidated Statements
of Comprehensive Loss data for the years ended December 31, 2019, 2018, and 2017, and Consolidated Balance Sheet
data as of December 31, 2019 and 2018 have been derived from our audited financial statements appearing elsewhere in
this Annual Report on Form 10-K. The selected Consolidated Statements of Comprehensive Loss data for the years
ended December 31, 2016 and 2015 and Consolidated Balance Sheet data as of December 31, 2017, 2016, and 2015
have been derived from our audited financial statements that are not included in this Annual Report on Form 10-K.
Historical results are not necessarily indicative of future results.
2019
(a)
2018
(b)
Years ended December 31,
2017
2016
2015
(in thousands, except for per share amounts)
Consolidated Statements of Comprehensive Loss Data:
Revenues:
Net product sales . . . . . . . . . . . . . . . . . . . . . . . . .
$
627,977
$
476,903
$
307,562
$
265,766
$
226,052
Collaboration and license agreement revenues . .
Royalty revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of royalty revenues . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . .
150,245
138,491
916,713
34,882
9,070
719,374
373,932
Total costs and expenses . . . . . . . . . . . . . . . . . . . .
1,137,258
94,357
83,440
654,700
66,085
22,208
565,309
261,096
914,698
108,632
66,056
482,250
34,768
19,350
456,700
167,233
678,051
84,926
67,455
418,147
28,168
14,149
379,308
139,247
560,872
69,770
40,980
336,802
24,476
12,964
294,529
125,783
457,752
Loss from operations . . . . . . . . . . . . . . . . . . . . . . .
(220,545)
(259,998)
(195,801)
(142,725)
(120,950)
Investment and other income, net . . . . . . . . . . . . .
61,895
13,652
36,914
2,614
464
Loss before income taxes. . . . . . . . . . . . . . . . . . . .
(158,650)
(246,346)
(158,887)
(140,111)
(120,486)
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . .
—
23,653
33,357
—
—
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share - basic and diluted. . . . . . . . . . .
$
$
Shares used in computation of per share amounts
- basic and diluted . . . . . . . . . . . . . . . . . . . . . . .
(158,650) $
(222,693) $
(125,530) $
(140,111) $
(120,486)
(0.96) $
(1.41) $
(0.88) $
(1.00) $
(0.93)
165,498
157,655
143,174
140,746
129,184
2019
(a)
2018
(b)
December 31,
2017
2016
2015
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . .
$
868,338
$
459,866
$
413,171
$
618,974
$
712,711
917,284
2,205,866
1,876,287
428,523
1,503,329
1,273,943
409,932
877,949
677,569
586,132
838,396
634,087
636,793
895,095
685,911
74
(a)
In July 2019, we completed an underwritten public offering of 8,214,286 shares of our common stock at a public offering price of $70.00 per
share. The offering resulted in net proceeds to us of $548.7 million.
On January 1, 2019, we adopted Accounting Standards Codification, or ASC, Topic 842--Leases. We recognized $35.2 million of operating lease
liabilities and $34.7 million of operating lease right-of-use assets on our consolidated balance sheet. We elected the modified retrospective
method transition option, which permitted us not to restate the comparative periods presented. For additional information, refer to Note 4 of the
Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.
(b)
In March 2018, we acquired Cascadian Therapeutics, Inc., or Cascadian, for a total purchase price of approximately $614.1 million. Cascadian
was included in our results of operations, along with the estimated fair values of the assets acquired and liabilities assumed in the acquisition, as
of the acquisition date.
In February 2018, we completed an underwritten public offering of 13,269,230 shares of our common stock at a public offering price of $52.00
per share. The offering resulted in net proceeds to us of $658.2 million. The primary use of the net proceeds received from the offering was the
fund the Cascadian acquisition.
On January 1, 2018, we adopted ASC Topic 606--Revenue from Contracts with Customers. We recorded a $26.6 million cumulative effect
adjustment to decrease the accumulated deficit as of January 1, 2018. We used the modified retrospective method transition option, which
permitted us not to restate the comparative periods presented. For additional information, refer to Note 3 of the Notes to Consolidated Financial
Statements included in Part II Item 8 of this Annual Report on Form 10-K.
On January 1, 2018, we adopted Accounting Standards Update, or ASU, “ASU 2016-01, Financial Instruments: Overall,” which required, among
other items, that changes in the fair value of equity securities be recorded in income or loss rather than accumulated other comprehensive income
or loss in stockholders’ equity. We recognized a $64.1 million cumulative effect adjustment to decrease the accumulated deficit as of January 1,
2018. We used the modified retrospective method transition option, which permitted us not to restate the comparative periods presented. For
additional information, refer to the heading “Investments” in Note 2 of the Notes to the Consolidated Financial Statements included in Part II
Item 8 of this Annual Report on Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently
available to our management. All statements other than statements of historical facts are “forward-looking statements”
for purposes of these provisions, including those relating to future events or our future financial performance and
financial guidance. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,”
“will,” “should,” “expect,” “plan,” “anticipate,” “project,” “believe,” “estimate,” “predict,” “potential,” “intend”
or “continue,” the negative of terms like these or other comparable terminology, and other words or terms of similar
meaning in connection with any discussion of future operating or financial performance. These statements are only
predictions. All forward-looking statements included in this Annual Report on Form 10-K are based on information
available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Any or
all of our forward-looking statements in this document may turn out to be wrong. Actual events or results may differ
materially. Our forward-looking statements can be affected by inaccurate assumptions we might make or by known or
unknown risks, uncertainties and other factors. We discuss many of these risks, uncertainties and other factors in this
Annual Report on Form 10-K in greater detail in “Part I Item 1A—Risk Factors.” We caution investors that our business
and financial performance are subject to substantial risks and uncertainties.
You should read the following discussion and analysis in conjunction with the Selected Financial Data and our
consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.
Overview
Seattle Genetics is a biotechnology company that develops and commercializes therapies targeting cancer. We are
commercializing ADCETRIS®, or brentuximab vedotin, for the treatment of certain CD30-expressing lymphomas, and
PADCEVTM, or enfortumab vedotin-ejfv, for the treatment of certain metastatic urothelial cancers. Additionally, we have
submitted applications to the FDA, EMA and other regulatory agencies requesting approval of tucatinib for the treatment
of patients with HER2-positive metastatic breast cancer. We are also advancing a pipeline of novel therapies for solid
tumors and blood-related cancers designed to address unmet medical needs and improve treatment outcomes for patients.
Many of our programs, including ADCETRIS and PADCEV, are based on our antibody-drug conjugate, or ADC,
technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer
cells. We are headquartered in Bothell, Washington, and have offices in California, Switzerland and the European Union.
Also refer to Part I Item 1 “Business” for more information about our products, pipeline, technologies, research
programs, including key events in 2019 and 2020 to date and future plans for our clinical programs.
75
Outlook
We recognize revenue from ADCETRIS product sales in the U.S. and Canada and PADCEV products sales in the
U.S. While ADCETRIS product sales have grown over time, and our future plans assume that sales of ADCETRIS will
increase, we expect lower sales growth for ADCETRIS in 2020 as compared to growth in 2019. 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
expect that our ability to continue to grow our ADCETRIS sales, if at all, will depend primarily on our ability to establish
or demonstrate to the medical community the value of ADCETRIS and its potential advantages compared to existing and
future therapeutics in its approved indications, including in the frontline Hodgkin lymphoma and PTCL indications, and
the extent to which physicians make prescribing decisions with respect to ADCETRIS. Other important factors affecting
ADCETRIS sales include the extent to which Takeda obtains further regulatory approvals of ADCETRIS in its
territories, the incidence flow of patients eligible for treatment in ADCETRIS’ approved indications, the extent to which
coverage and adequate levels of reimbursement for ADCETRIS are available from governments and other third-party
payors, the impact of any healthcare reform measures that may be adopted in the future, including measures that could
potentially result in more rigorous coverage criteria and additional downward pressure on the price that we receive for
ADCETRIS, increasing competition from competing therapies and the potential future approval of ADCETRIS in any
additional indications. In addition, as a result of these and other factors, our future ADCETRIS product sales can be
difficult to accurately predict from period to period.
Our ability to realize the anticipated benefits from our investment in PADCEV is subject to a number of risks and
uncertainties, including our and Astellas’ ability to successfully jointly launch, market and commercialize PADCEV in
the U.S. in its approved indication, the extent to which we and Astellas are able to obtain regulatory approvals of
PADCEV in additional indications, including in the frontline metastatic urothelial cancer setting, and in territories
outside the U.S., our ability and Astellas’ ability to successfully comply with rigorous post-marketing requirements,
including the successful completion of the required confirmatory post-marketing study that we and Astellas are subject to
as a result of an accelerated approval by the FDA, the acceptance of PADCEV by the medical community and patients,
the extent to which physicians make prescribing decisions with respect to PADCEV, the incidence flow of patients
eligible for treatment in PADCEV’s approved indication, the duration of therapy for patients receiving PADCEV, the
extent to which coverage and adequate levels of reimbursement for PADCEV are available from governments and other
third-party payors, the impact of any healthcare reform measures that may be adopted in the future, including measures
that could potentially result in more rigorous coverage criteria and additional downward pressure on the price that we
receive for PADCEV and potential competition from competing therapies. In addition, due to the lack of any historical
sales data and these factors, PADCEV sales are currently difficult to predict from period to period.
With respect to tucatinib, although we submitted an NDA to the FDA in December 2019 and submitted
applications for regulatory approval in jurisdictions outside the U.S., we cannot predict whether our NDA or applications
will be accepted for filing or approved by the regulatory authorities in a timely manner or at all. Even if approved for
commercial sale, our ability to realize the anticipated benefits of our investment in tucatinib is subject to a number of
risks and uncertainties, including our ability to successfully launch, market and commercialize any approved tucatinib
indication, the acceptance of any approved tucatinib indication by the medical community and patients, competition from
other therapies, and the extent to which coverage and reimbursement will be available from governments and other third-
party payors. In addition, we have no prior experience as an organization launching or commercializing a product in
markets outside the U.S. and Canada, which could adversely affect our ability to maximize the commercial potential of
any approved tucatinib indication. Our ability to successfully launch and commercialize tucatinib in new markets will
face additional risks and uncertainties, including our ability to build new commercial infrastructure and navigate unique
country-by-country pricing and reimbursement requirements. The launch of tucatinib in new countries could be delayed
due to a variety of factors, including supply constraints, delays in arranging a commercial infrastructure or delays in
negotiating pricing and obtaining required reimbursement approvals. If we experience delays or unforeseen difficulties
due to any of these factors, planned launches in the countries in question would be delayed, which could negatively
impact anticipated revenue from tucatinib. In addition, if we are unable to obtain favorable pricing and reimbursement
approvals in the countries that represent significant potential markets, our anticipated revenue from and growth prospects
for tucatinib in Europe and other regions could be negatively affected.
The biopharmaceutical industry and the markets in which we operate are intensely competitive. Many of our
competitors are working to develop or have commercialized products similar to those we market or are developing. Drug
76
prices are under significant scrutiny and we expect drug pricing and other health care costs to continue to be subject to
intense political and societal pressures on a global basis. In addition to pricing actions and other measures being taken
worldwide designed to reduce healthcare costs and limit the overall level of government expenditures, our sales and
operations could also be affected by other risks of doing business internationally.
We expect that amounts earned from our collaboration agreements, including royalties, will continue to be an
important source of our revenues and cash flows. These revenues will be impacted by future development funding and
the achievement of development, clinical and commercial success by our collaborators under our existing collaboration
and license agreements, including our ADCETRIS collaboration with Takeda and our PADCEV collaboration with
Astellas, as well as by entering into potential new collaboration and license agreements.
Our ongoing research, development, manufacturing and commercial activities will require substantial amounts of
capital and may not ultimately be successful. We expect that we will incur substantial expenses, and we will require
significant financial resources and additional personnel in order to advance the development of, to pursue, obtain and
maintain regulatory approvals for, and to commercialize our products and product candidates, and expand our pipeline.
In addition, we may pursue new operations or continue the expansion of our existing operations, including with respect
to our plans to build a commercial infrastructure in Europe and to otherwise continue to expand our operations
internationally. As a result, we may need to raise additional capital, and our operating expenses may fluctuate as a result
of such activities. We may also incur milestone payment obligations to certain of our licensors as our product candidates
progress through clinical trials towards potential commercialization.
Because of the above and other factors, our results of operations may vary substantially from year to year and from
quarter to quarter and, as a result, we believe that period to period comparisons of our operating results may not be
meaningful and should not be relied upon as being indicative of our future performance.
Financial summary
For 2019, our total revenues increased to $916.7 million, compared to $654.7 million in 2018. This increase was
driven primarily by 32% higher ADCETRIS net product sales. Net product sales of ADCETRIS increased to $627.7
million in 2019 as compared to $476.9 million in 2018, primarily driven by ADCETRIS label expansions received
during 2018. Collaboration and license agreement revenues increased to $150.2 million in 2019 as compared to $94.4
million in 2018, primarily driven by the achievement of various regulatory and development milestones in 2019 as well
as revenues earned under a license agreement executed in 2019. Royalty revenues increased to $138.5 million in 2019 as
compared to $83.4 million in 2018, primarily driven by Takeda's achievement of a sales-based milestone during 2019.
For 2019, total costs and expenses increased to $1,137.3 million, compared to $914.7 million in 2018. This
primarily reflected higher research and development expenses, due to continued investment in our late-stage pipeline, as
well as higher sales, general, and administrative cost related to staffing, to support our commercialized products, and for
our late-stage product candidates. For 2019, net loss of $158.7 million was favorably impacted by a net gain of $50.1
million from the change in the fair value of our equity securities.
As of December 31, 2019, we had $868.3 million in cash, cash equivalents and investments and $1.9 billion in
total stockholders’ equity.
Comparability
We adopted ASC Topic 842—Leases on January 1, 2019, resulting in a change to our accounting policy for leases.
We recorded a liability to make lease payments and a right-of-use asset representing our right to use the underlying assets
for the applicable lease terms in our consolidated balance sheet at January 1, 2019. We used the modified retrospective
method transition option. Accordingly, 2018 and 2017 comparative information has not been adjusted and continues to
be reported under previous accounting standards. For additional information, refer to Note 4 of the Notes to Consolidated
Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.
In March 2018, we acquired Cascadian for $10.00 per share in cash, or approximately $614.1 million. Cascadian
was included in our results of operations as of the acquisition date. Accordingly, the results discussed below were
impacted by the timing of this acquisition. For additional information, refer to Note 5 of the Notes to Consolidated
Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.
77
We adopted ASC Topic 606—Revenue from Contracts with Customers on January 1, 2018, resulting in a change
to our accounting policy for revenue recognition. We used the modified retrospective method transition option and
recognized the cumulative effect of initially applying ASC Topic 606 as an adjustment to decrease the opening
accumulated deficit at January 1, 2018. Accordingly, 2017 comparative information has not been adjusted and continues
to be reported under previous accounting standards. For additional information, refer to Note 3 of the Notes to
Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.
We adopted “ASU 2016-01, Financial Instruments: Overall” on January 1, 2018, which addressed certain aspects
of recognition, measurement, presentation and disclosure of financial instruments, including that changes in the fair
value of equity securities be recorded in income or loss rather than accumulated other comprehensive income or loss in
stockholders’ equity. We used the modified retrospective method transition option and recognized the cumulative effect
of initially applying this ASU as an adjustment to decrease the opening accumulated deficit at January 1, 2018.
Accordingly, 2017 comparative information has not been adjusted and continues to be reported under previous
accounting standards. For additional information, see the section “Investments” in Note 2 of the Notes to Consolidated
Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.
In addition, the section of this Management’s Discussion and Analysis of Financial Condition and Results of
Operations generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions
of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Annual Report on Form
10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part
II Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the
SEC on February 7, 2019.
Critical Accounting Policies
The preparation of financial statements in accordance with generally accepted accounting principles, or GAAP,
requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities. We believe the following critical accounting
policies describe the more significant judgments and estimates used in the preparation of our financial statements.
We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for
making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses
that are not readily apparent from other sources. Actual results may differ from those estimates under different
assumptions and conditions.
Revenue Recognition. Our revenues are comprised of ADCETRIS and PADCEV net product sales, amounts
earned under our collaboration and licensing agreements, and royalties. Revenue recognition occurs when a customer
obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in
exchange for those goods or services. The period between when we transfer control of promised goods or services and
when we receive payment is expected to be one year or less, and that expectation is consistent with our historical
experience. As such, we do not adjust our revenues for the effects of a significant financing component.
We apply significant judgment to our estimates in the following revenue recognition areas, each as discussed in
more detail in the corresponding sections after this list:
• Net product sales - sales deductions related to government-mandated rebates and chargebacks, such as for the
Medicaid and 340B programs
• Collaboration and license agreement revenues - assessing the probability of future reversal of variable
consideration and evaluating whether contractual obligations represent distinct performance obligations
• Royalty revenues - estimating Takeda's net sales of ADCETRIS and Genentech's net sales of Polivy to the
extent actual information is not available
Net product sales
We sell ADCETRIS through a limited number of specialty distributors in the U.S. and Canada. We and our
collaboration partner Astellas jointly sell PADCEV through a limited number of specialty distributors in the U.S.
Customers order our products through these distributors, and we typically ship product directly to the customer. The
78
delivery of our products represents a single performance obligation for these transactions and we record product sales at
the point in time when title and risk of loss pass, which generally occurs upon delivery of the product to the customer.
The transaction price for product sales represents the amount we expect to receive, which is net of estimated
government-mandated rebates and chargebacks, distribution fees, estimated product returns, and other deductions.
Accruals are established for these deductions, and actual amounts incurred are offset against applicable accruals. We
reflect these accruals as either a reduction in the related account receivable from the distributor or as an accrued liability,
depending on the nature of the sales deduction. Sales deductions are based on management’s estimates that consider
payor mix in target markets and experience to-date. These estimates involve a substantial degree of judgment. We have
applied a portfolio approach as a practical expedient for estimating net product sales.
Government-mandated rebates and chargebacks: We have entered into a Medicaid Drug Rebate Agreement, or
MDRA, with the Centers for Medicare & Medicaid Services. This agreement provides for a rebate based on covered
purchases of our products. Medicaid rebates are invoiced to us by the various state Medicaid programs. We estimate
Medicaid rebates using the expected value approach, based on a variety of factors, including payor mix and our
experience to-date.
We have a Federal Supply Schedule, or FSS, agreement under which certain U.S. government purchasers receive
a discount on eligible purchases of our products. In addition, we have entered into a Pharmaceutical Pricing Agreement
with the Secretary of Health and Human Services, which enables certain entities that qualify for government pricing
under the Public Health Services Act, or PHS, to receive discounts on their qualified purchases of our products. Under
these agreements, distributors process a chargeback to us for the difference between wholesale acquisition cost and the
applicable discounted price. As a result of our direct-ship distribution model, we can identify the entities purchasing our
products and this information enables us to estimate expected chargebacks for FSS and PHS purchases based on the
expected value of each entity’s eligibility for the FSS and PHS programs. We also review historical rebate and
chargeback information to further refine these estimates.
Distribution fees, product returns and other deductions: Our distributors charge a volume-based fee for
distribution services that they perform for us. We allow for the return of product that is within 30 days of its expiration
date or that is damaged, or within 90 days past expiration date. We estimate product returns based on our experience to-
date using the expected value approach. In addition, we consider our direct-ship distribution model, our belief that
product is not typically held in the distribution channel, and the expected rapid use of the product by healthcare
providers. We provide financial assistance to qualifying patients that are underinsured or cannot cover the cost of
commercial coinsurance amounts through SeaGen Secure. SeaGen Secure is available to patients in the U.S. and its
territories who meet various financial and treatment need criteria. Estimated contributions for commercial coinsurance
under SeaGen Secure are deducted from gross sales and are based on an analysis of expected plan utilization. These
estimates are adjusted as necessary to reflect our actual experience.
Collaboration and license agreement revenues
We have collaboration and license agreements for our ADC technology with a number of biotechnology and
pharmaceutical companies. Under these agreements, which we have entered into in the ordinary course of business, we
typically receive or are entitled to receive upfront cash payments and progress- and sales-dependent milestones for the
achievement by our licensees of certain events, and annual maintenance fees and support fees for research and
development services and materials provided under the agreements. We also are entitled to receive royalties on net sales
of any resulting products incorporating our technology. Our licensees are solely responsible for research, product
development, manufacturing and commercialization of any product candidates under these collaborations, which
includes the achievement of the potential milestones. Since we do not take a substantive role or control the research,
development or commercialization of any products generated by our licensees, we are not able to reasonably estimate
when, if at all, any potential future milestone payments or royalties may be payable to us by our licensees. As such, the
potential future milestone payments associated with our collaboration and license agreements involve a substantial
degree of uncertainty and risk that they may never be received. In the case of our ADCETRIS collaboration with Takeda
Pharmaceutical Company Limited, or Takeda, we may be involved in certain development activities; however, the
achievement of milestone events under the agreement is primarily based on activities undertaken by Takeda.
79
Collaboration and license agreements are initially evaluated as to whether the intellectual property licenses
granted by us represent distinct performance obligations. If they are determined to be distinct, the value of the
intellectual property licenses would be recognized up-front while the research and development service fees would be
recognized as the performance obligations are satisfied. Variable consideration is assessed at each reporting period as to
whether it is not subject to future reversal of cumulative revenue and, therefore, should be included in the transaction
price. Assessing the recognition of variable consideration requires significant judgment. If a contract includes a fixed or
minimum amount of research and development support, this also would be included in the transaction price. Changes to
collaboration and license agreements, such as the extensions of the research term or increasing the number of targets or
technology covered under an existing agreement, are assessed for whether they represent a modification or should be
accounted for as a new contract.
We have concluded that the license of intellectual property in certain collaboration and license agreements is not
distinct from the perspective of our customers at the time of initial transfer, since we often do not license intellectual
property without related technology transfer and research and development support services. Such evaluation requires
significant judgment since it is made from the customer's perspective. Our performance obligations under our
collaborations may include such things as providing intellectual property licenses, performing technology transfer,
performing research and development consulting services, providing reagents, ADCs, and other materials, and notifying
the customer of any enhancements to licensed technology or new technology that we discover, among others. We
determined our performance obligations under certain collaboration and license agreements as evaluated at contract
inception were not distinct and represented a single performance obligation. For those agreements, revenue is recognized
using a proportional performance model, representing the transfer of goods or services as activities are performed over
the term of the agreement. Upfront payments are also amortized to revenue over the performance period. Upfront
payment contract liabilities resulting from our collaborations do not represent a financing component as the payment is
not financing the transfer of goods or services, and the technology underlying the licenses granted reflects research and
development expenses already incurred by us.
When no performance obligations are required of us, or following the completion of the performance obligation
period, such amounts are recognized upon transfer of control of the goods or services to the customer. Generally, all
amounts received or due other than sales-based milestones and royalties are classified as collaboration and license
agreement revenues. Sales-based milestones and royalties are recognized as royalty revenue in the period the related sale
occurred.
We generally invoice our collaborators and licensees on a monthly or quarterly basis, or upon the completion of
the effort or achievement of a milestone, based on the terms of each agreement. Deferred revenue arises from amounts
received in advance of the culmination of the earnings process and is recognized as revenue in future periods as
performance obligations are satisfied. Deferred revenue expected to be recognized within the next twelve months is
classified as a current liability.
Royalty revenues and cost of royalty revenues
Royalty revenues primarily reflect amounts earned under the ADCETRIS collaboration with Takeda. These
royalties include commercial sales-based milestones and sales royalties that relate predominantly to the license of
intellectual property. Sales royalties are based on a percentage of Takeda’s net sales of ADCETRIS, with rates that range
from the mid-teens to the mid-twenties based on annual net sales tiers. Takeda bears a portion of third-party royalty costs
owed on its sales of ADCETRIS. This amount is included in royalty revenues. Cost of royalty revenues reflects amounts
owed to our third-party licensors related to Takeda’s sales of ADCETRIS. These amounts are recognized in the period in
which the related sales by Takeda occur and are based on estimates if actual information is not yet available. Since we do
not take a substantive role or control the commercial sales of ADCETRIS by Takeda, estimating their net sales of
ADCETRIS may require significant judgment to the extent actual information is not yet available.
Business combinations, including acquired in-process research and development and goodwill. We account
for business combinations using the acquisition method, recording the acquisition-date fair value of total consideration
over the acquisition-date fair value of net assets acquired as goodwill.
Fair value is typically estimated using an income approach based on the present value of future discounted cash
flows. The significant estimates in the discounted cash flow model primarily include the discount rate, rates of future
revenue growth and/or profitability of the acquired business. The discount rate considers the relevant risk associated with
80
business-specific characteristics and the uncertainty related to the ability to achieve the projected cash flows. Specific to
in-process research and development, significant estimates primarily include the number of potential patients and the
market prices of future commercial products, costs required to conduct clinical trials and commercialize future products,
and estimates for the probability of success and discount rate. These estimates and the resulting valuations require
significant judgment.
Accrued Liabilities. As part of the process of preparing financial statements, we estimate accrued liabilities. This
process involves identifying services that have been performed on our behalf and estimating the level of services
performed and the associated costs incurred for such services where we have not yet been invoiced or otherwise notified
of actual cost. We record these estimates in our consolidated financial statements as of each balance sheet date. Examples
of estimated accrued liabilities include amounts due to contract research organizations and other costs in conjunction
with clinical trials, amounts due in conjunction with manufacturing our product candidates, third-party royalties that
accrue on our sales of ADCETRIS and professional service fees, among other items.
In accruing service fees, we estimate the time period over which services will be provided and the level of effort
in each period. If the actual timing of the provision of services or the level of effort varies from the estimate, we will
adjust the accrual accordingly. In the event that we do not identify costs that have been incurred or we under or
overestimate the level of services performed or the costs of such services, our actual liabilities would differ from such
estimates. The date on which some services commence, the level of services performed on or before a given date and the
cost of such services are often subjective determinations. We make judgments based upon the facts and circumstances
known to us at the time and in accordance with GAAP.
Long-term Incentive Plans. We have long term incentive plans which provide eligible employees with the
opportunity to receive performance-based incentive compensation, which may be comprised of cash, stock options, and/
or restricted stock units. The payment of cash and the grant or vesting of equity awards are contingent upon the
achievement of pre-determined regulatory milestones. We record compensation expense over the estimated service
period for each milestone when we believe the milestone is considered probable, which we assess at each reporting date.
Once a milestone is considered probable, we record compensation expense based on the portion of the service period
elapsed to date with respect to that milestone, with a cumulative catch-up, net of estimated forfeitures, and recognize any
remaining compensation expense, if any, over the remaining estimated service period.
Income Taxes. We have net deferred tax assets which are fully offset by a valuation allowance due to our
determination that it is more likely than not that the deferred tax assets will not be realized. With the exception of
deferred tax assets that were applied to offset the tax liability on goodwill resulting from the Cascadian Acquisition, we
believe that a valuation allowance is appropriate as we have a history of net operating losses. In the event we were to
determine that we would be able to realize our net deferred tax assets in the future, an adjustment to the valuation
allowance would be made, a portion of which would increase income (or decrease losses) in the period in which such a
determination was made. We follow the guidance related to accounting for uncertainty in income taxes, which requires
the recognition of an uncertain tax position when it is more likely than not to be sustainable upon audit by the applicable
taxing authority.
Results of Operations - Years Ended December 31, 2019, 2018, and 2017
Net product sales
We sell ADCETRIS in the U.S. and Canada, and sell PADCEV in the U.S.
(dollars in thousands)
ADCETRIS . . . . . . . . . . . . . . . . . . . . . .
PADCEV . . . . . . . . . . . . . . . . . . . . . . . .
Net product sales . . . . . . . . . . . . . . . .
$
$
2019
627,733
244
627,977
$
$
2018
476,903
—
476,903
$
$
2017
307,562
—
307,562
N/A: No amount in comparable period or not a meaningful comparison.
Percentage change
2019/2018
2018/2017
32%
N/A
32%
55%
N/A
55%
81
Net product sales increases in 2019 and 2018 as compared to prior years primarily resulted from higher
ADCETRIS sales volumes during 2019 and, to a lesser extent, from the effect of price increases for ADCETRIS. Higher
sales volume during 2019 was primarily driven by the label expansions of ADCETRIS; in particular, for the frontline
Hodgkin lymphoma indication in March 2018, and for the frontline PTCL indication in November 2018.
PADCEV was approved for patients with locally advanced or metastatic urothelial cancer in December 2019.
We expect growth in net product sales in 2020 from 2019, driven by continued growth in ADCETRIS net product
sales and the launch of PADCEV in December 2019. Our ability to increase ADCETRIS sales in future periods, if at all,
will be primarily dependent on our ability to continue to expand ADCETRIS’ utilization across all labeled indications of
use.
Gross-to-net deductions, net of related payments and credits, were as follows:
December 31, 2019
December 31, 2018
December 31, 2017
Distribution
fees,
product
returns
and other
Rebates and
chargebacks
Total
Rebates and
chargebacks
Distribution
fees,
product
returns
and other
Total
Rebates and
chargebacks
Distribution
fees,
product
returns
and other
Total
$
26,968
$
5,604
$
32,572
$
14,374
$
3,521
$
17,895
$
9,500
$
3,198
$
12,698
253,702
15,298
269,000
179,394
11,717
191,111
105,764
7,778
113,542
(392)
(464)
(856)
440
(478)
(38)
1,558
(294)
1,264
(217,905)
(11,349)
(229,254)
(155,581)
(8,248)
(163,829)
(92,947)
(5,939)
(98,886)
(24,289)
(1,570)
(25,859)
(11,659)
(908)
(12,567)
(9,501)
(1,222)
(10,723)
$
38,084
$
7,519
$
45,603
$
26,968
$
5,604
$
32,572
$
14,374
$
3,521
$
17,895
(in thousands)
Balance,
beginning of
year. . . . . . . .
Provision related
to current
year sales . . .
Adjustments for
prior period
sales . . . . . . .
Payments/credits
for current
year sales . . .
Payments/credits
for prior year
sales . . . . . . .
Balance, end of
year . . . . . . . .
Government-mandated rebates and chargebacks are the most significant component of our total gross-to-net
deductions and the discount percentage has been increasing. These discount percentages increased during 2019 and 2018
as a result of price increases for ADCETRIS that we instituted that exceeded the rate of inflation. The most significant
portion of our gross-to-net accrual balances as of December 31, 2019 and 2018 was for Medicaid rebates. We expect
future gross-to-net deductions to fluctuate based on the volume of purchases eligible for government mandated discounts
and rebates, as well as changes in the discount percentage which is impacted by potential future price increases, the rate
of inflation, and other factors. We expect gross-to-net deductions to increase in 2020 as compared to 2019, driven by
anticipated growth in ADCETRIS and PADCEV gross sales.
Collaboration and license agreement revenues
Collaboration and license agreement revenues reflect amounts earned under product, ADC and co-development
collaborations. These revenues reflect the earned portion of payments received by us for technology access and
maintenance fees, milestone payments and reimbursement payments for research and development support that we
provide to our collaborators.
Collaboration and license agreement revenues by collaborator were as follows:
(dollars in thousands)
Takeda . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collaboration and license agreement
revenues. . . . . . . . . . . . . . . . . . . . .
$
2018
2017
2019/2018
2018/2017
Percentage change
85%
18%
59%
(22)%
6 %
(13)%
2019
108,175
42,070
$
$
58,605
35,752
74,872
33,760
150,245
$
94,357
$
108,632
82
Collaboration revenues from Takeda fluctuate based on changes in the recognized portion of reimbursement
funding under the ADCETRIS collaboration, which are impacted by the activities each party is performing under the
collaboration agreement at a given time. For example, when Takeda’s level of spending on clinical collaboration
activities increases above our own, our earned portion of reimbursement funding generally decreases. Additionally, we
receive reimbursement for the cost of drug product supplied to Takeda for its use, the timing of which fluctuates based on
Takeda’s product supply needs. Collaboration revenues from Takeda can also fluctuate based on the achievement of
milestones by Takeda. Collaboration revenues from Takeda in 2019 increased compared to 2018, primarily as a result of
two regulatory milestones achieved totaling $37.5 million, which were related to additional approvals of ADCETRIS in
frontline Hodgkin lymphoma.
Other collaboration revenues increased in 2019 as compared to 2018 due to recognition of license and
collaboration agreement revenues from BeiGene, Ltd., or BeiGene, as well as development milestones from GSK and
Genentech. In 2018, other collaboration revenues included the recognition of development milestones from AbbVie,
Genmab, and GSK. In November 2019, we entered into a license agreement with BeiGene for one of our preclinical
product candidates. Under the license agreement, we granted BeiGene development and commercialization rights to the
product candidate in certain territories. Pursuant to the agreement, we received an upfront payment of $20.0 million
which was recognized as collaboration and license agreement revenues during the year ended December 31, 2019, as we
determined that our performance obligation under the agreement was distinct and was satisfied. We are entitled to
receive potential future milestones tied to clinical and regulatory success and royalties for potential sales of the product
candidate. In addition, the parties have agreed to co-fund certain future development costs.
We expect our collaboration and license agreement revenues in 2020 to decrease compared to 2019, driven by the
completion of the Takeda performance period in 2019, as well as timing of milestones achieved by our collaborators. Our
collaboration and license agreement revenues are impacted by the term and duration of those agreements and by
progress-dependent milestones, annual maintenance fees, and reimbursement of materials and support services.
Collaboration and license agreement revenues may vary substantially from year to year and quarter to quarter depending
on the progress made by our collaborators with their product candidates, the level of support we provide to our
collaborators, specifically to Takeda under our ADCETRIS collaboration, the timing of milestones achieved and our
ability to enter into potential additional collaboration and license agreements.
Collaboration agreements
We discuss the below arrangements in greater detail under the heading “Corporate Collaborations” in Part I Item 1
of this Annual Report on Form 10-K.
Takeda ADCETRIS collaboration
We have an agreement with Takeda for the global co-development of ADCETRIS and the commercialization of
ADCETRIS by Takeda in its territory. We recognize payments received from Takeda, including progress-dependent
development and regulatory milestone payments, reimbursement for drug supplied, and net development cost
reimbursement payments, as collaboration and license agreement revenues upon transfer of control of the goods or
services over the development period. When the performance of development activities under the collaboration results in
us making a reimbursement payment to Takeda, that payment reduces collaboration and license agreement revenues. We
also recognize royalty revenues based on a percentage of Takeda's net sales of ADCETRIS in its territories, ranging from
the mid-teens to the mid-twenties based on annual net sales tiers, as well as sales-based milestones. Takeda bears a
portion of third-party royalty costs owed on its sales of ADCETRIS, which is included in royalty revenues.
Astellas PADCEV collaboration
We have a collaboration agreement with Agensys, Inc., which subsequently became an affiliate of Astellas, to
jointly research, develop and commercialize ADCs for the treatment of several types of cancer. Under this collaboration,
we and Astellas are co-funding all development costs for PADCEV. Cost associated with co-development activities are
included in research and development expense. In 2018, we and Astellas entered into a joint commercialization
agreement to govern the global commercialization of PADCEV. Gross profit share payments owed to Astellas in the U.S.
under the joint commercialization agreement are recorded in cost of sales.
83
Genmab tisotumab vedotin collaboration
We have an agreement with Genmab to develop and commercialize ADCs for the treatment of several types of
cancer, under which we previously exercised a co-development option for tisotumab vedotin. Costs associated with co-
development activities are included in research and development expense.
Other collaboration and license agreements
We have other collaboration and license agreements for our ADC technology with a number of biotechnology and
pharmaceutical companies. We typically receive upfront cash payments and progress- and sales-dependent milestones for
the achievement by our licensees of certain events, and annual maintenance fees and support fees for research and
development services and materials provided under the agreements. These amounts are recognized as revenue over the
performance obligation period if the license is determined not to be distinct from other goods and services provided, or,
if there is no performance obligation, upon transfer of control of the goods or services to the customer.
As of December 31, 2019, our ADC collaboration and license agreements had generated approximately $425
million, primarily in the form of upfront and milestone payments. Remaining milestone payments to us under our current
ADC license and collaboration agreements could total approximately $1.7 billion if all potential product candidates
achieved all of their milestone events. Of this amount, approximately $0.2 billion relates to the achievement of
development milestones, approximately $0.7 billion relates to the achievement of regulatory milestones and
approximately $0.8 billion relates to the achievement of commercial milestones. Since we do not control the research,
development or commercialization of any of the products that would generate these milestones, we are not able to
reasonably estimate when, if at all, any potential future milestone payments or royalties may be payable by our
collaborators. Successfully developing a product candidate, obtaining regulatory approval and ultimately
commercializing it is a significantly lengthy and highly uncertain process which entails a significant risk of failure. In
addition, business combinations, changes in a collaborator’s business strategy and financial difficulties or other factors
could result and have resulted in a collaborator abandoning or delaying development of its product candidates. As such,
the potential future milestone payments associated with our ADC collaboration agreements involve a substantial degree
of risk and may never be received. Accordingly, we do not expect, and investors should not assume, that we will receive
all of the potential milestone payments described above, and it is possible that we may never receive any additional
significant milestone payments under these agreements.
Our collaboration agreement with Unum Therapeutics to develop and commercialize novel antibody-coupled T-
cell receptor therapies for cancer was terminated in January 2020.
Royalty revenues and cost of royalty revenues
Royalty revenues primarily reflect royalties earned under the ADCETRIS collaboration with Takeda. These
royalties include commercial sales-based milestones and sales royalties. Sales royalties are based on a percentage of
Takeda’s net sales of ADCETRIS, with rates that range from the mid-teens to the mid-twenties based on annual net sales
tiers. Takeda bears third-party royalty costs owed on its sales of ADCETRIS. This amount is included in royalty
revenues. Royalty revenues also reflect, to a lesser extent, amounts from Genentech earned on net sales of Polivy
beginning in 2019.
Cost of royalty revenues reflects amounts owed to our third-party licensors related to Takeda's sales of
ADCETRIS.
(dollars in thousands)
Royalty revenues . . . . . . . . . . . . . . . . . .
Cost of royalty revenues . . . . . . . . . . . .
$
2019
138,491
9,070
$
2018
2017
2019/2018
2018/2017
$
83,440
22,208
66,056
19,350
66 %
(59)%
26%
15%
Royalty revenues increased in 2019 as compared to 2018 driven by Takeda's achievement of a $40.0 million sales-
based milestone during 2019, as well as higher Takeda net sales of ADCETRIS in its territories.
Cost of royalty revenues fluctuates based on the amount of net sales of ADCETRIS by Takeda in its territories.
Cost of royalty revenues decreased in 2019 compared to 2018 due to the expiration of certain third-party royalty
obligations during 2018, a portion of which is paid by Takeda and is also included in royalty revenues.
Percentage change
84
We expect that royalty revenues will decrease in 2020 as compared to 2019 primarily due to the impact of the $40
million sales-based milestone earned in 2019, partially offset by royalties from anticipated increases in sales volume by
Takeda.
Cost of sales
Cost of sales includes manufacturing costs of product sold, third-party royalty costs, gross profit share payments
owed to Astellas pursuant to our collaboration, amortization of technology license costs, and distribution and other costs.
(dollars in thousands)
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
2017
2019/2018
2018/2017
$
34,882
$
66,085
$
34,768
(47)%
90%
Percentage change
Cost of sales decreased in 2019 as compared to 2018 primarily due to an inventory write-off of $18.1 million
recorded in 2018 related to in-process production that did not meet our manufacturing specifications, as well as a reduction
in amounts owed to third-party technology licensors due to the expiration of certain non-exclusive licenses in 2018, offset in
part by increased ADCETRIS sales volumes.
We expect cost of sales to increase in 2020 as compared to 2019, primarily due to anticipated sales growth of
PADCEV and the corresponding gross profit share payment owed to Astellas pursuant to our collaboration, as well as due to
expected growth in ADCETRIS net product sales.
Research and development
(dollars in thousands)
Research and clinical development . . . .
Process sciences and manufacturing . . .
$
2019
493,186
226,188
$
2018
395,337
169,972
$
2017
291,080
165,620
Total research and development . . . . $
719,374
$
565,309
$
456,700
Percentage change
2019/2018
2018/2017
25%
33%
27%
36%
3%
24%
Research and clinical development expenses include personnel, occupancy and laboratory expenses, technology
access fees, preclinical translational biology and in vitro and in vivo studies, IND-enabling pharmacology and toxicology
studies, and external clinical trial costs including costs for clinical sites, clinical research organizations, contractors and
regulatory activities associated with conducting human clinical trials. The increase in 2019 as compared to 2018
primarily reflected increases in employee-related costs and external development costs mainly to support our late-stage
pipeline of product candidates.
Process sciences and manufacturing expenses include personnel and occupancy expenses, manufacturing costs for
the scale-up and pre-approval manufacturing of drug product used in research and our clinical trials, and costs for drug
product supplied to our collaborators. Process sciences and manufacturing expenses also include quality control and
assurance activities, and storage and shipment of our product candidates. The increase in 2019 compared to 2018
primarily reflected increases in employee-related costs and external development costs mainly to support our late-stage
pipeline of product candidates, as well as higher costs for drug product supplied to Takeda.
We utilize our employee and infrastructure resources across multiple research and development projects. We track
human resource efforts expended on many of our programs for purposes of billing our collaborators for time incurred at
agreed upon rates and for resource planning. We do not account for actual costs on a project basis as it relates to our
infrastructure, facility, employee and other indirect costs; however, we do separately track significant third-party costs
including clinical trial costs, manufacturing costs and other contracted service costs on a project basis. To that end, the
following table shows third-party costs incurred for research, contract manufacturing of our product candidates and
clinical and regulatory services, as well as pre-commercial milestone payments for in-licensed technology for
ADCETRIS, PADCEV, and certain of our clinical-stage product candidates. The table also presents other costs and
overhead consisting of third-party costs for our preclinical stage programs, as well as personnel, facilities,
manufacturing, and other indirect costs not directly charged to development programs.
85
(dollars in thousands)
2019
2018
2017
2019/2018
2018/2017
December 31, 2019
Percentage change
5 years ended
ADCETRIS (brentuximab vedotin) . . .
$
45,151
$
40,435
$
PADCEV (enfortumab vedotin-ejfv) . .
Tucatinib. . . . . . . . . . . . . . . . . . . . . . . .
Tisotumab vedotin . . . . . . . . . . . . . . . .
Ladiratuzumab vedotin. . . . . . . . . . . . .
SGN-CD33A (vadastuximab talirine) .
Other clinical stage programs. . . . . . . .
Total third-party costs for clinical
stage programs . . . . . . . . . . . . . .
Other costs and overhead . . . . . . . . . . .
36,186
84,277
30,423
23,178
626
26,705
24,943
40,739
22,253
24,523
3,150
32,969
79,343
20,834
—
6,022
18,483
34,151
37,088
246,546
472,828
189,012
376,297
195,921
260,779
Total research and development . . .
$
719,374
$
565,309
$
456,700
N/A: No amount in comparable period or not a meaningful comparison.
12 %
45 %
107 %
37 %
(5)%
(80)%
(19)%
30 %
26 %
27 %
(49)% $
20 %
N/A
270 %
33 %
(91)%
(11)%
(4)%
44 %
24 % $
289,517
90,188
125,016
58,698
73,512
103,083
164,823
904,837
1,510,383
2,415,220
Third-party costs for ADCETRIS increased in 2019 as compared to 2018 primarily due to higher costs for drug
product supplied to Takeda, offset in part by a reduction in clinical trial activities. The cost of drug product supplied to
Takeda is charged to research and development expense. We are reimbursed for the drug product, which is included in
collaboration and license agreement revenues.
Third-party costs for PADCEV increased in 2019 as compared to 2018 primarily due to higher clinical trial and
manufacturing expenses.
Third-party costs for tucatinib increased in 2019 as compared to 2018 due to higher clinical trial expenses,
primarily for the HER2CLIMB trial, and higher manufacturing expenses.
Third-party costs for tisotumab vedotin increased in 2019 as compared to 2018 due to higher clinical trial and
manufacturing expenses.
Third-party costs for ladiratuzumab vedotin decreased in 2019 as compared to 2018 primarily due to lower
manufacturing expenses.
Third-party costs for other clinical stage programs were related to multiple earlier-stage development programs
and were relatively consistent across 2019 and 2018.
Other costs and overhead include third-party costs of our preclinical programs and costs associated with personnel
and facilities. These costs increased in 2019 as compared to 2018 due primarily to higher employee-related expenses
from headcount growth and internal manufacturing costs, as well as an upfront payment to acquire a preclinical asset in
2019.
In order to advance our product candidates toward commercialization, the product candidates are tested in
numerous preclinical safety, toxicology and efficacy studies. We then conduct clinical trials for those product candidates
that take several years or more to complete. The length of time varies substantially based upon the type, complexity,
novelty and intended use of a product candidate. We will also need to conduct additional clinical trials in order to expand
labeled indications of use for our commercial products. The outcome of our clinical trials is uncertain. The cost of
clinical trials may vary significantly as a result of a variety of factors, including the number of patients enrolled, patient
site costs, quantity and source of drug supply required, safety and efficacy of the product candidate, and extent of
regulatory efforts, among others.
We anticipate that our total research and development expenses in 2020 will increase compared to 2019 primarily
due to higher costs for the continued development of our approved products and product candidates.
The risks and uncertainties associated with our research and development projects are discussed more fully in
“Part I Item 1A—Risk Factors.” As a result of these risks and uncertainties, we are unable to determine with any degree
of certainty the duration and completion costs of our research and development projects, anticipated completion dates, or
when and to what extent we will receive cash inflows from the commercialization and sale of our products in any
additional approved indications or of any of our product candidates.
86
Selling, general and administrative
(dollars in thousands)
Selling, general and administrative. . . . $
2019
373,932
$
2018
261,096
$
2017
167,233
Percentage change
2019/2018
2018/2017
43%
56%
Selling, general and administrative expenses increased in 2019 and 2018 as compared to prior years primarily due
to higher staffing costs to support our commercialized products and for our late-stage product candidates.
We anticipate that selling, general and administrative expenses will increase in 2020 as compared to 2019 as we
continue our commercial activities in support of the commercialization of PADCEV and ADCETRIS, pre-
commercialization activities for our late-stage pipeline, and our support of general operations.
Investment and other income, net
(dollars in thousands)
Gain on equity securities . . . . . . . . . . . . . . . . . .
Investment and other income, net . . . . . . . . . . .
$
Total investment and other income, net . . . . $
2019
50,124
11,771
61,895
2018
$
$
7,336
6,316
13,652
$
$
2017
33,777
3,137
36,914
N/A: No amount in comparable period or not a meaningful comparison.
Percentage change
2019/2018
2018/2017
N/A
86%
N/A
(78)%
101 %
(63)%
Investment and other income, net includes other non-operating income and loss, such as unrealized holding gains
and losses on equity securities (which primarily include common stock holdings in Immunomedics), realized gains and
losses on equity and debt securities, and amounts earned on our investments in U.S. Treasury securities.
The gain on equity securities in 2019 was driven by a $50.1 million net gain from changes in the fair value of our
equity securities.
Investment income reflects amounts earned on our investments in U.S. Treasury securities. Investment income
increased in 2019 and 2018 compared to prior years due to a higher effective yield of our portfolio and higher investment
balances as a result of the net proceeds from our July 2019 equity offering.
Income taxes
(dollars in thousands)
Income tax benefit . . . . . . . . . . . . . . . . . .
N/A: No amount in comparable period or not a meaningful comparison.
2019
$
— $
2018
2017
2019/2018
2018/2017
23,653
$
33,357
N/A
(29)%
Percentage change
The income tax benefit in 2018 was related to the release of valuation allowance used to offset the deferred tax
liability recorded in the purchase price allocation for the Cascadian Acquisition. The income tax benefit in 2017 related
to unrealized gains on our Immunomedics common stock holding prior to the adoption ASU 2016-01, which was offset
by an income tax provision for the same amount in other comprehensive income in stockholders’ equity.
Liquidity and capital resources
(dollars in thousands)
Cash, cash equivalents and investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2019
868,338
917,284
1,876,287
December 31,
$
2018
459,866
428,523
1,273,943
$
2017
413,171
409,932
677,569
87
(dollars in thousands)
Cash provided by (used in):
Years ended December 31,
2019
2018
2017
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(163,737) $
(277,729)
637,842
(203,536) $
(592,630)
713,407
(118,900)
129,861
41,311
The change in net cash from operating activities from 2019 as compared to 2018 primarily was related to the
change in our net loss, working capital fluctuations and changes in our non-cash expenses, all of which are highly
variable.
The change in net cash from investing activities from 2019 as compared to 2018 reflected differences between the
proceeds received from sale and maturity of our investments and amounts reinvested, as well as payments for business
combinations. Cash used for investing activities also reflected payments for the purchases of property and equipment for
all years presented. We paid $614.1 million (or $598.2 million net of the cash acquired) for the Cascadian Acquisition in
March 2018, and we received $91.9 million from selling a portion of our Immunomedics common stock holdings during
2018.
The change in net cash from financing activities included proceeds from stock option exercises and our employee
stock purchase plan for all years presented. Cash provided by financing activities in 2019 included $548.7 million net
proceeds from our public offering in July 2019, with the primary uses for ongoing commercialization of ADCETRIS, our
commercial launch activities for PADCEV, our research and development efforts to further expand the ADCETRIS label
and to advance our pipeline of product candidates, as well as for general corporate purposes, including working capital.
Cash provided by financing activities in 2018 included $658.2 million in net proceeds from our public offering in
February 2018, with the primary use of the net proceeds used to fund the Cascadian Acquisition.
We primarily have financed our operations through the issuance of our common stock, collections from
commercial sales of our products, amounts received pursuant to product collaborations and our ADC collaborations, and
royalty revenues. To a lesser degree, we also have financed our operations through investment income. These financing
and revenue sources have allowed us to maintain adequate levels of cash and investments.
Our cash, cash equivalents, and investments are held in a variety of non-interest bearing bank accounts and
interest-bearing instruments subject to investment guidelines allowing for holdings in U.S. government and agency
securities, corporate securities, taxable municipal bonds, commercial paper and money market accounts. Our investment
portfolio is structured to provide for investment maturities and access to cash to fund our anticipated working capital
needs. However, if our liquidity needs should be accelerated for any reason in the near term, or investments do not pay at
maturity, we may be required to sell investment securities in our portfolio prior to their scheduled maturities, which may
result in a loss. As of December 31, 2019, we had $811.1 million held in cash, cash equivalents and investments
scheduled to mature within the next twelve months.
At our currently planned spending rates, we believe that our existing financial resources, together with product
and royalty revenues, and the fees, milestone payments and reimbursements we expect to receive under our existing
collaboration and license agreements, will be sufficient to fund our operations for at least the next twelve months.
We expect to make additional capital outlays and to increase operating expenditures over the next several years as
we hire additional employees, and support our development, commercialization, and planned global expansion, which
may require us to raise additional capital. Further, we actively evaluate various strategic transactions on an ongoing
basis, including licensing or otherwise acquiring complementary products, technologies or businesses, and we may
require significant additional capital in order to complete or otherwise provide funding for such transactions. We may
seek additional capital through some or all of the following methods: corporate collaborations, licensing arrangements,
and public or private debt or equity financings. We do not know whether additional capital will be available when
needed, or that, if available, we will obtain financing on terms favorable to us or our stockholders. If we are unable to
raise additional funds when we need them, our business and operations may be adversely affected.
88
Commitments
The following table reflects our future minimum contractual commitments as of December 31, 2019:
(dollars in thousands)
Total
2020
2021
2022
2023
2024
Thereafter
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supply and other agreements . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
94,039
256,632
350,671
$
$
13,341
93,225
106,566
$
$
14,291
44,236
58,527
$
$
13,855
41,160
55,015
$
$
13,757
25,695
39,452
$
$
9,866
24,828
34,694
$
$
28,929
27,488
56,417
We have entered into leases for our office and laboratory facilities expiring in 2021 through 2029 that contain rate
escalations and options for us to extend the leases. Operating lease obligations in the table above do not assume the
exercise by us of any extension options.
Supply and other agreements primarily include non-cancelable obligations under our manufacturing, license and
collaboration agreements. Further, a substantial portion of those non-cancelable obligations include minimum payments
related to manufacturing our product candidates for use in our clinical trials and for commercial operations in the case of
ADCETRIS.
Some of our manufacturing, license and collaboration agreements provide for periodic maintenance fees over
specified time periods, profit share payments, and/or payments by us upon the achievement of development and
regulatory milestones. Some of our licensing agreements obligate us to pay royalties based on net sales of products
utilizing licensed technology. Such royalties and profit share payments are dependent on future product sales and are not
provided for in the table above as they are dependent on events that have not yet occurred. Future milestone payments
for research and pre-clinical stage development programs have not been included in the above table as the event
triggering such payment or obligation has not yet occurred, which consisted of up to $1.4 billion in total potential future
milestone payments to third parties under our collaboration and license agreements with these parties. These milestone
payments generally become due and payable only upon the achievement of certain developmental, clinical, regulatory
and/or commercial milestones. These contingent payments have not been included in the above table as the event
triggering such payment or obligation has not yet occurred.
Recent accounting pronouncements
See the section “Recent accounting pronouncements” in Note 2 to the Notes to Consolidated Financial Statements
in Part II Item 8 of this Annual Report on Form 10-K.
89
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We
currently have holdings in U.S. Treasury securities. We do not have any outstanding derivative financial instruments in
our investment portfolio. A summary of our investment securities follows:
(dollars in thousands)
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2019
536,493
57,283
593,776
$
$
2018
332,486
49,194
381,680
We have estimated the effect on our investment portfolio of a hypothetical increase in interest rates by one percent
to be a reduction of $3.2 million in the fair value of our investments as of December 31, 2019. In addition, a hypothetical
decrease of 10% in the effective yield of our investments would reduce our expected investment income by $1.2 million
over the next twelve months based on our investment balance at December 31, 2019.
December 31,
Equity Price Risk
As of December 31, 2019, we held shares of Immunomedics common stock. The fair value of the common stock
fluctuates based on changes in the stock price of Immunomedics. These shares were acquired in connection with a
strategic transaction in 2017. Based on our shares of Immunomedics common stock held as of December 31, 2019, a
hypothetical decrease of 10% in the price of Immunomedics common stock would reduce the fair value of the investment
and, accordingly, increase our net loss by approximately $16.4 million.
Foreign Currency Risk
Most of our revenues and expenses are denominated in U.S. dollars and as a result, we have not experienced
significant foreign currency transaction gains and losses to date. Our commercial sales in Canada are denominated in
Canadian Dollars. We also had other transactions denominated in foreign currencies during the year ended December 31,
2019, primarily related to contract manufacturing and ex-U.S. clinical trial activities, and we expect to continue to do so.
Our royalties from Takeda are derived from their sales of ADCETRIS in multiple countries and in multiple currencies
that are converted into U.S. dollars for purposes of determining the royalty owed to us. Our primary exposure is to
fluctuations in the Euro, British Pound, Canadian Dollar and Swiss Franc. We do not anticipate that foreign currency
transaction gains or losses will be significant at our current level of operations. However, transaction gains or losses may
become significant in the future as we continue to expand our operations internationally. We have not engaged in foreign
currency hedging to date; however, we may do so in the future.
90
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
92
94
95
96
97
98
91
To the Board of Directors and Stockholders of
Seattle Genetics, Inc.
Report of Independent Registered Public Accounting Firm
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Seattle Genetics, Inc. and its subsidiaries (the “Company”) as of
December 31, 2019 and 2018, and the related consolidated statements of comprehensive loss, stockholders’ equity and cash flows for
each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the
“consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31,
2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in
2019 and the manner in which it accounts for revenue from contracts with customers and the manner in which it accounts for
investments in equity securities in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's
Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
92
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Government-mandated rebates - Medicaid
As described in Note 2 to the consolidated financial statements, the Company records product sales net of estimated government-
mandated rebates and chargebacks, distribution fees, estimated product returns and other deductions. Accruals are established for these
deductions, and actual amounts are offset against applicable accruals. As disclosed by management, amounts accrued for rebates and
chargebacks as of December 31, 2019 are $38.1 million, with the most significant portion of the accrual related to Medicaid rebates.
Management estimates Medicaid rebates using the expected value approach, based on a variety of factors, including payor mix and
experience to-date. Management also reviews historical rebate information to further refine these estimates.
The principal considerations for our determination that performing procedures relating to government-mandated rebates - Medicaid, is
a critical audit matter are there was significant judgment by management when developing the rebate estimate, including significant
assumptions related to payor mix and estimated purchases covered by the various state Medicaid programs. This led to a high degree
of auditor judgment, subjectivity, and effort in performing procedures and evaluating the audit evidence obtained relating to those
assumptions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Medicaid
rebate accrual, including controls over the assumptions related to payor mix and estimated purchases covered by the various state
Medicaid programs. These procedures also included, among others, testing management’s process for developing the rebate estimate;
evaluating the appropriateness of the approach; testing the completeness, accuracy and relevance of data used in developing the
estimate; and evaluating the significant assumptions used by management. Evaluating management’s assumptions related to payor mix
and estimated purchases covered by the various state Medicaid programs involved evaluating whether the assumptions used were
reasonable considering historical covered purchases and rebate processing times, expansion of state Medicaid programs, other industry
data, and our testing of actual rebate claims processed by the Company.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
February 6, 2020
We have served as the Company’s auditor since 1998.
93
Seattle Genetics, Inc.
Consolidated Balance Sheets
(In thousands, except par value)
December 31,
2019
2018
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
274,562
536,493
236,001
85,932
43,653
1,176,641
155,491
65,230
57,283
300,000
274,671
176,550
$ 2,205,866
$
78,186
332,486
146,281
53,239
43,403
653,595
103,820
—
49,194
300,000
274,671
122,049
$ 1,503,329
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
52,292
207,065
—
259,357
44,179
147,293
33,600
225,072
Long-term liabilities:
Operating lease liabilities, long-term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67,607
2,615
70,222
—
4,314
4,314
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized; none issued . . . . . . . . . . .
Common stock, $0.001 par value, 250,000 shares authorized; 171,994 shares issued
and outstanding at December 31, 2019 and 160,262 shares issued and outstanding
at December 31, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
172
3,359,124
229
(1,483,238)
1,876,287
$ 2,205,866
160
2,598,411
(40)
(1,324,588)
1,273,943
$ 1,503,329
The accompanying notes are an integral part of these consolidated financial statements.
94
Seattle Genetics, Inc.
Consolidated Statements of Comprehensive Loss
(In thousands, except per share amounts)
Years ended December 31,
2019
2018
2017
Revenues:
Net product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collaboration and license agreement revenues . . . . . . . . . . . . . . . . . .
Royalty revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
627,977
150,245
138,491
916,713
$
476,903
94,357
83,440
654,700
307,562
108,632
66,056
482,250
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of royalty revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment and other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share - basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computation of per share amounts - basic and diluted . . .
34,882
9,070
719,374
373,932
1,137,258
(220,545)
61,895
(158,650)
—
$
$
(158,650) $
(0.96) $
66,085
22,208
565,309
261,096
914,698
(259,998)
13,652
(246,346)
23,653
(222,693) $
(1.41) $
165,498
157,655
34,768
19,350
456,700
167,233
678,051
(195,801)
36,914
(158,887)
33,357
(125,530)
(0.88)
143,174
Comprehensive loss:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income:
Unrealized gain on securities available-for-sale net of tax provision
of $0, $0, and $33,357, respectively. . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation gain (loss). . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(158,650) $
(222,693) $
(125,530)
204
65
269
(158,381) $
293
(50)
243
(222,450) $
$
63,888
11
63,899
(61,631)
The accompanying notes are an integral part of these consolidated financial statements.
95
Seattle Genetics, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
Balances at December 31, 2016 . . .
Net loss . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . .
Issuance of common stock for
employee stock purchase plan . . .
Stock option exercises . . . . . . . . . . .
Restricted stock vested during the
period, net . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . .
Balances at December 31, 2017 . . .
Net loss . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . .
Cumulative effects of accounting
changes. . . . . . . . . . . . . . . . . . . . .
Issuance of common stock for
employee stock purchase plan . . .
Stock option exercises . . . . . . . . . . .
Restricted stock vested during the
period, net . . . . . . . . . . . . . . . . . . . .
Issuance of common stock. . . . . . . .
Share-based compensation . . . . . . .
Balances at December 31, 2018 . . .
Net loss . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . .
Issuance of common stock for
employee stock purchase plan . . .
Stock option exercises . . . . . . . . . . .
Restricted stock vested during the
period, net . . . . . . . . . . . . . . . . . . . .
Issuance of common stock. . . . . . . .
Share-based compensation . . . . . . .
Common stock
Shares
142,193
Amount
$
142
Additional
paid-in
capital
$1,701,048
—
—
172
1,494
536
—
144,395
—
—
—
206
1,800
592
13,269
—
160,262
—
—
189
2,432
897
8,214
—
—
—
—
1
1
—
144
—
—
—
—
2
1
13
—
—
—
7,303
34,007
(1)
63,802
1,806,159
—
—
—
9,190
45,973
(1)
658,229
78,861
160
2,598,411
—
—
—
3
1
8
—
—
—
11,600
77,548
(1)
548,683
122,883
Accumulated
other
comprehensive
income (loss)
$
Accumulated
deficit
Total
stockholders’
equity
(63) $(1,067,040) $ 634,087
(125,530)
—
63,899
(125,530)
—
63,899
—
—
—
—
—
—
—
63,836
—
243
—
(1,192,570)
(222,693)
—
7,303
34,008
—
63,802
677,569
(222,693)
243
(64,119)
90,675
26,556
—
—
—
—
—
—
—
—
—
(40)
—
269
—
(1,324,588)
(158,650)
—
—
—
—
—
—
—
—
—
—
9,190
45,975
—
658,242
78,861
1,273,943
(158,650)
269
11,600
77,551
—
548,691
—
122,883
$(1,483,238) $1,876,287
Balances at December 31, 2019 . . .
171,994
$
172
$3,359,124
$
229
The accompanying notes are an integral part of these consolidated financial statements.
96
Seattle Genetics, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash used by operating
activities
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of premiums, accretion of discounts, and (gains)
losses on debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of right-of-use-assets. . . . . . . . . . . . . . . . . . . . . . . . .
Gain on equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposals of property and equipment . . . . . . . . . . . . . . . . .
Income tax benefit on unrealized loss on available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . .
Lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used by operating activities. . . . . . . . . . . . . . . . . . .
Investing activities:
Purchases of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of securities . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of manufacturing facility . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of Cascadian Therapeutics, Inc., net of cash acquired . . .
Net cash provided (used) by investing activities . . . . . . . . . .
Financing activities:
Years ended December 31,
2019
2018
2017
$
(158,650) $
(222,693) $
(125,530)
127,349
23,774
(4,916)
9,740
(50,124)
1,853
78,861
26,032
(2,530)
—
(7,336)
—
—
—
—
(23,653)
(89,720)
(32,693)
2,459
(6,660)
(33,600)
47,451
(163,737)
(992,976)
786,000
—
(70,753)
—
—
(277,729)
(45,233)
6,739
(14,567)
—
(33,913)
34,757
(203,536)
(512,334)
398,722
140,352
(21,219)
—
(598,151)
(592,630)
63,802
24,269
497
—
(33,777)
—
(33,357)
—
(22,846)
8,146
(2,170)
—
(16,878)
18,944
(118,900)
(513,016)
653,200
60,056
(28,722)
(41,657)
—
129,861
Net proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options and employee stock
purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . .
$
548,691
658,242
—
89,151
637,842
196,376
78,186
274,562
$
55,165
713,407
(82,759)
160,945
78,186
$
41,311
41,311
52,272
108,673
160,945
The accompanying notes are an integral part of these consolidated financial statements.
97
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements
1. Organization and Business
Organization
We are a biotechnology company that develops and commercializes therapies targeting cancer. Our antibody-drug
conjugate, or ADC, technology utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents
directly to cancer cells. We are commercializing ADCETRIS®, or brentuximab vedotin, for the treatment of several types
of lymphoma, and PADCEVTM, or enfortumab vedotin-ejfv, for the treatment of certain adult patients with locally
advanced or metastatic urothelial cancer.
We are also advancing a pipeline of novel therapies for solid tumors and blood-related cancers designed to address
unmet medical needs and improve treatment outcomes for patients.
Capital requirements
To execute our growth plans, we may need to seek additional funding through public or private financings,
including debt or equity financings, and through other means, including collaborations and license agreements. If we
cannot maintain adequate funds, we may be required to borrow funds, delay, reduce the scope of or eliminate one or
more of our development programs. Additional financing may not be available when needed, or if available, we may not
be able to obtain financing on favorable terms.
2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying consolidated financial statements reflect the accounts of Seattle Genetics, Inc. and its wholly-
owned subsidiaries (collectively “Seattle Genetics,” “we,” “our,” or “us”). The consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles, or GAAP. All intercompany transactions and
balances have been eliminated. We acquired Cascadian Therapeutics, Inc., or Cascadian, in March 2018, as further described
in Note 5. Management has determined that we operate in one segment: the development and sale of pharmaceutical
products on our own behalf or in collaboration with others. Substantially all of our assets and revenues are related to
operations in the U.S.; however, we have multiple subsidiaries in foreign jurisdictions, including several subsidiaries in
Europe.
Use of estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates, assumptions, and
judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates. Estimates include those used for revenue recognition, valuation of investments, inventory
valuation, business combinations, accrued liabilities (including those related to the long-term incentive plans, clinical trials
and contingencies), stock option valuation, and valuation allowance for deferred tax assets.
Reclassifications
We reclassified certain prior year balances on our consolidated statements of cash flows to conform to current year
presentation. Those balances related to other long-term liabilities and accounts payable and accrued liabilities. These
reclassifications had no effect on our net cash used by operating activities or our consolidated statements of comprehensive
loss.
Cash and cash equivalents
We consider all highly liquid investments with maturities of three months or less at the date of acquisition to be cash
equivalents.
Non-cash activities
We had $11.1 million and $4.6 million of accrued capital expenditures as of December 31, 2019 and 2018,
respectively. Accrued capital expenditures have been treated as a non-cash investing activity and, accordingly, have not been
included in the consolidated statement of cash flows until such amounts have been paid in cash. During the year ended
December 31, 2019, we recorded $40.3 million of right-of-use assets in exchange for lease liabilities, which has been treated
as a non-cash operating activity. See Note 4 for additional information.
98
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
Investments
We hold certain equity securities that we acquired in connection with strategic agreements, which are reported at
estimated fair value. Changes in the fair value of equity securities are recorded in income or loss. We adopted Accounting
Standards Update, or ASU, “ASU 2016-01, Financial Instruments: Overall” on January 1, 2018, which addressed certain
aspects of recognition, measurement, presentation and disclosure of financial instruments, including that changes in the fair
value of equity securities be recorded in income or loss rather than accumulated other comprehensive income or loss in
stockholders’ equity. The cost of equity securities for purposes of computing gains and losses is based on the specific
identification method. We used the modified retrospective method transition option and recognized a $64.1 million
cumulative effect of initially applying this ASU as an adjustment to decrease the opening accumulated deficit at January 1,
2018. Accordingly, 2017 comparative information has not been adjusted and continues to be reported under previous
accounting standards. The implementation of this standard increased the volatility of net income or loss to the extent that we
continue to hold equity securities.
We invest our available cash primarily in debt securities. These debt securities are classified as available-for-sale,
which are reported at estimated fair value with unrealized gains and losses included in accumulated other comprehensive
income and loss in stockholders’ equity. Realized gains, realized losses and declines in the value of debt securities judged to
be other-than-temporary are included in investment and other income, net. The cost of debt securities for purposes of
computing realized and unrealized gains and losses is based on the specific identification method. Amortization of
premiums and accretion of discounts on debt securities are included in investment and other income, net. Interest and
dividends earned are included in investment and other income, net. We classify investments in debt securities maturing
within one year of the reporting date, or where management’s intent is to use the investments to fund current operations or to
make them available for current operations, as short-term investments.
If the estimated fair value of a debt security is below its carrying value, we evaluate whether it is more likely than not
that we will sell the security before its anticipated recovery in market value and whether evidence indicating that the cost of
the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. We also evaluate
whether or not we intend to sell the investment. If the impairment is considered to be other-than-temporary, the security is
written down to its estimated fair value. In addition, we consider whether credit losses exist for any securities. A credit loss
exists if the present value of cash flows expected to be collected is less than the amortized cost basis of the security. Other-
than-temporary declines in estimated fair value and credit losses are included in investment and other income, net.
Derivative financial instruments
We account for financial instruments as derivatives when the instrument includes an underlying and notional amount
or payment provision, an initial net investment, and a net settlement. Derivative financial instruments are measured at fair
value on the issuance date and are revalued on each subsequent balance sheet date. We use the Black-Scholes model using
observable market inputs to estimate the fair value of derivatives. The changes in estimated fair value are recognized as
current period income or loss. We do not hold derivative instruments for trading or speculative purposes and had no
derivative instruments outstanding as of December 31, 2019 or 2018.
Fair value of financial instruments
The recorded amounts of certain financial instruments, including cash and cash equivalents, interest receivable,
accounts receivable, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities.
Investments that are classified as available-for-sale are recorded at estimated fair value. The estimated fair value for
securities held is determined using quoted market prices, broker or dealer quotations, or alternative pricing sources with
reasonable levels of price transparency.
Leases
We adopted Accounting Standards Codification, or ASC, Topic 842--Leases on January 1, 2019, resulting in a change
to our accounting policy for leases. We recorded a liability to make lease payments and a right-of-use asset representing our
right to use the underlying assets for the applicable lease terms in our consolidated balance sheet. We used the modified
retrospective method transition option. Accordingly, 2018 and 2017 comparative information has not been adjusted and
continues to be reported under previous accounting standards.
99
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
We elected the "package of practical expedients", which permitted us not to reassess under the standard our prior
conclusion about lease identification, lease classification and initial direct cost. We also elected the practical expedient to not
separate lease and non-lease components for our real estate leases, and elected the short-term lease recognition exemption
for our short-term leases, which allows us not to recognize lease liabilities and right-of-use assets on our consolidated
balance sheet for leases with an original term of twelve months or less.
The standard had a material impact on our consolidated balance sheet, did not have an impact on our consolidated
statement of comprehensive loss, and there was no cumulative-effect adjustment to the opening accumulated deficit in the
period of adoption. See Note 4 for additional information.
We determine if an arrangement is a lease at inception date. All of our leases are classified as operating leases.
Operating lease liabilities and the corresponding right-of-use assets are recognized based on the present value of the future
minimum lease payments over the lease term at commencement date. The operating lease right-of-use asset also excludes
lease incentives and initial direct costs incurred. As our existing leases do not contain an implicit interest rate, we estimate
our incremental borrowing rate based on information available at commencement date in determining the present value of
future payments. We include options to extend the lease in our lease liability and right-of-use asset when it is reasonably
certain that we will exercise that option. Our lease agreements do not contain any material residual value guarantees or
material restrictive covenants. Variable lease cost primarily includes building operating expenses as charged to us by our
landlords.
Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For our short-
term leases, we recognize lease payments as an expense on a straight-line base over the lease term.
Inventories
We consider regulatory approval of product candidates to be uncertain. Accordingly, we charge manufacturing costs
to research and development expense until such time as a product has received regulatory approval for commercial sale.
Production costs for our marketed products are capitalized into inventory. Inventory that is deployed for clinical, research or
development use is charged to research and development expense when it is no longer available for commercial sales.
Production costs for our other product candidates continue to be charged to research and development expense.
We value our inventories at the lower of cost or market value. Cost is determined on a specific identification basis.
Inventory includes the cost of materials, third-party contract manufacturing and overhead associated with the production of
our commercialized products. In the event that we identify excess, obsolete or unsalable inventory, its value is written down
to net realizable value.
Property and equipment
Property and equipment are stated at cost. Land is not depreciated, while all other property and equipment are
depreciated using the straight-line method over the estimated useful lives of the assets, which are generally as follows:
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laboratory and manufacturing equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers, software and office equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years
30
5-15
5
3
Leasehold improvements are amortized over the shorter of the remaining term of the applicable lease or the useful
life of the asset. Gains and losses from the disposal of property and equipment are reflected in income or loss at the time of
disposition and have not been significant. Expenditures for additions and improvements to our facilities are capitalized and
expenditures for maintenance and repairs are charged to expense as incurred.
Business combinations, including acquired in-process research and development and goodwill
We account for business combinations using the acquisition method, recording the acquisition-date fair value of total
consideration over the acquisition-date fair value of net assets acquired as goodwill.
100
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
Fair value is typically estimated using an income approach based on the present value of future discounted cash
flows. The significant estimates in the discounted cash flow model primarily include the discount rate, and rates of future
revenue and expense growth and/or profitability of the acquired business. The discount rate considers the relevant risk
associated with business-specific characteristics and the uncertainty related to the ability to achieve the projected cash flows.
We may record adjustments to the fair values of assets acquired and liabilities assumed within the measurement period (up
to one year from the acquisition date).
In-process research and development assets are accounted for as indefinite-lived intangible assets and maintained on
the balance sheet until either the underlying project is completed or the asset becomes impaired. If the project is completed,
the carrying value of the related intangible asset is amortized to cost of sales over the remaining estimated life of the asset
beginning in the period in which the project is completed. If the asset becomes impaired or is abandoned, the carrying value
of the related intangible asset is written down to its fair value and an impairment charge is recorded in the period in which
the impairment occurs.
We evaluate indefinite-lived intangible assets and goodwill for impairment annually, as of October 1, or more
frequently when events or circumstances indicate that impairment may have occurred. As part of the impairment evaluation,
we may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely
than not that the fair value of the indefinite-lived intangible asset or the reporting unit (for goodwill) is less than its carrying
value, we then would proceed with the quantitative impairment test to compare the fair value to the carrying value and
record an impairment charge if the carrying value exceeds the fair value.
Acquisition-related costs, including banking, legal, accounting, valuation, and other similar costs, are expensed in the
period in which the costs are incurred. The results of operations of the acquired business are included in the consolidated
financial statements from the acquisition date.
Impairment of long-lived assets (other than acquired in-process research and development and goodwill)
We assess the impairment of long-lived assets, primarily property and equipment, whenever events or changes in
business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. When such events
occur, we determine whether there has been an impairment in value by comparing the asset’s carrying value with its fair
value, as measured by the anticipated undiscounted net cash flows of the asset. If an impairment in value exists, the asset is
written down to its estimated fair value. We have not recognized any impairment losses through December 31, 2019 as there
have been no events warranting an impairment analysis. Our long-lived assets are primarily located in the U.S.
Revenue recognition
We adopted ASC Topic 606--Revenue from Contracts with Customers on January 1, 2018, resulting in a change to
our accounting policy for revenue recognition. We used the modified retrospective method transition option and recognized
the cumulative effect of initially applying ASC Topic 606 as an adjustment to decrease the opening accumulated deficit at
January 1, 2018. Accordingly, 2017 comparative information has not been adjusted and continues to be reported under
previous accounting standards. See Note 3 for additional information.
Our revenues are comprised of ADCETRIS and PADCEV net product sales, amounts earned under our collaboration
and licensing agreements, and royalties. Revenue recognition occurs when a customer obtains control of promised goods or
services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. The
period between when we transfer control of promised goods or services and when we receive payment is expected to be one
year or less, and that expectation is consistent with our historical experience. As such, we do not adjust our revenues for the
effects of a significant financing component.
101
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
Net product sales
We sell ADCETRIS through a limited number of specialty distributors in the U.S. and Canada. We and our
collaboration partner Astellas jointly sell PADCEV through a limited number of specialty distributors in the U.S. Customers
order our products through these distributors, and we typically ship product directly to the customer. The delivery of our
products represents a single performance obligation for these transactions and we record product sales at the point in time
when title and risk of loss pass, which generally occurs upon delivery of the product to the customer. The transaction price
for product sales represents the amount we expect to receive, which is net of estimated government-mandated rebates and
chargebacks, distribution fees, estimated product returns, and other deductions. Accruals are established for these
deductions, and actual amounts incurred are offset against applicable accruals. We reflect these accruals as either a reduction
in the related account receivable from the distributor or as an accrued liability, depending on the nature of the sales
deduction. Sales deductions are based on management’s estimates that consider payor mix in target markets and experience
to-date. These estimates involve a substantial degree of judgment. We have applied a portfolio approach as a practical
expedient for estimating net product sales.
Government-mandated rebates and chargebacks: We have entered into a Medicaid Drug Rebate Agreement, or
MDRA, with the Centers for Medicare & Medicaid Services. This agreement provides for a rebate based on covered
purchases of our products. Medicaid rebates are invoiced to us by the various state Medicaid programs. We estimate
Medicaid rebates using the expected value approach, based on a variety of factors, including payor mix and our experience
to-date.
We have a Federal Supply Schedule, or FSS, agreement under which certain U.S. government purchasers receive a
discount on eligible purchases of our products. In addition, we have entered into a Pharmaceutical Pricing Agreement with
the Secretary of Health and Human Services, which enables certain entities that qualify for government pricing under the
Public Health Services Act, or PHS, to receive discounts on their qualified purchases of our products. Under these
agreements, distributors process a chargeback to us for the difference between wholesale acquisition cost and the applicable
discounted price. As a result of our direct-ship distribution model, we can identify the entities purchasing our products and
this information enables us to estimate expected chargebacks for FSS and PHS purchases based on the expected value of
each entity’s eligibility for the FSS and PHS programs. We also review historical rebate and chargeback information to
further refine these estimates.
Distribution fees, product returns and other deductions: Our distributors charge a volume-based fee for
distribution services that they perform for us. We allow for the return of product that is within 30 days of its expiration date
or that is damaged, or within 90 days past expiration date. We estimate product returns based on our experience to-date
using the expected value approach. In addition, we consider our direct-ship distribution model, our belief that product is not
typically held in the distribution channel, and the expected rapid use of the product by healthcare providers. We provide
financial assistance to qualifying patients that are underinsured or cannot cover the cost of commercial coinsurance amounts
through SeaGen Secure. SeaGen Secure is available to patients in the U.S. and its territories who meet various financial and
treatment need criteria. Estimated contributions for commercial coinsurance under SeaGen Secure are deducted from gross
sales and are based on an analysis of expected plan utilization. These estimates are adjusted as necessary to reflect our actual
experience.
102
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
Collaboration and license agreement revenues
We have collaboration and license agreements for our ADC technology with a number of biotechnology and
pharmaceutical companies. Under these agreements, which we have entered into in the ordinary course of business, we
typically receive or are entitled to receive upfront cash payments and progress- and sales-dependent milestones for the
achievement by our licensees of certain events, and annual maintenance fees and support fees for research and development
services and materials provided under the agreements. We also are entitled to receive royalties on net sales of any resulting
products incorporating our technology. Our licensees are solely responsible for research, product development,
manufacturing and commercialization of any product candidates under these collaborations, which includes the achievement
of the potential milestones. Since we do not take a substantive role or control the research, development or
commercialization of any products generated by our licensees, we are not able to reasonably estimate when, if at all, any
potential future milestone payments or royalties may be payable to us by our licensees. As such, the potential future
milestone payments associated with our collaboration and license agreements involve a substantial degree of uncertainty and
risk that they may never be received. In the case of our ADCETRIS collaboration with Takeda Pharmaceutical Company
Limited, or Takeda, we may be involved in certain development activities; however, the achievement of milestone events
under the agreement is primarily based on activities undertaken by Takeda.
Collaboration and license agreements are initially evaluated as to whether the intellectual property licenses granted by
us represent distinct performance obligations. If they are determined to be distinct, the value of the intellectual property
licenses would be recognized up-front while the research and development service fees would be recognized as the
performance obligations are satisfied. Variable consideration is assessed at each reporting period as to whether it is not
subject to future reversal of cumulative revenue and, therefore, should be included in the transaction price. Assessing the
recognition of variable consideration requires significant judgment. If a contract includes a fixed or minimum amount of
research and development support, this also would be included in the transaction price. Changes to collaboration and license
agreements, such as the extensions of the research term or increasing the number of targets or technology covered under an
existing agreement, are assessed for whether they represent a modification or should be accounted for as a new contract.
We have concluded that the license of intellectual property in certain collaboration and license agreements is not
distinct from the perspective of our customers at the time of initial transfer, since we often do not license intellectual
property without related technology transfer and research and development support services. Such evaluation requires
significant judgment since it is made from the customer's perspective. Our performance obligations under our collaborations
may include such things as providing intellectual property licenses, performing technology transfer, performing research and
development consulting services, providing reagents, ADCs, and other materials, and notifying the customer of any
enhancements to licensed technology or new technology that we discover, among others. We determined our performance
obligations under certain collaboration and license agreements as evaluated at contract inception were not distinct and
represented a single performance obligation. For those agreements, revenue is recognized using a proportional performance
model, representing the transfer of goods or services as activities are performed over the term of the agreement. Upfront
payments are also amortized to revenue over the performance period. Upfront payment contract liabilities resulting from our
collaborations do not represent a financing component as the payment is not financing the transfer of goods or services, and
the technology underlying the licenses granted reflects research and development expenses already incurred by us.
When no performance obligations are required of us, or following the completion of the performance obligation
period, such amounts are recognized upon transfer of control of the goods or services to the customer. Generally, all
amounts received or due other than sales-based milestones and royalties are classified as collaboration and license
agreement revenues. Sales-based milestones and royalties are recognized as royalty revenue in the period the related sale
occurred.
We generally invoice our collaborators and licensees on a monthly or quarterly basis, or upon the completion of the
effort or achievement of a milestone, based on the terms of each agreement. Deferred revenue arises from amounts received
in advance of the culmination of the earnings process and is recognized as revenue in future periods as performance
obligations are satisfied. Deferred revenue expected to be recognized within the next twelve months is classified as a current
liability.
Royalty revenues and cost of royalty revenues
Royalty revenues primarily reflect amounts earned under the ADCETRIS collaboration with Takeda. These royalties
include commercial sales-based milestones and sales royalties that relate predominantly to the license of intellectual
103
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
property. Sales royalties are based on a percentage of Takeda’s net sales of ADCETRIS, with rates that range from the mid-
teens to the mid-twenties based on annual net sales tiers. Takeda bears a portion of third-party royalty costs owed on its sales
of ADCETRIS. This amount is included in royalty revenues. Cost of royalty revenues reflects amounts owed to our third-
party licensors related to Takeda’s sales of ADCETRIS. These amounts are recognized in the period in which the related
sales by Takeda occur. Royalty revenues also reflect amounts from Genentech earned on net sales of Polivy.
Research and development expenses
Research and development, or R&D, expenses consist of salaries, benefits and other headcount-related costs of our
R&D staff, preclinical activities, clinical trials and related manufacturing costs, lab supplies, contract and outside service
fees and facilities and overhead expenses for research, development and preclinical studies focused on drug discovery,
development and testing. R&D activities are expensed as incurred.
Clinical trial expenses are a significant component of research and development expenses, and we outsource a
significant portion of these costs to third parties. Third-party clinical trial expenses include investigator fees, site costs,
clinical research organization costs, and costs for central laboratory testing and data management. Costs associated with
activities performed under co-development collaborations are reflected in R&D expense. In-licensing fees, milestones,
maintenance fees and other costs to acquire technologies utilized in R&D for product candidates that have not yet received
regulatory approval and that are not expected to have alternative future use are expensed when incurred. Non-refundable
advance payments for goods or services that will be used or rendered for future R&D activities are capitalized and
recognized as expense as the related goods are delivered or the related services are performed. This results in the temporary
deferral of recording expense for amounts incurred for research and development activities from the time payments are
made until the time goods or services are provided.
Advertising
Advertising costs are expensed as incurred. We incurred $33.5 million, $26.6 million, and $13.8 million in
advertising expenses during 2019, 2018, and 2017, respectively.
Concentration of credit risk
Cash, cash equivalents and investments are invested in accordance with our investment policy. The policy includes
guidelines for the investment of cash reserves and is reviewed periodically to minimize credit risk. Most of our investments
are in U.S. Treasury securities and are not federally insured. We have accounts receivable from the sale of our products from
a small number of distributors, and from our collaborators. We do not require collateral on amounts due from our
distributors or our collaborators and are therefore subject to credit risk. We have not experienced any significant credit
losses to date as a result of credit risk concentration and do not consider an allowance for doubtful accounts to be necessary.
Major customers
We sell our products through a limited number of distributors. Certain of these distributors, together with entities
under their common control, each individually accounted for greater than 10% of total revenues and greater than 10% of
accounts receivable as noted below. In addition, one of our collaborators accounted for greater than 10% of total revenues
and accounts receivable as noted below. Revenues generated outside the U.S., as determined by customer location, were less
than 10% of total revenues for all years presented.
The following table presents each major distributor or collaborator that comprised more than 10% of total revenue:
Distributor A
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributor B
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributor C
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Takeda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26%
21%
18%
27%
28%
22%
20%
21%
23%
19%
18%
29%
Years ended December 31,
2019
2018
2017
104
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table presents each major distributor or collaborator that accounted for more than 10% of accounts
receivable:
December 31,
2019
2018
Distributor A
Distributor B
Distributor C
Takeda
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24%
19%
16%
33%
32%
21%
23%
20%
Major suppliers
The use of a relatively small number of contract manufacturers to supply drug necessary for our commercial
operations and clinical trials creates a concentration of risk for us. We rely on Astellas to supply PADCEV for commercial
sales and for our clinical trials, and Astellas oversees the manufacturing supply chain for PADCEV. While primarily one
source of supply is utilized for certain components of ADCETRIS, PADCEV, and each of our product candidates, other
sources are available should we need to change suppliers. We also endeavor to maintain reasonable levels of drug supply for
our use. A change in suppliers, however, could cause a delay in delivery of drug which could result in the interruption of
commercial operations or clinical trials. Such an event would adversely affect our business.
Income taxes
We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the
differences are expected to reverse. We have provided a valuation allowance against our deferred tax assets for all periods
presented. A valuation allowance is recorded when it is more likely than not that the net deferred tax asset will not be
realized. We follow the guidance related to accounting for uncertainty in income taxes, which requires the recognition of an
uncertain tax position when it is more likely than not to be sustainable upon audit by the applicable taxing authority.
Share-based compensation
We use the graded-vesting attribution method for recognizing compensation expense for our stock options and
restricted stock units, or RSUs. Compensation expense is recognized over the requisite service periods on awards ultimately
expected to vest and reduced for forfeitures that are estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. For performance-based stock options and RSUs, we record
compensation expense over the estimated service period once the achievement of the performance-based milestone is
considered probable. At each reporting date, we assess whether achievement of a milestone is considered probable, and if so,
record compensation expense based on the portion of the service period elapsed to date with respect to that milestone, with a
cumulative catch-up, net of estimated forfeitures. We will recognize remaining compensation expense with respect to a
milestone, if any, over the remaining estimated service period.
Long-term incentive plans
We have established Long-Term Incentive Plans, or LTIPs. The LTIPs provide eligible employees with the
opportunity to receive performance-based incentive compensation, which may be comprised of cash, stock options, and/or
RSUs. The payment of cash and the grant and/or vesting of equity are contingent upon the achievement of pre-determined
regulatory milestones. We record compensation expense over the estimated service period for each milestone subject to the
achievement of the milestone being considered probable in accordance with the provisions of ASC Topic 450--
Contingencies. At each reporting date, we assess whether achievement of a milestone is considered probable and, if so,
record compensation expense based on the portion of the service period elapsed to date with respect to that milestone, with a
cumulative catch-up, net of estimated forfeitures. We recognize compensation expense with respect to a milestone over the
remaining estimated service period.
The total estimate of unrecognized compensation expense could change in the future for several reasons, including
the addition or termination of employees, the recognition of LTIP compensation expense, or the addition, termination, or
modification of an LTIP.
105
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
Comprehensive loss
Comprehensive loss is the change in stockholders’ equity from transactions and other events and circumstances other
than those resulting from investments by stockholders and distributions to stockholders. Our comprehensive loss is
comprised of net loss, unrealized gains and losses on available-for-sale investments prior to the adoption of ASU 2016-01 in
2018, and foreign currency translation adjustments, net of any applicable income taxes.
Loss contingencies
We are involved in various legal proceedings in the normal course of business. A loss contingency is recorded if it is
probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably
estimated. We evaluate, among other factors, the probability of an unfavorable outcome and our ability to make a reasonable
estimate and the amount of the ultimate loss. Loss contingencies that are determined to be reasonably possible, but not
probable, are disclosed but not recorded. Legal fees incurred as a result of our involvement in legal procedures are expensed
as incurred.
Certain risks and uncertainties
Our revenues are derived from net product sales, royalties, and from collaboration and license agreements. Our
products are subject to regulation by the FDA in the U.S. and other regulatory agencies outside the U.S. as well as
competition by other pharmaceutical companies. Our collaboration and license agreement revenues are derived from a
relatively small number of agreements. Each of these agreements can be terminated by our collaborators at their discretion.
We are also subject to risks common to companies in the pharmaceutical industry, including risks and uncertainties related
to commercial success and acceptance of our products and our potential future products by patients, physicians and payers,
competition from other products, regulatory approvals, regulatory requirements, business combinations and product or
product candidate acquisition and in-licensing transactions, and protection of intellectual property. Also, drug development
is a lengthy process characterized by a relatively low rate of success. We may commit substantial resources toward
developing product candidates that never result in further development, achieve regulatory approvals or achieve commercial
success. Likewise, we have committed and expect to continue to commit substantial resources towards additional clinical
development of our products in an effort to continue to expand our products' labeled indications of use, and there can be no
assurance that we and/or our partners will obtain and maintain the necessary regulatory approvals to market our products for
any additional indications.
Guarantees
In the normal course of business, we indemnify our directors, certain employees and other parties, including
distributors, collaboration partners, lessors and other parties that perform certain work on behalf of, or for us to take licenses
to our technologies. We have agreed to hold these parties harmless against losses arising from our breach of representations
or covenants, intellectual property infringement or other claims made against these parties in performance of their work with
us. These agreements typically limit the time within which the party may seek indemnification by us and the amount of the
claim. It is not possible to prospectively determine the maximum potential amount of liability under these indemnification
agreements. Further, each potential claim would be based on the unique facts and circumstances of the claim and the
particular provisions of each agreement.
Net loss per share
Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common
shares outstanding during the period. We excluded all RSUs and options from the per share calculations as such securities
were anti-dilutive for all periods presented. The following table presents the weighted average number of shares that have
been excluded:
(in thousands)
Stock options and RSUs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,774
2019
2018
13,439
2017
13,592
Years ended December 31,
106
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
Recent accounting pronouncements not yet adopted
In June 2016, Financial Accounting Standards Board, or FASB, issued “ASU 2016-13, Financial Instruments: Credit
Losses,” as clarified in ASU 2019-04 and ASU 2019-05. The objective of the standard is to provide information about
expected credit losses on financial instruments at each reporting date and to change how other-than-temporary impairments
on investment securities are recorded. The standard will become effective for us beginning on January 1, 2020. We do not
anticipate the adoption of this ASU to have a material impact on our financial condition, results of operations, cash flows,
and financial statement disclosures.
In August 2018, FASB issued “ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract.” The objective of the standard is to align the requirements for
capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use software. The standard will become effective for
us beginning on January 1, 2020. We do not anticipate the adoption of this ASU to have a material impact on our financial
condition, results of operations, cash flows, and financial statement disclosures.
In November 2018, FASB issued “ASU 2018-18, Clarifying the Interaction between Topic 808 and Topic 606.” The
objective of the standard is to clarify the interaction between ASC Topic 808--Collaborative Arrangements and ASC Topic
606--Revenue from Contracts with Customers. Currently, ASC Topic 808 does not provide comprehensive recognition or
measurement guidance for collaborative arrangements, and the accounting for those arrangements is often based on an
analogy to other accounting literature or an accounting policy election. Similarly, aspects of ASC Topic 606 have resulted in
uncertainty in practice about the effect of the revenue standard on the accounting for collaborative arrangements. The
standard will become effective for us beginning on January 1, 2020. We do not anticipate the adoption of this ASU to have a
material impact on our financial condition, results of operations, cash flows, and financial statement disclosures.
In December 2019, the FASB issued “ASU 2019-12, Simplifying the Accounting for Income Taxes.” The objective of
the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC Topic 740-- Income Taxes and
clarifying existing guidance to facilitate consistent application. The standard will become effective for us beginning on
January 1, 2021. We are currently evaluating the new standard to determine the potential impact on our financial condition,
results of operations, cash flows, and financial statement disclosures.
3. Revenue from contracts with customers
On January 1, 2018, we adopted ASC Topic 606 applying the modified retrospective method transition option to
all contracts that were not completed as of January 1, 2018. We recorded the following cumulative effect as of January 1,
2018, itemized here and further described below:
(dollars in thousands)
Collaboration and license agreement revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of royalty revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit – (debit) credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
10,281
22,230
(5,955)
26,556
The cumulative effect adjustment recorded above resulted in an increase to accounts receivable, net for $16.3
million, an increase to prepaid expenses and other current assets for $12.7 million, and an increase to current portion of
deferred revenue for $2.4 million as of January 1, 2018.
Impact to net product sales
ASC Topic 606 did not generally change the practice under which we recognize revenue from net product sales.
Impact to collaboration and license agreement revenues
The achievement of development milestones under our collaborations is recorded during the period their
achievement becomes most likely, which may result in earlier recognition as compared to previous accounting principles.
107
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
The Takeda ADCETRIS collaboration was the only ongoing collaboration that was significantly impacted by the
adoption of ASC Topic 606. The Takeda ADCETRIS collaboration provides for the global co-development of
ADCETRIS and the commercialization of ADCETRIS by Takeda in its territory. Under this collaboration, we have
commercial rights for ADCETRIS in the U.S. and its territories and in Canada, and Takeda has commercial rights in the
rest of the world and pays us a royalty. Our performance obligations under the collaboration included providing
intellectual property licenses, performing technology transfer, providing research and development services for co-
funded activities, allowing access to data, submitting regulatory filings and other information for co-funded activities,
and providing manufacturing support including supply of ADCETRIS drug components, finished ADCETRIS product,
and know-how. We determined that our performance obligations under the collaboration as evaluated at contract
inception were not distinct and represented a single performance obligation, and that the obligations for goods and
services provided would be completed over the performance period of the agreement. Any payments received from
Takeda, including the upfront payment, progress-dependent development and regulatory milestone payments,
reimbursement for drug supplied, and net development cost reimbursement payments, were recognized as revenue upon
transfer of control of the goods or services over the ten-year development period (December 2009 through November
2019) of the collaboration, within collaboration and license agreement revenues. Updates to the Takeda ADCETRIS
collaboration transaction price for variable consideration, such as approval of the co-development annual budget and
binding production forecast, were considered at each reporting period as to whether they are not subject to significant
future reversal. Shipments of drug supply that occurred after the expiration of the drug supply agreement in September
2018 were recorded as a separate performance obligation.
Impact to royalty revenues
Commercial sales-based milestones and sales royalties, primarily earned under the Takeda ADCETRIS
collaboration, are recorded in the period of the related sales by Takeda, based on estimates if actual information is not yet
available, rather than recording them as reported by the customer one quarter in arrears under previous accounting
guidance. Takeda also bears a portion of third-party royalty costs owed on its sales of ADCETRIS which is included in
royalty revenues.
Disaggregation of total revenues
We have two marketed products, ADCETRIS and PADCEV. Substantially all of our product revenues during the
years ended December 31, 2019, 2018, and 2017 were for ADCETRIS and recorded in the U.S. Substantially all of our
royalty revenues are from our collaboration with Takeda. Collaboration and license agreement revenues by collaborator
are summarized as follows:
(dollars in thousands)
Takeda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
108,175
42,070
Collaboration and license agreement revenues . . . . . . . . . . . . . . . . . . $
150,245
2018
2017
$
$
58,605
35,752
94,357
$
$
74,872
33,760
108,632
Years ended December 31,
In November 2019, we entered into a license agreement with BeiGene, Ltd., or BeiGene, for one of our preclinical
product candidates. Under the license agreement, we granted BeiGene development and commercialization rights to the
product candidate in certain territories. Pursuant to the agreement, we received an upfront payment of $20.0 million
which was recognized as collaboration and license agreement revenues during the year ended December 31, 2019 as we
determined that our performance obligation under the agreement was distinct and was satisfied. We are entitled to
receive potential future milestones tied to clinical and regulatory success and royalties for potential sales of the product
candidate. In addition, the parties have agreed to co-fund certain future development costs. BeiGene is a related party
due to a common shareholder that has a representative or representatives serving on each company's respective Board of
Directors.
Contract balances and performance obligations
We had no contract assets or liabilities as of December 31, 2019, and we had no contract assets as of
December 31, 2018. Contract liabilities as of December 31, 2018 consisted of deferred revenue primarily related to our
remaining performance obligations under the Takeda ADCETRIS collaboration. Deferred revenue is presented as a line
item on the consolidated balance sheet.
108
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
We recognized collaboration and license agreement revenues of $33.6 million and $34.5 million during the years
ended December 31, 2019 and 2018, respectively, that were included in deferred revenue as of the beginning of the
respective years. For the year ended December 31, 2019, collaboration and license agreement revenues from Takeda also
included $37.5 million for two regulatory milestones achieved, which were related to additional approvals of
ADCETRIS in frontline Hodgkin lymphoma received by Takeda.
Impacts to December 31, 2018 consolidated financial statements
(dollars in thousands)
Consolidated Balance Sheet data:
As reported
Adjustments
Balances
without the
adoption of
Topic 606
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
146,281
$
43,403
33,600
(1,324,588)
(18,501) $
—
127,780
43,403
—
(18,501)
33,600
(1,343,089)
Consolidated Statements of Comprehensive Loss data:
Collaboration and license agreement revenues . . . . . . . . . . . . . . . . . .
Royalty revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of royalty revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
94,357
$
83,440
654,700
22,208
(222,693)
10,282
(1,634)
8,648
592
8,056
$
104,639
81,806
663,348
22,800
(214,637)
4. Operating leases
We have operating leases for our office and laboratory facilities with terms that expire from 2021 through 2029.
Upon adoption of ASC Topic 842--Leases on January 1, 2019, we recognized $35.2 million of operating lease liabilities
and $34.7 million of operating lease right-of-use assets for our existing leases on our consolidated balance sheet. As of
December 31, 2019, our operating lease liabilities and operating lease right-of-use assets were $77.1 million and $65.2
million, respectively. The increases in operating lease liabilities and operating lease right-of-use assets during 2019
reflected new facilities leases that commenced during the period. All of our significant leases include options for us to
extend the lease term. None of our options to extend the rental term of any existing leases were considered reasonably
certain as of December 31, 2019.
Supplemental operating lease information was as follows:
(dollars in thousands)
Operating lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable lease cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for amounts included in measurement of lease liabilities . . . . . . . . . . . . . . . . . . . . . .
$
$
$
2019
13,590
2,958
16,548
10,197
Year ended December 31,
Rent expense attributable to non-cancelable operating leases totaled approximately $14.6 million, $8.7 million,
and $6.6 million for the years ended December 31, 2019, 2018, and 2017, respectively. As of December 31, 2019, the
weighted average remaining lease term for our operating leases was 7.04 years, and the weighted average discount rate
for our operating leases was 5.4%.
109
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2019, future minimum lease payments under the lease agreements were as follows:
(dollars in thousands)
Years ending December 31,
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future minimum lease payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: imputed interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
13,341
14,291
13,855
13,757
9,866
28,929
94,039
(16,987)
77,052
Operating lease liabilities were recorded in the following captions of our consolidated balance sheet as follows:
(dollars in thousands)
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities, long-term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2019
9,445
$
67,607
77,052
$
5. Acquisition of Cascadian
In March 2018, we acquired all issued and outstanding shares of Cascadian, a clinical-stage biopharmaceutical
company based in Seattle, Washington, for $10.00 per share in cash, or approximately $614.1 million, which was funded
by an underwritten public offering as further described in Note 15. The acquisition of Cascadian expanded our late-stage
pipeline, providing global rights to tucatinib.
The acquisition of Cascadian was accounted for as a business combination. During the year ended December 31,
2018, we incurred $8.5 million in acquisition-related costs, which were recorded in selling, general and administrative
expenses.
The purchase price allocation of the assets acquired and liabilities assumed based on their estimated fair values as
of the acquisition date was as follows:
(dollars in thousands)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Short-term and long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
15,919
66,491
2,215
566
300,000
274,671
(22,139)
(23,653)
614,070
The amount allocated to in-process research and development was based on the present value of future discounted
cash flows, which was based on significant estimates. These estimates included the number of potential patients and
market price of a future tucatinib-based regimen, costs required to conduct clinical trials and potentially commercialize
tucatinib, as well as estimates for probability of success and the discount rate. Goodwill primarily was attributed to
tucatinib’s potential application in other treatment settings, intangible assets that do not qualify for separate recognition,
and synergies with our existing pipeline and capabilities. Goodwill is not expected to be deductible for tax purposes.
110
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
The financial information in the table below summarizes the combined results of operations of Seattle Genetics
and Cascadian on a pro forma basis, for the period in which the acquisition occurred and the comparative period as
though the companies had been combined as of January 1, 2017. Pro forma adjustments have been made primarily
related to acquisition-related transaction costs and employee costs. The following unaudited pro forma financial
information is presented for informational purposes only and is not necessarily indicative of the results of operations that
would have been achieved had the acquisition occurred as of January 1, 2017 or indicative of future results:
(dollars in thousands)
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years ended December 31,
2018
654,700
(251,626)
$
2017
482,250
(212,364)
6. Fair Value
We have certain assets that are measured at fair value on a recurring basis according to a fair value hierarchy that
prioritizes the inputs, assumptions and valuation techniques used to measure fair value. The three levels of the fair value
hierarchy are:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are
observable, either directly or indirectly.
Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and
unobservable.
The determination of a financial instrument’s level within the fair value hierarchy is based on an assessment of the
lowest level of any input that is significant to the fair value measurement. We consider observable data to be market data
which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by
independent sources that are actively involved in the relevant market.
The fair value hierarchy of assets carried at fair value and measured on a recurring basis was as follows:
(dollars in thousands)
December 31, 2019
Fair value measurement using:
Quoted prices
in active
markets for
identical
assets
(Level 1)
Other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total
Short-term investments—U.S. Treasury securities. . . $
Long-term investments—U.S. Treasury securities. . .
Other non-current assets—equity securities . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
December 31, 2018
Short-term investments—U.S. Treasury securities. . . $
Long-term investments—U.S. Treasury securities. . .
Other non-current assets—equity securities . . . . . . . .
$
$
$
536,493
57,283
163,936
757,712
332,486
49,194
113,812
— $
—
—
— $
— $
—
—
536,493
57,283
163,936
— $
757,712
— $
— $
332,486
—
—
—
—
49,194
113,812
495,492
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
495,492
$
— $
— $
Our equity securities primarily comprised common stock of Immunomedics, purchased in connection with a
strategic collaboration. The collaboration agreement with Immunomedics was terminated in 2017.
111
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
Our debt securities consisted of the following:
(dollars in thousands)
December 31, 2019
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . .
Contractual maturities (at date of purchase):
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . .
Due in one to two years . . . . . . . . . . . . . . . . . . . . . . .
$
$
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
December 31, 2018
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . .
Contractual maturities (at date of purchase):
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . .
Due in one to two years . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
593,565
$
236
$
(25) $
593,776
466,439
127,126
593,565
$
$
466,547
127,229
593,776
381,673
$
133
$
(126) $
381,680
246,440
135,233
381,673
$
$
246,402
135,278
381,680
7. Investment and Other Income, Net
Investment and other income, net consisted of the following:
(dollars in thousands)
Gain on equity securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment and other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment and other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
Years ended December 31,
2019
2018
2017
50,124
11,771
61,895
$
$
7,336
6,316
13,652
$
$
33,777
3,137
36,914
Gain on equity securities includes the realized and unrealized holding gains and losses on our equity securities.
Our equity securities are described in more detail in Note 6. As disclosed in Note 2, we adopted “ASU 2016-01,
Financial Instruments: Overall” on January 1, 2018.
During 2019, the gain on equity securities was driven by net unrealized gains on equity securities held at
December 31, 2019 of $50.1 million. During 2018, the gain on equity securities was driven by the realized gain from
selling a portion of our Immunomedics common stock holding for $91.9 million, offset in part by net unrealized losses
on equity securities still held at December 31, 2018 of $20.9 million. During 2017, the gain on equity securities related
to changes in the fair value of an Immunomedics warrant derivative prior to the warrant's exercise by us in December
2017.
8. Inventories
Inventories consisted of the following:
(dollars in thousands)
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
December 31,
2019
2018
78,285
7,647
85,932
$
$
43,986
9,253
53,239
In 2018, we recorded a charge to cost of sales for $18.1 million related to in-process ADCETRIS inventory that
did not meet our manufacturing specifications. This inventory adjustment did not impact availability of product supply
required to meet demand for ADCETRIS.
112
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
9. Property and equipment
Property and equipment consisted of the following:
(dollars in thousands)
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laboratory and manufacturing equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers, software and office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Less: accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
December 31,
2019
154,606
68,226
23,341
37,154
11,758
4,771
299,856
(144,365)
155,491
$
$
2018
101,743
62,947
23,341
25,159
7,043
4,771
225,004
(121,184)
103,820
Depreciation and amortization expenses on property and equipment totaled $23.8 million, $25.3 million, and
$23.5 million for the years ended December 31, 2019, 2018, and 2017, respectively. Leasehold improvements included
$62.2 million and $18.4 million of construction in process at December 31, 2019 and 2018, respectively.
10. Accrued liabilities
Accrued liabilities consisted of the following:
(dollars in thousands)
Employee compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clinical trial and related costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross-to-net deductions and third-party royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability, current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
December 31,
2019
2018
74,835
37,418
13,866
37,662
9,445
33,839
207,065
$
$
49,788
38,692
9,215
32,908
—
16,690
147,293
11. Income taxes
Our pre-tax loss by jurisdiction consisted of the following:
(dollars in thousands)
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Years ended December 31,
2019
(160,189) $
1,539
(158,650) $
2018
(226,626) $
(19,720)
(246,346) $
2017
(71,698)
(87,189)
(158,887)
113
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:
Statutory federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign rate differential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible asset basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Worthless stock deduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of the Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate, before impact in other comprehensive income . . . .
Impact in other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate, after impact in other comprehensive income . . . . .
Years ended December 31,
2019
2018
2017
(21.0)%
(11.0)
—
(2.0)
37.0
(9.0)
6.0
—
—
—
—
0.0 %
(21.0)%
(6.0)
(8.0)
(3.0)
44.0
(4.0)
—
(12.0)
—
(10.0)
—
(10.0)%
(35.0)%
(11.0)
14.0
(1.0)
(55.0)
(5.0)
—
—
72.0
(21.0)
21.0
0.0 %
We did not record any income tax expense or benefit due to a tax loss position in 2019. In 2018, we recognized a
deferred tax liability of $23.7 million on acquired intangible assets in connection with the acquisition of Cascadian. As a
result, we recorded an income tax benefit of $23.7 million for the release of valuation allowance on our existing U.S.
deferred tax assets as a result of the offset of deferred tax liabilities established for intangible assets from the acquisition.
In 2017, we recorded a deferred income tax benefit of $33.4 million due to unrealized gains on our common stock
investment in Immunomedics, which was offset by an income tax provision for the same amount in other comprehensive
income.
The Tax Cuts and Jobs Act, or the Act, was enacted on December 22, 2017, which reduced the U.S. federal
corporate tax rate from 35% to 21%, among other changes. This resulted in a $114.8 million reduction in our net deferred
tax assets as of December 31, 2017 to reflect the new statutory rate. The rate adjustment also resulted in a decrease in the
valuation allowance.
The foreign rate differential in the table above reflects the effect of operations in jurisdictions with tax rates that
differ from the rate in the U.S. The change in foreign rate differential impact on the effective tax rate is primarily due to
the decrease in the U.S. tax rate of 35% in 2017 to 21% in 2018 and 2019, and an increase in pre-tax earnings from our
operations in Europe and Canada. At December 31, 2019, unremitted earnings of our foreign subsidiaries, which were
insignificant, will be retained indefinitely by the foreign subsidiaries for continuing investment. If foreign earnings were
to be repatriated to the U.S., we could be subject to additional state income and withholding taxes.
114
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
Our net deferred tax assets consisted of the following:
(dollars in thousands)
Deferred tax assets:
$
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized research and development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets, net of valuation allowance . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability:
Right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized and unrealized gain on available-for-sale securities . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2019
2018
$
331,124
3,527
193,552
—
34,869
26,625
18,597
3,815
4,732
9,430
1,133
627,404
(536,316)
91,088
(17,125)
(50,725)
(20,064)
(3,174)
283,888
12,766
175,702
2,553
29,354
18,854
—
—
1,362
8,456
1,773
534,708
(477,834)
56,874
—
(48,819)
(8,055)
$
— $
—
Our deferred tax assets primarily consist of net operating loss (NOL) carryforwards, tax credit carryforwards,
share-based compensation, allowance and accruals, operating lease, inventory, and capitalized research and development
expense. Realization of deferred tax assets is dependent upon a number of factors, including future earnings, the timing
and amount of which is uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance.
At December 31, 2019, we had gross federal NOL carryforwards of $1.4 billion, of which $383.6 million may be carried
forward indefinitely and $1.0 billion of which expire from 2020 to 2038 if not utilized, gross state NOL carryforwards of
$547.0 million, gross foreign NOL carryforwards of $39.6 million and tax credit carryforwards of $217.6 million
expiring from 2020 to 2039.
Utilization of the NOL and tax credit carryforwards may be subject to a substantial annual limitation in the event
of a change in ownership as set forth in Section 382 of the Internal Revenue Code of 1986, as amended. We have
evaluated ownership changes through the year ended December 31, 2018 and believe that it is likely that utilization of its
NOLs would not be limited under Section 382 as of December 31, 2018. It is possible that there has been or may be a
change in ownership after this date, which would limit our ability to utilize our NOLs. Any limitation may result in the
expiration of the NOLs and tax credit carryforwards before utilization.
The valuation allowance increased by $58.5 million in 2019, increased by $113.3 million in 2018, and decreased
by $16.8 million in 2017, which was mostly related to the changes in our deferred tax asset balances. The 2019 increase
in the valuation allowance is primarily related to the current year loss, tax credits generated, and other activity. The 2018
increase in the valuation allowance included a $143.3 million increase related to the loss, tax credits and other activity in
2018, offset by a $23.7 million decrease for release of valuation allowance related to the deferred tax assets and
liabilities acquired from Cascadian and a $6.3 million decrease due to the adoption of ASC Topic 606. The decrease in
the valuation allowance in 2017 included the $114.8 million decrease to reflect the new statutory rate and the $33.4
million decrease related to the unrealized gain on the Immunomedics common stock investment recorded through other
comprehensive income, offset by the $70.9 million increase in connection with the adoption of ASU 2016-09 and a $60.5
million increase for the current year loss, tax credits and other activity.
115
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
The financial statement recognition of the benefit for a tax position is dependent upon the benefit being more
likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is
then measured and recognized at the largest amount that is greater than 50% likely of being realized upon ultimate
settlement. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(dollars in thousands)
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) related to prior year tax positions . . . . . . . . . . . . . . .
Increase related to current year tax positions . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Years ended December 31,
2019
2018
2017
20,706
—
3,312
24,018
$
$
18,172
108
2,426
20,706
$
$
16,023
(1,292)
3,441
18,172
We do not anticipate any significant changes to our unrecognized tax positions or benefits during the next twelve
months. Interest and penalties related to the settlement of uncertain tax positions, if any, will be reflected in income tax
expense. Tax years 2001 to 2019 remain subject to future examination for federal income taxes.
12. Collaboration and license agreements
We have collaboration and license agreements with a number of pharmaceutical and biotechnology companies.
Revenues recognized under these agreements are disclosed in Note 3.
These agreements generally may be terminated due to material and uncured breaches, insolvency of either party,
mutual written consent, unilateral decision of one or either party upon prior written notice, expiration of payment
obligations, cessation of development or commercialization of the products, and/or challenges to patents which are
subject to the related agreement. Each agreement is discussed in more detail in the following sections.
Takeda ADCETRIS collaboration
The Takeda ADCETRIS collaboration provides for the global co-development of ADCETRIS and the
commercialization of ADCETRIS by Takeda in its territory. We have commercial rights for ADCETRIS in the U.S. and
its territories and in Canada. Takeda has commercial rights in the rest of the world. Under the collaboration, we and
Takeda can each conduct development activities and equally co-fund the cost of certain mutually agreed development
activities. Costs associated with co-development activities are included in research and development expense.
We recognize payments received from Takeda, including progress-dependent development and regulatory
milestone payments, reimbursement for drug supplied, and net development cost reimbursement payments, as
collaboration and license agreement revenues upon transfer of control of the goods or services over the development
period. When the performance of development activities under the collaboration results in us making a reimbursement
payment to Takeda, that payment reduces collaboration and license agreement revenues. In addition, we recognize
royalty revenues, where royalties are based on a percentage of Takeda’s net sales of ADCETRIS in its licensed
territories, with percentages ranging from the mid-teens to the mid-twenties based on annual net sales tiers, and sales-
based milestones. Takeda bears a portion of third-party royalty costs owed on its sales of ADCETRIS, which is included
in royalty revenues.
Astellas PADCEV collaboration
We have a collaboration agreement with Agensys, Inc., which subsequently became an affiliate of Astellas, to
jointly research, develop and commercialize ADCs for the treatment of several types of cancer. The collaboration
encompasses combinations of our ADC technology with fully-human antibodies developed by Astellas to proprietary
cancer targets. Under this collaboration, we and Astellas are co-funding all development costs for PADCEV. We rely on
Astellas to supply PADCEV for commercial sales and for our clinical trials, and Astellas oversees the manufacturing
supply chain for PADCEV. Costs associated with co-development activities are included in research and development
expense and amounted to $76.8 million, $54.9 million, and $36.3 million for the years ended December 31, 2019, 2018,
and 2017, respectively.
116
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
In 2018, we and Astellas entered into a joint commercialization agreement to govern the global commercialization
of PADCEV:
•
In the U.S., we and Astellas jointly promote PADCEV. We record sales of PADCEV in the U.S. and are
responsible for all U.S. distribution activities. The companies each bear the costs of their own sales
organizations in the U.S., equally share certain costs associated with commercializing PADCEV in the U.S.,
and equally share in any profits realized in the U.S. Gross profit share payments owed to Astellas in the U.S.
are recorded in cost of sales.
• Outside the U.S., we have commercialization rights in all countries in North and South America, and Astellas
has commercialization rights in the rest of the world, including Europe, Asia, Australia and Africa. The
agreement is intended to provide that we and Astellas will effectively equally share in costs incurred and any
profits realized in all of these markets. Cost and profit sharing in Canada, the United Kingdom, Germany,
France, Spain and Italy will be based on product sales and costs of commercialization. In the remaining
markets, the commercializing party will bear costs and will pay the other party a royalty rate applied to net
sales of the product based on a rate intended to approximate an equal profit share for both parties.
Either party may opt out of co-development and profit-sharing under the collaboration agreement in return for
receiving milestones and royalties from the continuing party.
Genmab tisotumab vedotin collaboration
We have an agreement with Genmab to develop and commercialize ADCs for the treatment of several types of
cancer, under which we previously exercised a co-development option for tisotumab vedotin. We and Genmab will share
all future costs and profits for development and commercialization of tisotumab vedotin on an equal basis. Costs
associated with co-development activities are included in research and development expense and amounted $48.5
million, $33.8 million, and $6.8 million for the years ended December 31, 2019, 2018, and 2017, respectively.
We will be responsible for tisotumab vedotin commercialization activities in the U.S., Canada, and Mexico.
Genmab will be responsible for commercialization activities in all other territories.
Either party may opt out of co-development and profit-sharing under the collaboration agreement in return for
receiving milestones and royalties from the continuing party.
Other collaboration and license agreements
We have other collaboration and license agreements for our ADC technology with a number of biotechnology and
pharmaceutical companies. Under these agreements, which we have entered into in the ordinary course of business, we
have granted research and commercial licenses to use our technology, most often in conjunction with the licensee's
technology. In certain agreements, we also have agreed to conduct limited development activities and to provide other
materials, supplies and services to our licensees during a specified term of the agreement. We typically receive upfront
cash payments and progress- and sales-dependent milestones for the achievement by our licensees of certain events, and
annual maintenance fees and support fees for research and development services and materials provided under the
agreements. These amounts are recognized as revenue over the performance obligation period if the license is
determined to not be distinct from other goods and services provided, or, if there is no performance obligation, upon
transfer of control of the goods or services to the customer. We also are entitled to receive royalties on net sales of any
resulting products incorporating our ADC technology. Our licensees are solely responsible for research, product
development, manufacturing and commercialization of any product candidates under these agreements, which includes
the achievement of the potential milestones.
Our collaboration agreement with Unum Therapeutics to develop and commercialize novel antibody-coupled T-
cell receptor therapies for cancer was terminated in January 2020.
117
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
13. In-license agreements
We have in-licensed antibodies, targets and enabling technologies from pharmaceutical and biotechnology
companies and academic institutions for use in ADCETRIS, its pipeline programs and ADC technology. Under the terms
of two exclusive license agreements, we are required to pay royalties in the low single digits on net sales of ADCETRIS.
In addition, we owed royalties in the low single digits on net sales of ADCETRIS under the terms of other non-exclusive
licenses, which expired in 2018.
Under the terms of in-license agreements related to our pipeline programs, we would potentially owe
development, regulatory, and sales-based milestones, and royalties on net sales, as defined, of certain approved products.
14. Commitments and contingencies
Commitments. We have certain non-cancelable obligations under various agreements, including supply
agreements relating to the manufacture of ADCETRIS, PADCEV, and our product candidates that contain annual
minimum purchase commitments and other firm commitments when a binding forecast is provided. As of December 31,
2019, our future obligations related to supply and other agreements were as follows:
(dollars in thousands)
Years ending December 31,
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
93,225
44,236
41,160
25,695
24,828
27,488
256,632
Non-cancelable obligations under these agreements do not include payments that are contingent upon
achievement of certain progress-dependent milestones or royalties based on net sales of commercial products. These
amounts have been excluded from the table because the events triggering the obligations have not yet occurred.
See Note 4 for our future obligations related to operating leases as of December 31, 2019.
Contingencies.
On March 8, 2018, three purported stockholders of Cascadian filed a Verified Complaint to Compel Inspection of
Books and Records under 8 Del. C. §220 in the Delaware Court of Chancery against Cascadian, seeking to inspect books
and records in order to determine whether wrongdoing or mismanagement has taken place such that it would be
appropriate to file claims for breach of fiduciary duty, and to investigate the independence and disinterestedness of the
former Cascadian directors with respect to our acquisition of Cascadian. We filed our answer to this complaint on
March 28, 2018. On February 20, 2019, we entered into an agreement regarding production and confidentiality of books
and records with plaintiffs, pursuant to which we produced relevant books and records on April 22, 2019. As a result of
this lawsuit, we have incurred and may incur additional litigation expenses and may potentially incur indemnification
expenses in the future.
We are engaged in a dispute with Daiichi Sankyo Co. Ltd., or Daiichi Sankyo, regarding the ownership of certain
technology used by Daiichi Sankyo in its metastatic breast cancer drug fam-trastuzumab deruxtecan-nxki (Enhertu®),
among other product candidates. We contend that the linker and other ADC technology used in these drug candidates are
improvements to our ADC technology, the ownership of which we contend was assigned to us under the terms of a 2008
collaboration agreement between us and Daiichi Sankyo. On November 4, 2019, Daiichi Sankyo filed a declaratory
judgment action in the United States District Court for the District of Delaware alleging that we are not entitled to the
intellectual property rights under dispute. On November 12, 2019, we submitted an arbitration demand to the American
Arbitration Association seeking, among other remedies, a declaration that we are the owner of the intellectual property
rights under dispute, monetary damages and a running royalty. As a result of this dispute, we have incurred and will
continue to incur litigation expenses.
118
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
In addition, from time to time in the ordinary course of business we become involved in various lawsuits, claims
and proceedings relating to the conduct of our business, including those pertaining to the defense and enforcement of our
patent or other intellectual property rights and our contractual rights. These proceedings are costly and time consuming.
Additionally, 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.
15. Stockholders’ equity
In February 2018, we completed an underwritten public offering of 13,269,230 shares of our common stock at a
public offering price of $52.00 per share. The offering resulted in net proceeds to us of $658.2 million, after deducting
underwriting discounts, commissions, and other offering expenses. The primary use of the net proceeds was to fund the
acquisition of Cascadian.
In July 2019, we completed an underwritten public offering of 8,214,286 shares of our common stock at a public
offering price of $70.00 per share. The offering resulted in net proceeds to us of $548.7 million, after deducting
underwriting discounts, commissions, and other offering expenses. The primary use of the net proceeds was to fund our
ADCETRIS and PADCEV commercialization efforts and our research and development efforts, as well as general
corporate purposes, including working capital.
At December 31, 2019, shares of common stock reserved for future issuance are as follows:
(in thousands)
Stock options and RSUs outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares available for future grant under the 2007 Equity Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan shares available for future issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,169
4,072
1,194
18,435
16. Share-based compensation
2007 Equity Incentive Plan
Our 2007 Equity Incentive Plan, or the 2007 Plan, provides for the issuance of our common stock to employees,
including our officers, directors and consultants and affiliates. The 2007 Plan was amended and restated in 2018 to
reserve an additional 6,000,000 shares thereunder, such that an aggregate of 33,000,000 shares of our common stock
were authorized for issuance as of December 31, 2019, and to extend the term of the 2007 Plan through May 2028 unless
it is terminated earlier pursuant to its terms. Under the 2007 Plan, we may issue stock options (including incentive stock
options and nonstatutory stock options), restricted stock, RSUs, stock appreciation rights and other similar types of
awards. We have only issued options to purchase shares of common stock and RSUs under the 2007 Plan, including
options and RSUs with time-based or performance-based vesting requirements. Performance-based vesting occurs upon
achievement of pre-determined regulatory milestones, sales-based milestones, or market-based performance metrics.
Incentive stock options under the 2007 Plan may be granted only to our employees. The exercise price of an
incentive stock option or a nonstatutory stock option may not be less than 100% of the fair market value of the common
stock on the date the option is granted and the options generally have a maximum term of ten years from the date of
grant. Generally, options granted to employees under the 2007 Plan vest 25% one year after the grant date and thereafter
ratably each month over the following thirty-six months. Generally, RSUs granted to employees vest 25% each year
beginning one year after the grant date. Option and RSU grants to non-employee members of our board of directors vest
over one year. The vesting of performance-based awards generally includes vesting upon achievement of pre-determined
milestones or metrics and, in some cases, vesting upon achievement of pre-determined milestones or metrics in addition
to the passage of time.
The 2007 Plan provides for (i) the full acceleration of vesting of equity awards upon a change in control if the
successor company does not assume, substitute or otherwise replace the equity awards upon the change in control; and
(ii) the full acceleration of vesting of any equity awards if at the time of, immediately prior to or within twelve months
after a change in control of the Company, the holder of such equity awards is involuntarily terminated without cause or is
constructively terminated by the successor company that assumed, substituted or otherwise replaced such stock awards in
connection with the change in control.
119
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
Share-based compensation expense
We recorded total share-based compensation expense of $127.3 million, $78.9 million, and $63.8 million for the
years ended December 31, 2019, 2018, and 2017, respectively, including share-based compensation expense associated
with our LTIPs. No tax benefit was recognized related to share-based compensation expense since we have not reported
taxable income to date and have established a valuation allowance to offset all of the potential tax benefits associated
with its deferred tax assets.
Valuation assumptions
We calculate the fair value of each option award on the date of grant using the Black-Scholes option pricing
model. The following weighted-average assumptions were used for the periods indicated:
2007 Plan
Years ended December 31,
Employee Stock Purchase Plan
Years ended December 31,
2019
2018
2017
2019
2018
2017
Risk-free interest rate . .
Expected lives in years .
Expected dividends . . .
Expected volatility . . . .
1.5%
5.6
0%
44%
2.8%
5.6
0%
42%
1.8%
5.7
0%
42%
2.2%
0.5
0%
43%
1.7%
0.5
0%
36%
0.8%
0.5
0%
46%
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected
life of the award. Our computation of expected life was determined based on our historical experience with similar
awards, giving consideration to the contractual terms of the share-based awards, vesting schedules and expectations of
future employee behavior. A forfeiture rate is estimated at the time of grant to reflect the amount of awards that are
granted but are expected to be forfeited by the award holder prior to vesting. The estimated forfeiture rate applied to
these amounts is derived from historical stock award forfeiture behavior. We have never paid cash dividends and do not
currently intend to pay cash dividends. Our computation of expected volatility is based on the historical volatility of our
stock price.
The fair value of RSUs is determined based on the closing price of our common stock on the date of grant.
Stock option activity
A summary of stock option activity is as follows:
Balance at December 31, 2018 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/expired . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2019 . . . . . . . . . . . . . . . . .
Expected to vest . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercisable . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
$
10,875,112
1,495,541
$
(2,432,550) $
(377,593) $
$
9,560,510
$
9,242,994
$
5,951,964
Weighted-
average
exercise price
per share
Weighted-
average
remaining
contractual term
(in years)
Aggregate
intrinsic value
(in thousands)
41.03
72.29
31.88
56.77
47.62
47.00
38.56
6.21
6.12
4.85
$
$
$
637,096
621,676
450,550
The weighted average grant-date fair values of options granted with exercise prices equal to market were $30.51,
$30.77, and $20.34 for the years ended December 31, 2019, 2018, and 2017, respectively.
120
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the
underlying options and the quoted price of our common stock for all options that were in-the-money at December 31,
2019. The aggregate intrinsic value of options exercised was $128.4 million during 2019, $73.3 million during 2018, and
$52.9 million during 2017, determined as of the date of option exercise. As of December 31, 2019, there was
approximately $45.8 million of total unrecognized compensation cost related to unvested options, as adjusted for
expected forfeitures. That cost is expected to be recognized over a weighted-average period of 1.34 years. We utilize
newly issued shares to satisfy option exercises.
RSU activity
A summary of RSU activity, excluding performance-based RSUs, is as follows:
Non-vested at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share
equivalent
$
2,680,241
1,474,456
$
(896,800) $
(266,335) $
$
2,991,562
Weighted-
average
grant date
fair value
59.11
75.58
53.69
61.22
68.66
The weighted average grant-date fair values of RSUs granted were $75.58, $70.78, and $50.12 for the years ended
December 31, 2019, 2018, and 2017, respectively. The total fair value of RSUs that vested during 2019, 2018, and 2017
(measured on the date of vesting) was $67.1 million, $42.4 million, and $27.5 million, respectively. As of December 31,
2019, there was approximately $103.7 million of total unrecognized compensation cost related to non-vested RSU
awards, as adjusted for expected forfeitures. That cost is expected to be recognized over a weighted-average period of
1.60 years. We utilize newly issued shares for RSUs that vest.
LTIP equity activity
We have various LTIPs, which contain performance-based equity compensation.
During 2018, an LTIP milestone was achieved related to the FDA approval of an ADCETRIS indication, which
triggered a cash payment to eligible participants and commenced vesting of stock options related to that LTIP. The
vesting for that LTIP is now time-based and is included in the “Stock option activity” table above.
During 2019, an LTIP milestone was achieved related to the FDA approval of PADCEV based on our EV-201
trial, which triggered a cash payment to eligible participants and an RSU grant to certain eligible participants. The
vesting of grants made under that LTIP is now time-based and is included in the “RSU activity” table above.
A summary of RSU activity related to the LTIPs is as follows:
Non-vested at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share
equivalent
239,817
405,523
$
$
— $
(28,697) $
$
616,643
Weighted-
average
grant date
fair value
58.14
114.26
—
58.14
95.05
As of December 31, 2019, the estimated unrecognized compensation cost related to all LTIPs was approximately
$79 million.
121
Seattle Genetics, Inc.
Notes to Consolidated Financial Statements (Continued)
Employee Stock Purchase Plan
Under the current terms of the Amended and Restated 2000 Employee Stock Purchase Plan, or the Employee
Stock Purchase Plan, employees can purchase shares of our common stock based on a percentage of their compensation
subject to certain limits. In May 2019, our stockholders approved an increase of 1,000,000 shares in the number of shares
of common stock authorized for issuance under the Employee Stock Purchase Plan. Shares are purchased at the lower of
85 percent of the fair market value of our common stock on either the first day or the last day of each six-month offering
period. Share issuance activity under the Employee Stock Purchase Plan is disclosed in our consolidated statements of
stockholders’ equity.
17. Employee benefit plan
We have a 401(k) Plan for all of our U.S. employees. Eligible employees may contribute through payroll
deductions, and we may match the employees’ 401(k) contributions, at our discretion and not to exceed a prescribed
annual limit. Under this matching program, we contributed $11.9 million in 2019, $7.7 million in 2018, and $5.7 million
in 2017.
18. Quarterly financial data (unaudited)
The unaudited quarterly financial information should be read in conjunction with our financial statements and
related notes included elsewhere in this report. We believe that the following unaudited information reflects all normal
recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results
for any quarter are not necessarily indicative of results for any future period. The following table contains selected
unaudited financial data for each of the indicated periods:
Three months ended
(dollars in thousands, except per share data)
March 31,
June 30,
September 30,
December 31,
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share - basic . . . . . . . . . . . . . . . . .
Net income (loss) per share - diluted. . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share - basic . . . . . . . . . . . . . . . . .
Net income (loss) per share - diluted. . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
$
195,199
$
(13,329) $
(0.08) $
(0.08) $
140,590
$
(111,715) $
(0.73) $
(0.73) $
2019
218,447
$
(79,238) $
(0.49) $
(0.49) $
2018
$
$
$
$
170,173
76,273
0.48
0.47
213,263
$
(91,913) $
(0.55) $
(0.55) $
289,804
25,830
0.15
0.14
169,424
$
(67,446) $
(0.42) $
(0.42) $
174,513
(119,805)
(0.75)
(0.75)
122
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
a. Evaluation of disclosure controls and procedures. Our Chief Executive Officer and our Chief Financial Officer
have evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended) prior to the filing of this annual report. Based on that evaluation, they have
concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures
were, in design and operation, effective at the reasonable assurance level.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Because of inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an
organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide
reasonable, not absolute, assurance that the objectives of our disclosure control system are met.
b. Changes in internal control over financial reporting. There have not been any changes in our internal control
over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
c. Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule
13a-15(f) under the Securities Exchange Act of 1934, as amended. Our management conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on its evaluation under the framework in Internal Control—Integrated Framework, our
management concluded that our internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is
included in Item 8 in this Annual Report on Form 10-K.
Item 9B. Other Information
None.
123
PART III
The information required by Part III is omitted from this report because we will file a definitive proxy statement
within 120 days after the end of our 2019 fiscal year pursuant to Regulation 14A for our 2020 Annual Meeting of
Stockholders, or the 2020 Proxy Statement, and the information to be included in the 2020 Proxy Statement is
incorporated herein by reference.
Item 10. Directors, Executive Officers and Corporate Governance
1. The information required by this Item concerning our executive officers and our directors and nominees for
director, including information with respect to our audit committee and audit committee financial expert, may
be found under the section entitled “Proposal No. 1—Election of Directors” appearing in the 2020 Proxy
Statement. Such information is incorporated herein by reference.
2. The information required by this Item concerning our code of ethics may be found under the section entitled
“Proposal No. 1—Election of Directors—Corporate Governance—Code of Conduct and Business Ethics”
appearing in the 2020 Proxy Statement. Such information is incorporated herein by reference.
3. The information required by this Item concerning compliance with Section 16(a) of the Securities Exchange Act
of 1934 may be found in the section entitled “Delinquent Section 16(a) Reports” appearing in the 2020 Proxy
Statement. Such information is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item may be found under the sections entitled “Proposal No. 1—Election of
Directors—Director Compensation” and “Compensation of Executive Officers” appearing in the 2020 Proxy Statement.
Such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
1. The information required by this Item with respect to security ownership of certain beneficial owners and
management may be found under the section entitled “Security Ownership of Certain Beneficial Owners and
Management” appearing in the 2020 Proxy Statement. Such information is incorporated herein by reference.
2. The information required by this Item with respect to securities authorized for issuance under our equity
compensation plans may be found under the sections entitled “Equity Compensation Plan Information”
appearing in the 2020 Proxy Statement. Such information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
1. The information required by this Item concerning related party transactions may be found under the section
entitled “Certain Relationships and Related Party Transactions” appearing in the 2020 Proxy Statement. Such
information is incorporated herein by reference.
2. The information required by this Item concerning director independence may be found under the section
entitled “Proposal No. 1—Election of Directors—Corporate Governance—Director Independence” appearing in
the 2020 Proxy Statement. Such information is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this Item may be found under the section entitled “Proposal No. 4—Ratification of
Appointment of Independent Registered Public Accounting Firm” appearing in the 2020 Proxy Statement. Such
information is incorporated herein by reference.
124
Item 15. Exhibits, Financial Statement Schedules
1. The following documents are filed as part of this report:
PART IV
a. Financial Statements and Report of Independent Registered Public Accounting Firm
b. Financial Statement Schedules have been omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes thereto.
c. Exhibits are incorporated herein by reference or are filed with this report as indicated below (numbered
in accordance with Item 601 of Regulation S-K).
2. Exhibits
Exhibit
Number
2.1†**
2.2**
3.1
3.2
3.3
4.1+
4.2
4.3
4.4
10.1+†
10.2†
10.3†
10.4†
10.5†
10.6
10.7
10.8
Exhibit Description
Asset Purchase Agreement, dated July 31, 2017, between
Bristol-Myers Squibb Company and Seattle Genetics, Inc
Agreement and Plan of Merger, dated January 30, 2018,
among Seattle Genetics, Inc., Valley Acquisition Sub, Inc.
and Cascadian Therapeutics, Inc.
Fourth Amended and Restated Certificate of Incorporation
of Seattle Genetics, Inc.
Certificate of Amendment of Fourth Amended and
Restated Certificate of Incorporation of Seattle Genetics,
Inc.
Amended and Restated Bylaws of Seattle Genetics, Inc.
Description of Securities of Seattle Genetics, Inc.
Specimen Stock Certificate.
Investor Rights Agreement dated July 8, 2003
among Seattle Genetics, Inc. and certain of its
stockholders.
Registration Rights Agreement, dated September 10, 2015,
by and between Seattle Genetics, Inc. and the persons
listed on Schedule A attached thereto.
Collaboration Agreement between Seattle Genetics, Inc.
and Millennium Pharmaceuticals, Inc. (a wholly-owned
subsidiary of Takeda Pharmaceutical Company Limited)
dated December 14, 2009.
Collaboration and License Agreement dated January 7,
2007 between Seattle Genetics, Inc. and Agensys, Inc.
Amendment to the Collaboration and License Agreement
between Seattle Genetics, Inc. and Agensys, Inc. dated
effective November 20, 2009.
Joint Commercialization Agreement dated October 20,
2018 between Seattle Genetics, Inc. and Agensys, Inc.
License and Collaboration Agreement, effective October 7,
2011, between Genmab A/S and Seattle Genetics, Inc
License Agreement dated March 30, 1998 between Seattle
Genetics, Inc. and Bristol-Myers Squibb Company.
Amendment Letter to the Bristol-Myers Squibb Company
License Agreement dated July 29, 1999 between Seattle
Genetics, Inc. and Bristol-Myers Squibb Company.
Amendment Agreement to the Bristol-Myers Squibb
Company License Agreement dated July 26, 2000 between
Seattle Genetics, Inc. and Bristol-Myers Squibb Company.
Incorporation By Reference
Form
SEC File No.
10-Q/A 000-32405
Exhibit
2.1
Filing Date
4/13/2018
8-K
000-32405
2.1
1/31/2018
10-Q
000-32405
8-K
000-32405
8-K
—
000-32405
—
S-1/A 333-50266
000-32405
10-Q
3.1
3.3
3.1
—
4.1
4.3
11/7/2008
5/26/2011
1/16/2020
—
2/8/2001
11/7/2008
8-K
000-32405
10.1
9/11/2015
—
—
—
—
10-Q
000-32405
10.1
5/8/2007
10-K
000-32405
10.49
3/12/2010
10-Q
000-32405
10.1
7/16/2019
10-Q/A 000-32405
10.3
4/13/2018
10-K/A 000-32405
10.1
11/26/2010
10-K/A 000-32405
10.2
11/26/2010
S-1/A 333-50266
10.7
12/5/2000
125
Exhibit
Number
10.9†
10.10
10.11
10.12†
10.13
10.14†
10.15†
10.16†
10.17†
10.18
10.19†
10.20†
10.21†
10.22†
10.23†
10.24†
10.25†
10.26†
Exhibit Description
Amendment to License Agreement to the Bristol-Myers
Squibb Company License Agreement dated December 18,
2015 between Seattle Genetics, Inc. and Bristol-Myers
Squibb Company.
License Agreement dated September 20, 1999 between
Seattle Genetics, Inc. and the University of Miami.
Amendment No. 1 to the University of Miami License
Agreement dated August 4, 2000 between Seattle Genetics,
Inc. and the University of Miami.
Letter Agreement Regarding Royalty between the
University of Miami and Seattle Genetics, Inc. dated
April 11, 2016
License Agreement between Cascadian Therapeutics, Inc.
and Array BioPharma Inc. dated December 11, 2014.
Commercial Supply Agreement dated December 1, 2010
between Seattle Genetics, Inc. and SAFC, an operating
division of Sigma-Aldrich, Inc.
First Amendment to Commercial Supply Agreement
effective as of January 20, 2014 between Seattle Genetics,
Inc. and SAFC, an operating division of Sigma-Aldrich,
Inc.
Second Amendment to Commercial Supply Agreement
effective as of December 2, 2016 between Seattle Genetics,
Inc. and SAFC, an operating division of Sigma-Aldrich,
Inc.
Third Amendment to Commercial Supply Agreement
effective as of July 1, 2019 between Seattle Genetics, Inc.
and SAFC, an operating division of Sigma-Aldrich, Inc.
Development and Supply Agreement dated February 23,
2004 between Seattle Genetics, Inc. and Abbott
Laboratories.
First Amendment to Development and Supply Agreement
dated April 17, 2008 between Seattle Genetics, Inc. and
Abbott Laboratories, Inc.
Second Amendment to Development and Supply
Agreement dated June 15, 2009 between Seattle Genetics,
Inc. and Abbott Laboratories, Inc.
Third Amendment to Development and Supply Agreement
dated November 5, 2009 between Seattle Genetics, Inc.
and Abbott Laboratories, Inc.
Fourth Amendment to Development and Supply Agreement
dated April 18, 2010 between Seattle Genetics, Inc. and
Abbott Laboratories, Inc.
Fifth Amendment to Development and Supply Agreement
dated August 24, 2010 between Seattle Genetics, Inc. and
Abbott Laboratories, Inc.
Sixth Amendment to Development and Supply Agreement
dated November 18, 2010 between Seattle Genetics, Inc.
and Abbott Laboratories, Inc.
Seventh Amendment to Development and Supply
Agreement dated January 2, 2013 between Seattle
Genetics, Inc. and Abbott Laboratories, Inc.
Eighth Amendment to Development and Supply Agreement
dated July 7, 2015 between Seattle Genetics, Inc. and
AbbVie Inc. (formerly part of Abbott Laboratories, Inc.).
126
Incorporation By Reference
Form
10-K
SEC File No.
000-32405
Exhibit
10.4
Filing Date
2/19/2016
10-K/A 000-32405
10.6
11/26/2010
10-K/A 000-32405
10.7
11/26/2010
10-Q
000-32405
10.1
7/26/2016
10-Q
000-32405
10.1
4/26/2018
10-Q
000-32405
10.1
11/4/2011
10-K
000-32405
10.17
2/21/2017
10-K
000-32405
10.18
2/21/2017
10-Q
000-32405
10.20
10/30/2019
10-K
000-32405
10.15
2/27/2015
10-Q
000-32405
10.1
8/8/2008
10-Q
000-32405
10.4
11/4/2011
10-Q
000-32405
10.5
11/4/2011
10-Q
000-32405
10.6
11/4/2011
10-Q
000-32405
10.7
11/4/2011
10-Q
000-32405
10.8
11/4/2011
10-K
000-32405
10.42
2/27/2013
10-Q
000-32405
10.2
7/30/2015
Exhibit
Number
10.27†
10.28†
10.29+††
10.30†
10.31
10.32
10.33†
10.34†
10.35†
10.36†
10.37†
10.38†
10.39
10.40*
10.41*
10.42*
10.43*
10.44*
Exhibit Description
Ninth Amendment to Development and Supply Agreement,
effective as of August 28, 2016 between Seattle Genetics,
Inc. and AbbVie Inc. (formerly part of Abbott Laboratories,
Inc.).
Tenth Amendment to Development and Supply Agreement,
effective as of December 26, 2016 between Seattle
Genetics, Inc. and AbbVie, Inc. (formerly part of Abbott
Laboratories, Inc.).
Eleventh Amendment to Development and Supply
Agreement effective July 12, 2018 between Seattle
Genetics, Inc. and AbbVie Inc. (formerly part of Abbott
Laboratories, Inc.).
Twelfth Amendment to Development and Supply
Agreement, effective as of April 25, 2019 between Seattle
Genetics, Inc. and AbbVie, Inc. (formerly part of Abbott
Laboratories, Inc.).
Lease Agreement dated December 1, 2000 between Seattle
Genetics, Inc. and WCM 132-302, LLC.
First Amendment to Lease dated May 28, 2003 between
Seattle Genetics, Inc. and B&N 141-302, LLC.
Second Amendment to Lease dated July 1, 2008 between
Seattle Genetics, Inc. and B&N 141-302, LLC.
Third Amendment to Lease dated May 9, 2011 between
Seattle Genetics, Inc. and B&N 141-302, LLC.
Fourth Amendment to Lease dated October 24, 2017
between Seattle Genetics, Inc. and SNH Medical Office
Properties Trust, as successor in interest to B&N 141-302,
LLC.
Office Lease dated May 9, 2011 between Seattle Genetics,
Inc. and WCM Highlands II, LLC.
First Amendment to Office Lease dated October 24, 2017
between Seattle Genetics, Inc. and SNH Medical Office
Properties Trust, as successor in interest to WCM
Highlands II, LLC.
Purchase Agreement, dated June 16, 2017, between
BMR-3450 Monte Villa Parkway, LLC and ZymoGenetics,
Inc
Assignment and Assumption of Purchase Agreement, dated
July 30, 2017, between ZymoGenetics, Inc. and Seattle
Genetics, Inc.
Form of Indemnification Agreement between Seattle
Genetics, Inc. and each of its officers and directors.
Amended and Restated Employment Agreement dated
October 25, 2018, between Seattle Genetics, Inc. and Clay
Siegall.
Amended and Restated Employment Agreement dated
October 25, 2018, between Seattle Genetics, Inc. and Todd
Simpson.
Amended and Restated Employment Agreement dated
October 25, 2018, between Seattle Genetics, Inc. and
Roger Dansey.
Amended and Restated Employment Agreement dated
October 25, 2018, between Seattle Genetics, Inc. and
Vaughn Himes.
Incorporation By Reference
Form
10-Q
SEC File No.
000-32405
Exhibit
10.1
Filing Date
10/27/2016
10-K
000-32405
10.29
2/21/2017
—
—
—
—
10-Q
000-32405
10.2
7/16/2019
S-1/A 333-50266
10.21
1/4/2001
10-Q
333-50266
10.1
8/12/2003
10-Q
000-32405
10.1
11/7/2008
10-Q
000-32405
10.2
8/5/2011
10-K
000-32405
10.12
02/15/2018
10-Q
000-32405
10.1
8/5/2011
10-K
000-32405
10.14
2/15/2018
10-Q
000-32405
10.1
11/6/2017
10-Q
000-32405
10.2
11/6/2017
S-1/A 333-50266
10.29
1/4/2001
10-Q
000-32405
10.1
10/26/2018
10-Q
000-32405
10.2
10/26/2018
10-Q
000-32405
10.3
10/26/2018
10-Q
000-32405
10.4
10/26/2018
127
Exhibit
Number
10.45*
10.46*
10.47*
10.48*
10.49*
10.50*
10.51*
10.52*
10.53*
10.54*
10.55*
10.56*
10.57*
10.58*
10.59*
10.60*
10.61*
10.62*
10.63*
10.64*
10.65*
Exhibit Description
Amended and Restated Employment Agreement dated
October 25, 2018, between Seattle Genetics, Inc. and
Darren Cline.
Amended and Restated Employment Agreement dated
October 25, 2018, between Seattle Genetics, Inc. and Jean
Liu.
Employment Agreement, dated May 20, 2019, between
Seattle Genetics, Inc. and Robin Taylor.
Seattle Genetics, Inc. Amended and Restated 1998 Stock
Option Plan, effective as of August 5, 2009.
Seattle Genetics, Inc. 2000 Directors’ Stock Option Plan, as
amended February 5, 2010.
Seattle Genetics, Inc. Amended and Restated 2007 Equity
Incentive Plan, effective as of May 18, 2012.
Seattle Genetics, Inc. Amended and Restated 2007 Equity
Incentive Plan, effective as of May 16, 2014.
Seattle Genetics, Inc. Amended and Restated 2007 Equity
Incentive Plan, effective as of May 20, 2016.
Seattle Genetics, Inc. Amended and Restated 2007 Equity
Incentive Plan, effective as of May 18, 2018.
Seattle Genetics, Inc. Long Term Incentive Plan for
ECHELON-1, effective as of May 9, 2016.
Seattle Genetics, Inc. Long Term Incentive Plan for EV and
TV, effective as of September 29, 2017.
Seattle Genetics, Inc. Long Term Incentive Plan for
Tucatinib, effective as of October 24, 2018.
Seattle Genetics, Inc. Senior Executive Annual Bonus Plan,
as amended February 4, 2019
Seattle Genetics, Inc. Amended and Restated 2000
Employee Stock Purchase Plan, effective as of May 20,
2019.
Form Notice of Grant and Stock Option Agreement under
Seattle Genetics, Inc. Amended and Restated 1998 Stock
Option Plan.
Form Notice of Grant and Stock Option Agreement under
Seattle Genetics, Inc. 2000 Directors’ Stock Option Plan.
Form Stock Option Agreement for employees under Seattle
Genetics, Inc. 2007 Equity Incentive Plan.
Form of Notice of Stock Option Grant and Stock
Option Agreement for non-employee directors under the
Amended and Restated 2007 Equity Incentive Plan.
Form of Stock Unit Grant Notice and Stock Unit
Agreement for employees under Seattle Genetics, Inc.
Amended and Restated 2007 Equity Incentive Plan.
Form of Stock Unit Grant Notice and Stock Unit
Agreement for non-employee directors under the Amended
and Restated 2007 Equity Incentive Plan.
Form of Stock Option Agreement for Long Term Incentive
Plan for ECHELON-1 under the Seattle Genetics, Inc.
Amended and Restated 2007 Equity Incentive Plan.
Incorporation By Reference
Form
10-Q
SEC File No.
000-32405
Exhibit
10.5
Filing Date
10/26/2018
10-Q
000-32405
10.6
10/26/2018
10-Q
000-32405
10.3
7/16/2019
10-Q
000-32405
10.1
8/10/2009
10-K
000-32405
10.13
3/12/2010
10-Q
000-32405
10.1
8/8/2012
10-Q
000-32405
10.1
8/8/2014
10-Q
000-32405
10.4
7/26/2016
10-Q
000-32405
10.2
7/26/2018
10-Q
000-32405
10.2
7/26/2016
10-Q
000-32405
10.4
11/6/2017
10-Q
000-32405
10.7
10/26/2018
10-K
000-32405
10.69
02/07/2019
S-8
10-K
333-23239
7
000-32405
99.1
10.11
6/27/2019
3/15/2005
10-K
000-32405
10.12
3/15/2005
10-K
000-32405
10.44
3/13/2009
10-Q
000-32405
10.4
8/5/2011
8-K
000-32405
10.1
8/30/2011
10-K
000-32405
10.33
2/28/2014
10-Q
000-32405
10.3
7/26/2016
128
Exhibit
Number
10.66*
10.67*
10.68*
10.69*
10.70*
10.71*
10.72*
10.73*
10.74*
10.75*
10.76*
10.77*
10.78*
10.79*
10.80*+
Exhibit Description
Form of Notice of Stock Option Grant and Stock Option
Agreement for non-employee directors under the Amended
and Restated 2007 Equity Incentive Plan (approved May
18, 2018).
Form of Stock Unit Grant Notice and Stock Unit
Agreement for non-employee directors under the Amended
and Restated 2007 Equity Incentive Plan (approved May
18, 2018).
Form of Stock Option Agreement for Non-US Participants
under the Amended and Restated 2007 Equity Incentive
Plan (approved May 18, 2018).
Form of Stock Unit Grant Notice and Stock Unit
Agreement for non-US participants under the Amended
and Restated 2007 Equity Incentive Plan (approved May
18, 2018).
Form of Performance-Based Stock Option Agreement for
employees under Seattle Genetics, Inc. 2007 Equity
Incentive Plan (approved May 18, 2018).
Form of Time-Based Stock Option Agreement for
employees under Seattle Genetics, Inc. 2007 Equity
Incentive Plan (approved May 18, 2018).
Form of Performance-Based Stock Unit Grant Notice and
Stock Unit Agreement for employees under Seattle
Genetics, Inc. Amended and Restated 2007 Equity
Incentive Plan (approved May 18, 2018).
Form of Time-Based Stock Unit Grant Notice and Stock
Unit Agreement for employees under Seattle Genetics, Inc.
Amended and Restated 2007 Equity Incentive Plan
(approved May 18, 2018).
Form of Stock Option Agreement for U.S. Participants
under the Seattle Genetics, Inc. Amended and Restated
2007 Equity Incentive Plan (approved August 30, 2018).
Form of Stock Option Agreement for non-US Participants
under the Seattle Genetics, Inc. Amended and Restated
2007 Equity Incentive Plan (approved August 30, 2018).
Form of Performance-Based Stock Unit Agreement for
U.S. Participants under the Seattle Genetics, Inc. Amended
and Restated 2007 Equity Incentive Plan (approved August
30, 2018).
Form of Stock Unit Grant Notice and Stock Unit
Agreement for US Participants under the Seattle Genetics,
Inc. Amended and Restated 2007 Equity Incentive Plan
(approved October 24, 2018).
Form of Stock Unit Grant Notice and Stock Unit
Agreement for non-US Participants under the Seattle
Genetics, Inc. Amended and Restated 2007 Equity
Incentive Plan (approved October 24, 2018).
Form of Performance-Based Stock Unit Grant Notice and
Stock Unit Agreement under the Seattle Genetics, Inc.
Amended and Restated 2007 Equity Incentive Plan
(approved August 26, 2019).
Form of Stock Option Agreement for U.S. Participants
under the Seattle Genetics, Inc. Amended and Restated
2007 Equity Incentive Plan (approved December 19,
2019).
129
Incorporation By Reference
Form
10-Q
SEC File No.
000-32405
Exhibit
10.3
Filing Date
7/26/2018
10-Q
000-32405
10.4
7/26/2018
10-Q
000-32405
10.5
7/26/2018
10-Q
000-32405
10.6
7/26/2018
10-Q
000-32405
10.7
7/26/2018
10-Q
000-32405
10.8
7/26/2018
10-Q
000-32405
10.9
7/26/2018
10-Q
000-32405
10.10
7/26/2018
10-Q
000-32405
10.8
10/26/2018
10-Q
000-32405
10.9
10/26/2018
10-Q
000-32405
10.10
10/26/2018
10-Q
000-32405
10.11
10/26/2018
10-Q
000-32405
10.12
10/26/2018
10-Q
000-32405
10.1
10/30/2019
—
—
—
—
Exhibit
Number
10.81*+
10.82*+
10.83*+
10.84*+
10.85*+
10.86*+
10.87*+
10.88*+
21.1+
23.1+
31.1+
31.2+
32.1+
32.2+
101
104
Exhibit Description
Form of Stock Option Agreement for Non-US Participants
under the Seattle Genetics, Inc. Amended and Restated
2007 Equity Incentive Plan (approved December 19,
2019).
Form of Time-Based Stock Unit Grant Notice and Stock
Unit Agreement for employees under Seattle Genetics, Inc.
Amended and Restated 2007 Equity Incentive Plan
(approved December 19, 2019).
Form of Stock Unit Grant Notice and Stock Unit
Agreement for non-US Participants under the Seattle
Genetics, Inc. Amended and Restated 2007 Equity
Incentive Plan (approved December 19, 2019).
Form of Performance-Based Stock Unit Agreement for
U.S. Participants under the Seattle Genetics, Inc. Amended
and Restated 2007 Equity Incentive Plan (approved
December 19, 2019).
Form of Stock Unit Grant Notice for US Participants Long
Term Incentive Plan for EV and TV (approved December
19, 2019).
Form of Stock Unit Grant Notice for Non-US Participants
Long Term Incentive Plan for EV and TV (approved
December 19, 2019).
Form of Performance-Based Stock Unit Notice and Stock
Unit Agreement for U.S. Participants under the Seattle
Genetics, Inc. Amended and Restated 2007 Equity
Incentive Plan (approved December 24, 2019).
Form of Performance-Based Stock Unit Notice and Stock
Unit Agreement for Non-U.S. Participants under the Seattle
Genetics, Inc. Amended and Restated 2007 Equity
Incentive Plan (approved December 24, 2019).
Subsidiaries of Seattle Genetics, Inc.
Consent of Independent Registered Public Accounting
Firm
Certification of Chief Executive Officer pursuant to Rule
13a-14(a).
Certification of Chief Financial Officer pursuant to Rule
13a-14(a).
Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350.
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350.
The following financial statements from the Company's
Annual Report on Form 10-K for the year ended December
31, 2019, formatted in Inline XBRL: (i) Consolidated
Balance Sheets, (ii) Consolidated Statements of
Comprehensive Loss, (iii) Consolidated Statements of
Stockholders' Equity, (iv) Consolidated Statements of Cash
Flows, and (v) Notes to Consolidated Financial Statements,
tagged as blocks of text and including detailed tags.
Cover Page Interactive Data File (formatted as Inline
XBRL and contained in Exhibit 101)
Incorporation By Reference
Form
SEC File No.
Exhibit
Filing Date
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130
+
†
††
*
**
Filed herewith.
Pursuant to a request for confidential treatment, portions of this Exhibit have been redacted from the
publicly filed document and have been furnished separately to the Securities and Exchange Commission
as required by Rule 24b-2 under the Securities Exchange Act of 1934.
Certain confidential information contained in this Exhibit, marked by brackets in the Exhibit, has been
omitted, because it is both not material and would likely cause competitive harm if publicly disclosed.
Indicates a management contract or compensatory plan or arrangement.
Schedules have been omitted pursuant to Item 601(b)(2) of Regulations S-K. The registrant will furnish
copies of any such schedules to the Securities and Exchange Commission upon request.
Item 16. Form 10-K Summary
None.
131
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SEATTLE GENETICS, INC.
Date: February 6, 2020
By:
/S/ CLAY B. SIEGALL
Clay B. Siegall
President & Chief Executive Officer
(Principal Executive Officer)
Date: February 6, 2020
By:
/S/ TODD E. SIMPSON
Todd E. Simpson
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/S/ CLAY B. SIEGALL
Clay B. Siegall
/S/ TODD E. SIMPSON
Todd E. Simpson
Title
Date
Director, President & CEO (Principal Executive Officer)
February 6, 2020
Chief Financial Officer (Principal Financial and Accounting Officer) February 6, 2020
/S/ SRINIVAS AKKARAJU
Srinivas Akkaraju
Director
/S/ FELIX J. BAKER
Felix J. Baker
Director
/S/ DAVID W. GRYSKA
David W. Gryska
Director
/S/ MARC E. LIPPMAN
Marc E. Lippman
Director
/S/ JOHN A. ORWIN
John A. Orwin
/S/ Alpna Seth
Alpna Seth
Director
Director
/S/ NANCY A. SIMONIAN
Nancy A. Simonian
Director
/S/ DANIEL G. WELCH
Daniel G. Welch
Director
132
February 6, 2020
February 6, 2020
February 6, 2020
February 6, 2020
February 6, 2020
February 6, 2020
February 6, 2020
February 6, 2020
Exhibit 31.1
I, Clay B. Siegall, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Seattle Genetics, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
By:
/s/ Clay B. Siegall
Clay B. Siegall
Chief Executive Officer
(Principal Executive Officer)
Date: February 6, 2020
Exhibit 31.2
I, Todd E. Simpson, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Seattle Genetics, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
By:
/s/ Todd E. Simpson
Todd E. Simpson
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 6, 2020
SEATTLE GENETICS, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Seattle Genetics, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Clay B.
Siegall, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
By:
/s/ Clay B. Siegall
Clay B. Siegall
Chief Executive Officer
(Principal Executive Officer)
Date: February 6, 2020
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing of Seattle Genetics, Inc. under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K),
irrespective of any general incorporation language contained in such filing.
SEATTLE GENETICS, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Seattle Genetics, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Todd E.
Simpson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
By:
/s/ Todd E. Simpson
Todd E. Simpson
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 6, 2020
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing of Seattle Genetics, Inc. under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K),
irrespective of any general incorporation language contained in such filing.
C ORPORATE INFORMATION
EXECUTIVE MANAGE ME NT
Clay B. Siegall, Ph.D.
President, Chief Executive Officer and Chairman of the Board
Roger D. Dansey, M.D.
Chief Medical Officer
Vaughn B. Himes, Ph.D.
Chief Technical Officer
Todd E. Simpson
Chief Financial Officer
Jean I. Liu, J.D.
General Counsel, Executive Vice President, Legal Affairs
Christopher P. Pawlowicz
Executive Vice President, Human Resources
Rachel P. Lenington
Senior Vice President, Program and Portfolio Management
Natasha A. Hernday
Senior Vice President, Corporate Development
BOARD OF DIREC TORS
Clay B. Siegall, Ph.D.
President, Chief Executive Officer and Chairman of the Board,
Seattle Genetics, Inc.
Srinivas Akkaraju, M.D., Ph.D.
Managing General Partner, Samsara BioCapital
Felix J. Baker, Ph.D.
Co-Managing Member, Baker Brothers Advisors
David W. Gryska
Former Executive Vice President and Chief Financial Officer,
Incyte Corporation
Marc E. Lippman, M.D.
Professor of Oncology at Georgetown University Medical Center’s
Lombardi Comprehensive Cancer Center
John A. Orwin
President and Chief Executive Officer, Atreca
Alpna H. Seth, Ph.D.
President and Chief Executive Officer, Proneurotech
Nancy A. Simonian, M.D.
Chief Executive Officer, Syros Pharmaceuticals
Daniel G. Welch
Biotechnology Advisor; former Executive Partner of Sofinnova Ventures
C ORP O RAT E HE AD QU A RTE RS
Seattle Genetics, Inc.
21823 30th Drive Southeast
Bothell, WA 98021
(425) 527-4000
WE BS ITE
www.seattlegenetics.com
TRA N SF ER A GE NT & REGI ST RA R
Computershare
P.O. BOX 505000
Louisville, KY 40233
(877) 419-8489
www.computershare.com/investor
L EGA L CO U NS E L
Cooley LLP
Seattle, Washington
IN D EP EN D EN T A UD IT ORS
PricewaterhouseCoopers LLP
Seattle, Washington
ST O CK L IST IN G
The Company’s common stock is traded
on the Nasdaq Global Select Market under
the symbol SGEN.
ST O CK HO L DE R INQU IRIE S
Communications regarding transfer
requirements, lost stock certificates or changes
of address should be directed to our Transfer
Agent and Registrar. Inquiries regarding the
Company and its activities, or requests for
a copy of financial documents, such as this
annual report and the Form 10-K, may be
directed to the Corporate Secretary or the
Investor Relations department at our corporate
headquarters.
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seattlegenetics.com Nasdaq: SGEN
@SeattleGenetics
Find us on LinkedIn
FORWARD-LOOKING STATEMENTS This 2019 Annual Report, including Seattle Genetics’ Annual Report on Form 10-K for the year ended December 31, 2019 included with the 2019 Annual
Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as those, among
others, relating to the Company’s 2020 outlook, the Company’s potential to achieve the noted development and regulatory milestones in 2020 and future periods, the Company’s potential
to bring a third product to market in the United States and other countries and effectively commercialize the Company’s products; anticipated activities related to the Company’s planned
and ongoing clinical trials, including clinical trial initiation, enrollment and data availability and the expected timing thereof, including with respect to innovaTV 204, EV-301, EV-302, HER-
2CLIMB-02, MOUNTAINEER and other clinical trials; the potential for the Company’s clinical trials to support further development, regulatory submissions and potential marketing approvals;
the opportunities for, and the therapeutic and commercial potential of ADCETRIS, PADCEV, tucatinib, and tisotumab vedotin and the Company’s other product candidates and those of its
licensees and collaborators; as well as other statements that are not historical facts. Actual results or developments may differ materially from those projected or implied in these forward-look-
ing statements. Factors that may cause such a difference include the risks that the Company’s net sales, revenue, expense, and other financial guidance may not be as expected, as well as
risks and uncertainties associated with maintaining or increasing sales of ADCETRIS and PADCEV due to competition, unexpected adverse events, regulatory action, reimbursement, market
adoption by physicians, the impacts of the COVID-19 pandemic or other factors. The Company may also be delayed in its planned clinical trial initiations, enrollment in and conduct of its
clinical trials, obtaining data from clinical trials, planned regulatory submissions, regulatory approvals and launch in each case for a variety of reasons including the difficulty and uncertainty of
pharmaceutical product development, the impacts of the COVID-19 pandemic, negative or disappointing clinical trial results, unexpected adverse events or regulatory discussions or actions
and the inherent uncertainty associated with the regulatory approval process and the pricing and reimbursement process when applicable. Seattle Genetics discusses many of these risks,
uncertainties and other factors in greater detail under the heading “Item 1A-Risk Factors” in its Annual Report on Form 10-K for the year ended December 31, 2019 included with this 2019
Annual Report. Seattle Genetics disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise
except as required by applicable law.
©2020 Seattle Genetics, Inc. ADCETRIS, PADCEV, Seattle Genetics, and SeaGen Secure, and their respective logos, are trademarks of Seattle Genetics, Inc. All other trademarks are the
property of their respective owners.